Chapter 1

INTRODUCTION

The money you earn is partly spent and the rest saved for meeting

future expenses. Instead of keeping the savings idle you may like to

use savings in order to get return on it in the future, which is known as

'Investment'. There are various investment avenues such as Equity,

Bonds, Insurance, Bank Deposit etc. A Portfolio is a combination of

different investment assets mixed and matched for the purpose of

achieving an investor's goal.

The two key aspects of investment are time and risk. Sacrifice takes

place now and is certain. Benefit is expected in the future and tends to

be uncertain. In some investments (like stock options) risk element is

dominant attribute and in some investment (like govt. bonds) time is

dominant attribute .There are various factors which affects investors'

portfolio such as annual income, government policy, natural

calamities, economical changes etc.

Almost every one owns a portfolio of investments. The portfolio is

likely to comprise financial assets (bank deposits, bonds, stocks, and

so on) and real assets (motorcycle, house, and so on)

The Companies Act 1850, introduced the concept of limited liability

to India, served to stimulate the activity in the stock market. From

then number of acts are passed to boost the revolutionary change. The

global capital market registered spectacular growth in the decade of

1990's which had an effect on the growth of Indian market.

The world market capitalization grew at an average annual rate of

16% during the decade, it grew from about US $ 9.3 trillion in 1990

to about US $ 36 trillion in 2000 but fell to about US $ 28 trillion by

2001.

The turnover on all markets taken together has grown nearly 19 times

from US $ 5.5 trillion in 1990 to US $ 48 trillion in 2000 before

depleting to about US $ 42 trillion in 2001.

The turnover in developed markets has, however, grown more sharply

than that in emerging markets. The US alone accounted for about 70%

of world wide turnover in 2011. Despite having a large number of

companies listed in its stock exchanges, India accounted for a merger

of 59% in 2011 as compared to 1.06% in 2000.

The stock markets world wide has grown in size as well as depth:

since last one decade. During the last decade , the world

market: capitalization/GDP ratio more than doubled from 51% to

120%. Value traded GDP rose from 29% to 103% and turn over ratio

shot up from 48% to 89%. The combined market capitalization of a

select 22 emerging economies increased US $ 339 billion in 2000 to

US $ 2.2 trillion in 2012.

The average market capitalization increased from 3.6% to 7%, Annual

value of shares traded increased from $ 180 billion to $ 2.2 trillion

increased from 16.7% to 45.5%.

For India the total capitalization grew from $ 38,567 million at the

end of 1990 to $ 110,396 million at the end of 2011. Turn-over of

stocks increased from $ 21,198 million in 1990 to $ 249,298 million

in 2011. Market capitalization as a percentage of GDP grew from

12.2% in 1999 to 32.4% in 2011 .while turnover ratio went up from

65.9% in 1999 to 191.4% in 2010. The number of listed companies in

India was 5,975 as at end of 2011. There are very few countries,

which have higher turnover ratio than India. Standard and Poor (SP)

ranked India, 25th in terms of market capitalization, 15th in terms of

total value traded in stock-exchanges and 6th in terms of turn-over

ratio.

Globalization of the financial market has led to a manifold

increase in

investment. New markets have been opened; new instruments

have

been developed new services have been launched.

India has a well established capital market mechanism where in

effective and efficient transfer of money capital or financial

resources

from the -vesting class to the entrepreneur class in the private

and

public sector of the economy occurs. Indian capital market has

a long

history of organized trading which started with the transaction

in loan

stocks of the East India Company from; at time it has

undergone

drastic changes to meet the requirements of the globalization.

The Indian Capital Market had been dormant in the 70's and

80's - 3S

witnessed unprecedented boom during the recent years. There

has

been a shift of household savings from physical assets to

financial

assets, particularly:" i.e. risk bearing securities such as shares

and

debentures. Capital markets 3tructure has also undergone sea

changes

with number of financial services and banking companies,

private

limited companies coming in to the scene which lade the

competition

in the market stiffer.

The Companies Act 1850, introduced the concept of limited

liability

in India, served to stimulate the activity in the stock market.

From

then number of acts are passed to boost the revolutionary

change. The

global capital market registered spectacular growth in the

decade of

1990's which had an effect on the growth of Indian market.

Indian Securities Market

The past decade in many ways has been remarkable for

securities

market in India. It has grown exponentially as measured in

terms of

amount raised from the market, number of stock exchanges

and other

intermediaries, the number of listed stocks, market

capitalization,

trading volumes and turnover on stock exchanges, and investor

population. Along with this growth, the profiles of the investors,

issuers and intermediaries have changed significantly. The

market has

witnessed Fundamental institutional changes resulting in

drastic

reduction in transaction costs and significant improvements in

efficiency, transparency and safety.

Dependence on Securities Market

Three main sets of entities depend on securities market. While

the

corporate and Governments raise resources from the securities

market

to meet their obligations, the households invest their savings in

the

securities. Corporate Sector: The 1990s witnessed emergence

of the

securities market as a major source of finance for trade and

industry.

A growing number of companies are accessing the securities

market

rather than depending on loans from FIls/banks. The corporate

sector

is increasingly depending on external sources for meeting its

funding

requirements.

There appears to be growing preference for direct financing

(equity

and debt) to indirect financing (bank loan) within the external

sources.

OBJECTIVES

Rationale and Scope of study:

Research in behavioural finance is an important application. A better

understanding of behaviour process and outcome is important for financial

planner because an understanding of how investor generally respond to market

movement should help in future investments as advisor devise for appropriate

asset allocation strategies for other investors.

For companies, to identify the most influencing factors on their investor’s

behaviour would affect their future policies and strategies for their future

financial plans.

For government , to identify the most influencing factors on investor’s behaviour

would affect the required legislation and the additional procedure needed in

order to satisfy investor’s desires and also to give more support to market

efficiency i.e. help to SEBI.

The research can help guide portfolio allocation decision both by helping us to

understand the kind of errors that investors tends to make to manage their

portfolio and also allow us to better understand locating the profit opportunities

for investment managers.

It will also help to lay foundations of human behaviour in financial markets to

facilitate the formulation of macroeconomic policy and developing new financial

institutions

Key Objectives:

PRIMARY OBJECTIVES:

To study the various factors influencing the investment behaviour.

SECONDARY OBJECTIVES:

To identify the influence of the accounting information on the

investor’s behaviour.

To interpret the effect of the factors related to personal financial needs

on investor’s behaviour.

To study investment time horizon of investors based on their personal

profile.

To study the investment pattern of the investors based on their risk

taking abilities.

Hypotheses:

NULL HYPOTHESIS (HO):

The hypothesis or assumption about a population parameter we wish to test,

usually an assumption of the status quo.

Ho - The individual investor’s investment behaviour is affected by attitudes &

disposition, barriers, influencers and motivators.

ALTERNATIVE HYPOTHESIS (H1):

The conclusion we accept when the data fail to support the null hypothesis.

H1 - The individual investor’s investment behaviour is not affected by any of the

below:

Attitudes &dispositions

Barriers

Influencers

Motivators

Explanation:

Attitudes & dispositions: overall investor disposition towards investing or

trading in the stock market in the mind of the investor.

Barriers: key obstacles that may hinder investment in stock market.

Influencers: other factors influencing the investment pattern.

Motivators: key constraints that may encourage investment in stock

market.