Chapter First

Nature and Scope of the Study

1.1. Introduction
1.2. Concept and Origin of the Problem
1.3. Importance and Significance of the Study
1.4. Rationale of the study
1.5. Justification of the study
1.6. The Problem definition
1.7. Objectives of the study
1.8. Justification of the Study
1.9. Hypothesis of the Study
1.10. Justification of the Hypothesis
1.11. Scope of the study
1.12. Research Methodology
1.13. Research Design
1.14. Sampling design
1.15. Sample and sample size
1.16. Justification of sample size
1.17. Data Collection
1.18. Sources of data collection
1.18.1. Primary Data
1.18.2. Secondary Data
1.19. Problems faced during data collection
1.20. Scheme of Chapters
1.21. Conclusion
 Chapter First

Nature and Scope of the Study

1.1 Introduction:
Investment is critical factor for the economic and social development of any country.
It channelizes the saving into productive resources which leads to the development of
economy. The material worth of economy is ultimately determined by its productive
capacity and overall productive capacity is largely dependent on investment.
Investment is not only necessary from economic point of view but it also plays a
critical role in enhancement of net worth of individual human being. It can provide
good return and help in enhancement of principal amount if it is done wisely
otherwise it may create the hazards of principal lost.
There are many investment options available in financial market. But the rate of
return and risk associated with each investment option varies. One has to decide
which option is to be chosen, that can give highest return within their accepted level
of risk. It is well known fact that risk and return are directly associated. If one wants
to earn high return, then they have to take high risk. Equity share generally treated as
the high return provider investment option that also associated with high risk. To get
high return, generally investors put their hard earned money in equity share. But the
problem arises at the time of decision making about purchase of share of a particular
company. They may not know about the valuation process and factors affecting share
price of company. Due to lack of knowledge and their existing psychological
perception about share price fluctuations in stock market they usually start taking help
of others for the purchasing shares of a company. It has been observed that mostly the
advice is taken from friends, relatives, colleagues, stock brokers before putting their
hard earned money in share by the investors. But in short run share price may show
downward trend due to volatility in stock market which depends in many factors like
global scenario, economic condition of country, financial situation of company and so
on. The downward situation of stock market leads towards the loss of principal
amount or reduction in the overall value of investment in shorter term. As the stock
market not always remains in the same situation, it shows recovery and appreciation
of price in the longer run. But due to aroused volatility and fluctuation of price in
shorter term create a chaos to those who don’t know about the functioning and

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working of stock market. Hence, the risk adverse psychological thinking and
dependency on others for investment decisions forced investors to pull their hard earn
money from the stock market. It all happens mainly due to dependency on others for
the investment decision making and lack of knowledge about the functioning of stock
market. Due to all of the stated reasons many people think investment in share market
is not reliable and one should not go for this kind of investment option. It’s all created
the misconception and psychological barrier for investment in stock market. This kind
of situation is very dangerous for any country’s economy point of view. So to prevent
this situation it is quite needed to create awareness and enhance the faith of investors
in stock market. It can be possible through the spreading the awareness and
understanding of financial statement as well as valuation procedure of equity share.
To provide the basic idea about the valuation one needs to know what valuation
means.

Therefore, the meaning and definition of valuation is stated as follows:

a. Valuation is an exercise of placing a number (value) for an assets or liability.
When a Business or Shares are transferred from one party to another, it
becomes very important for both the party’s buyer as well as seller to know
about the worth of that particular asset which is being transferred. The process
which is undertaken to know the worth is nothing but the "Valuation". So,
Valuation means finding out the economic worth of something.
b. Stock valuation is the method of calculating theoretical values of
companies and their stocks. The main use of these methods is to predict
future market prices, or more generally, potential market prices. To get profit
from price movement – stocks that are judged undervalued (with respect to
their theoretical value) are bought, while stocks that are judged overvalued are
sold. It exceptionally happens that undervalued stocks will, on the whole, rise
in value, while overvalued stocks will, on the whole, fall.

In simple word Valuation of share means finding the worth of share. It can be
done though the methods or models developed by different expert’s time to time. The
share valuation models are basically developed by experts through observation,
identification and evaluation of common and repetitive phenomena of price changes.
Like any other commodity, companies share price are also dependent on so many

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factors. It is not reasonable and fair to point out only one or two factors which affect
the share price of companies.

So, some of the important factors that have a major bearing on the changing prices of
shares are highlighted as follows:

a. Demand and Supply - This fundamental rule of economics is also fit into
equity market as well. Normally, the price of shares is directly affected by the
trend of demand and supply of shares in stock market. When more people are
buying a particular company’s share, the market price of that share increases
and vice versa i.e. when more people are selling the shares, the price of that
particular share falls.
b. News or information about company: Company’s expansion,
diversification, disinvestment as well as financial performance affect the price
of company’s share. Positive news about a company can increase buying
interest in the market which leads towards the increasing price of share while a
negative press release can ruin the prospect by decreasing the market price of
a company stock.
c. Management of Company: The goodwill and past track record of company
management about the decision making ability in a difficult situation can tell a
lot about the company future to investors and thereby influence their decision
to purchase, sell or hold the shares of a particular company.
d. Economic factor: Overall economic condition of a country along with the
periodical data published by the authorised agency has great influence in share
price of companies. If the country’s economy is passing through the
developing phase, it means there are large potential of investment opportunity
which can provide good return on investment. It leads to high share price in
stock market. On the other hand, if country’s economy is passing through the
recessionary phase, it means the low return on investment, issue of survival
and it translates into falling of stock prices.
e. Industry factor: Every industry passes through different phases in its life
cycle. Many industrial economists believe that the development of almost
every industry may be analysed with the help of its life cycle. The life of an
industry can be separated into the pioneering stage, the expansion stage, the
stagnation stage and decline stage. So the first step in industry analysis is to

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 find out what stage of growth through which the industry is passing at present.
It is also useful in analysing the past and future forecasting of a particular
sector. Through this one can estimate about the expected boom or depression
of a particular industry sector.
f. Global financial condition: As the whole world market became a local
market due to globalisation impact, the overall distance between different
countries don’t matter much for trading and business purposes. Nobody is self-
sufficient in this world and no one can grow and flourish in isolation. One and
others is dependent on others in fulfilling their needs and requirements. It
created & developed the inter dependency between the countries. Now, there
are direct and indirect relationship between one and other countries economic
& financial condition on the others. One country bad performance can collapse
the whole global market. Few years ago in 2007, it had been seen by whole
world when the impact of depression started with America and it reflected &
impacted the whole globe. The Indian market was also not untouched with that
situation as the Sensex value suddenly drop down from the peak of 22,000
marks to 8,000.
g. Government policy: One government decision can change the whole future
prospective of a company or a faith of a particular industry sector. If the
government is supporting a particular sector for upliftment & development
through grants, relaxation in tax or legal complication, then the share price of
supported company or sector will also increase. On the other hand, the
hardship and increase in tax rate has negative impact in share price of
company.
h. FDI and FII: Foreign Direct Investment (FDI) as well as Foreign Indirect
Investment (FII) has positive correlation with the nifty and Sensex 1. It means
if the flow of FDI or FII increases the value of nifty and Sensex will also
increase. It will also reflect through the increased price of shares traded in
stock market. On the other hand, if the flow of fund decreases the price will
also decrease.
i. Interest rate: Interest rate also a major contributor in fluctuation of share
price in stock market. Changes of interest rate decide the volume of money in

1
“Impact of Flow of FDI & FII on Indian Stock Market” by Dr. Syed Tabassum Sultana, Prof. S
Pardhasaradhi ISSN: 2165-8226 in Finance Research VOL1 NO3 JULY 2012

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 the market. If the interest rate on bank deposit, PPF, small saving instruments
decreases, then the people starts investing in share market which leads to
increase in the share price of companies traded in stock market.
j. Rate of return of other investment options: If large numbers of investment
opportunities are available in market then the people do the investment by
comparing the overall return from available options. If the return from other
investment options are more than the average return generated from the
investment in stock market, then investors go for other available options
otherwise they put their money in shares.
k. Investor’s knowledge and perception: Investor’s perception largely decides
the flow of fund in the economy. If they have faith and trust in a development
prospective of a particular economy, then they invest there. On the other hand,
if they don’t have knowledge about the functioning of market or if they are not
positive about the growth & development of economy in near future, then they
prefer to keep their money in liquid form such as cash or bank instead of
investing in market.
These all factors are the basic indicators which largely impact the movement and
investment of money in share market. One cannot imagine good return on their
investment until they properly analyse the investment opportunities by keeping all
these factors into consideration. The stated point is not the end which only impacts the
fluctuation of share price of a company. This is just indicative, apart from this, the
other factors include news about the company, future planning and internal corporate
information (internal factors) of the company or external factors which affect the
economy as a whole. There are large numbers of studies carried out globally and in
India, which studied about the impact of macro (external) factors on share price
movements. Along with the external factors it is also important for an investor to
understand the types of corporate actions taken & their impact on price and volume of
shares in the stock market in order to get a clear picture of how a company's decisions
affect the share price and shareholders behaviour.
Further, the volume of investment which has direct impact on share price
movement, is largely depends on saving while the saving depends on income and
expenditure. If one’s income gets increase without any impact in expenditure, it
means his saving also get increased by same amount. On the other hand, if its reverse
happens then his saving is decreased by same amount. Higher saving provides a wider

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opportunity of investment. One can decide his investment instruments with proper
analysis and interpretations of impacted factors attached with investment instruments.
The equation of investment can be pointed out through the following:

Income-Expenditure = Saving That is converted into Investment

Investment opens the door of innovation and development of financial

instruments traded in financial market. Financial market provides market for raising
funds or investing money. It provides the platform where investors as well as seekers
of money can fulfil their own requirement. In capital market investors can buy and
sell long-term debt or equity-backed securities for longer period. It channelizes the
wealth of savers to those who require and can put it to the long-term productive use,
such as institutions, companies or governments. Lenders decide the instruments of
investment as per their need and return generation capacity.

There are large numbers of companies listed in stock exchange and their share
prices are continuously changing. Whenever investors put their money on stock
market it is always tends to risk factors that are divided into systematic and
unsystematic risk. Systematic risk could not be diversifiable with purchased of
different companies share, only unsystematic risk can be diversifiable. It creates
problem to investors in deciding in which company share they should invest, whether
the price reflected is representing the real value of share or is it overpriced or under-
priced. In this situation some investors are able to earn high return and some even
loose their principle amount due to lack of idea about analytical part and different
factor which impact the share price of companies. To cope up with this situation one’s
require to analyse different factors those impact it such as government policy,
company performance, industry performance. All this analytical part covers under the
concept of security analysis. It highlights theory and valuation techniques. But the
retail investors are lacking in this subject matter which forced them to do investment
in shares either with the advice of others or with their own choice made without any
analysis and interpretations. Many times it resulted into loss or brought into break
even situation that is totally unacceptable from the investor’s point of view. To escape
from these situation investors can also use share valuation models available for

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valuation of equity shares. So it is expected from investors they will initiate the
investment in shares with proper analysis and interpretation.

1.2 Concept and Origin of the Problem:

Investment is the basic and essential requirement for increasing wealth of human
being. To save is not enough. One must have to invest wisely to get maximum returns
on their savings and to face the inflationary situation. It requires proper planning for
maximisation of wealth through investment. The investment decision and overall
portfolio of investment must be made in such a way that; the investment objectives
are satisfied upto great extent. A sound investment is one which gives the investor
reasonable returns without having fear of loosing principal portion. There must be
proper analysis for investment which will provide good return. “Investment is a
serious proposition; one has to look into various factors before deciding on the
instruments in which to invest”. A small or retail investor always tries to find out the
available opportunities for the investment, which is safe as well as profitable and can
able to generate high return on their investment.
To lock up one’s hard earned money in a savings bank’s account is not enough
to counter the monster of inflation. One can maximize his return on investments &
multiply his savings through equity investment also by using simple concepts of
diversification, power of compound interest and stable return policy of company. To
get high return from equity share investment it requires evaluating the market price of
share of company. The real problem arises at the time of evaluation of market price
of company’s share due to the volatile nature of share market. There are lots of factors
which influence the share price of company. Many researchers try to compile the
factor at one place through share valuation models which can give a basic idea about
the market price of a company. But if we look from the current market scenario which
is quite dynamic, volatile and flexible, most of the models are not able to incorporate
all factors in one place. They are mainly focusing only few factors.
As India is a developing country and growing at fastest rate, it requires
pumping of stable capital in the economy. That may come in the form of equity share.
But to increase active participation of investors in share market for long term funding,
market should provide high rate of return in transparent manner. It can be possible
through providing knowledge about the functioning of market and setting up a

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regulatory organisation for monitoring overall functioning of market. As Indian
capital market providing favourable environment along with positive return the
overall investment in market has increased quite reasonably in past few years. If we
look overall population of India that is currently approximately 121 crores in which
1.52 cr people has the demat accounts which is around 1 % of population. It is
reflected in following table:
Table No 1.1: Beneficial Owner Accounts
Years No. Of Beneficial owners No. Of Beneficial owners
st
(As on 31 march) Accounts (Gross ) Accounts (Net)
2016 1,45,10,902 1,07,90,738
2015 1,30,87,397 96,10,002
2014 1,18,29,968 87,77,049
2013 1,09,67,176 83,27,482
2012 1,02,14,904 79,17,184
2011 94,44,953 74,79,316
Source: CDSL Annual Report
The above table no 1.1 clearly indicate the increasing growth of number of
beneficial Owners accounts during the past 6 years. It is around 1.5 times in 2016
against 2011. Though it is showing increasing trend but it still not reflecting the
significant % of overall population engaged in investment in shares. If India gets
success in attracting even only 10% of its population in share market for investment in
company share it will create great impact in overall economic condition of country. It
clearly reflects the potential and dependency of market in investors for the overall
economy development. Therefore, it is quite important to provide them clear picture
of share market, share valuation process. It will lead to enhancement of their trust and
confidence in stock market and investment in company’s share. It will directly impact
in the increases of market share of investment. Hence there is a need to have well
organised securities market.

1.3 Importance and Significance of the Study:

Investment is the integral part of economy development. Capital market works as a
barometer for any nation’s economic development. Developing Country like India,
whose development is largely dependent on overall functioning, efficiency, growth

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and development of industries of all sectors which is possible through pumping of
seed money for the longer period of time. Equity capital fits on this parameter. It
provides long term money without putting any compulsion of repayment and return.
But the investment is done for return. Noting is free in this greedy world. If one is
investing their hard earn money it means they are expecting good return from it. If
company is not able to provide good return, then the investors will pull back their
invested money from their and put into some other options. So to get an easy and
continuous flow of money or funding, it requires to provide good return.
To judge whether company will able to provide good return or not, one needs to
evaluate the company’s performance and ability to generate expected return. If
investors do investment in equity share without any analysis & evaluation they may
loose their money. For evaluation of equity share market price, equity share valuation
models are available which provides basic idea about the market price of share. But
there are so many models are available and they had incorporated only company
related factors for the calculation and prediction of expected price of company’s
share. Most of the models are given by studying the nature of foreign stock exchange
thirty to forty years ago. So, this study is quite important from the current Indian stock
market context. It provides basic idea about the applicability of available models in
current market scenario and will help the investors for choosing the target company
for investment.
Further, this study is also important and relevant from the following point of view:
a. Academic: This study will help and guide the students about how practically
the share price of companies can be calculated so their theoretical knowledge
of the topic can be used in practical scenario.
b. Policy: Government can decide their prospective policies by analysing the
value of different firm. They can easily make their decision regarding subsidy
and grant which can be provided to a particular company.
c. Research: To find out the price under different model that will use for making
comparison with the actual price reflected in stock exchange. Whether there is
any difference or not, if yes what are reasons behind it.
d. Social: Investors can protect themselves by calculating the share price of
company under different models before making investment decision. The
people at large will able to generate steady and fair return.

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 e. Company: Management team is able to know the share price of company
under different model and actual price reflected in share market. They can
make an effort to find out the reasons of difference in share price if there is
and they may find regular and long term investors. Goodwill of business could
be increased. They can decide at what price they can issue their new share.

1.4 Rationale of the Study:

The investment management concept has been accepted universally and
touched all the human beings life. It is highly diverse and attractive field. There is the
general perception of people at large that if they invest in share market they will loose
their money. Most of the people afraid even with the name of share market and
usually suggest others should also not go for this option of investment. The reason
behind this fear element may be due to lack of knowledge about share valuation, their
own past experience of loss or having the basic perception about the functioning of
share market.
But if we look from valuation point of view, there are the different share
valuation models available, large number of studies has been carried out time to time
which can provide the guidance and awareness about the expected market price of
shares. So, this study is basically required to inform and make investors aware about
the importance of valuation in finding out the real worth and the share price of the
firm. It will encourage investor participation in stock market by removing out their
doubt elements about the functioning of market and myth about the share market that
money will get lost. There are some famous quotes which suite in the context of
rationality of the study:

“There are hazards in anything one does but there are greater hazards in doing
nothing” -Shirley Williams
“Of all the hazards, fear is the worst” -Sam Snead

So the researcher tried to find out the investors perception for the investment in shares
through this study. Researcher also tried to check whether the share valuation models
are used by investors for their investment decision making or not.

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1.5 Justification of the Study:
The present study “A Critical Study of Different Models Used for Valuation of
Shares” has been selected by the researcher due to following reasons:
 To evaluate the applicability of investment models that gives basic idea about
market price of share.
 To find out share price of a company as per different models of share
valuation in real life scenario.
 To find out the relationship between prices calculated as per model and market
price of share.
 To evaluate the knowledge and understanding of investors about the share
valuation model.
 To help and guide the investor regarding share price of the companies.
 To find out the relationship between age, income level and education
background with the participant of retail investors.
 To remove myth about the share market that if they invest in shares they may
lose their hard earned money.
 To promote more participation in stock market by providing basic idea about
valuation of shares.

1.6 Problem Definition:

Valuation is most crucial aspects of all investment. It not only justifies the price, risk,
return associated with particular instrument of investment but it also gives the
psychological satisfaction and peace. It helps the investors in deciding their
investment instrument. For evaluation of market price of equity share, share valuation
models are available. Equity share investment provides return in term of dividend and
capital appreciation. Research scholar will through light on the following problems
through this study:
 Applicability/Non-Applicability of share valuation models.
 Lack of investor’s knowledge about share valuation.
 Problem in evaluation of risk and return on equity investment.
 Absence of faith of investors in stock market & price determination
 Need of training regarding the functioning of stock market

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  Lack of knowledge leads to dissatisfaction and adverse impact regarding
investment in shares.

1.7 Objectives of the Study:

(i) To know the process of share valuation and models used for the same.
(ii) To know and understand the psychology of people at large about investment.
(iii)To examine the relationship between the prices reflected at Stock Exchange
and the prices calculated under different models.
(iv) To know about the influencing factor for selection of share valuation model.
(v) To understand the perception of retail investors at the time of purchasing share
of Companies.
(vi) To know and understand the psychology of retail investors towards valuation
models.
(vii) To suggest the appropriate model that best suited in the context of retail
investment.

1.8 Justification of the Objectives:

Justification of Objective (i):
 There are many models available for share valuation. Academically all the
required data for price calculation under different models are readily
provided but in real life scenario it’s not. So the researcher wants to know
how the require data can be generated/calculated/found and how the share
price is calculated & valued under different models.

Justification of Objective (ii):

 Investment is basically done to get return from it. There are many
instruments or options available for investment. The associated risk
and return varies in all the available instruments. Generally, share
market is considered as high risk & return associated instrument while
the bank deposit as least. So, researcher tried to find out what the
people perception and assumptions regarding investment and their
major criteria of choosing a particular instrument for investment.

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Justification of Objective (iii):
 Researcher tried to examine whether there is any relationship between
the prices reflected in stock exchange and prices calculated under
different models with this objective.

Justification of Objective (iv):

 There are many share models valuation models are available.
Researcher tried to find out whether the retail investors are using the
available models for their investment decision or not. If yes, then what
factor they consider for selecting a particular model.

Justification of Objective (v):

 Researcher tried to find out the decision criteria of retail investor for
investment in share of a particular company. How the retail investors
decide and what factors they consider before purchasing share of a
particular company.

Justification of Objective (vi):

 Researcher tried to find out retail investors thinking and psychological
perception about the share valuation model. What the retail investor
think about share valuation models. Whether they perceived the share
valuation models are relevant in generation of good return or not.

Justification of Objective (vii):

 There are many share valuation models given time to time. Researcher
tried to find out whether the available models are giving desire result
or not and which model could be best suited for them for their
investment decision.

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1.9 Hypothesis of the Study: There are two hypotheses for this study. They are:

. Hypothesis 1

H0: There is no relationship between the share price reflected at Stock Exchange and
price calculated under different models.

H1: There is relationship between the share price reflected at Stock Exchange and price
calculated under different models.

Hypothesis 2

H0: There is lack of basic perception and understanding about the share price
determination which encourage investors to do investment in share market.

H1: There is basic perception and understanding about the share price determination
which encourage investors to do investment in share market.

1.10 Justification of the Hypothesis:

Justification of Hypothesis 1
 There are many models available for share valuation and the calculated
value is also differs in all the models. So researcher wants to find out
whether there is any relationship between the calculated price of share
with the help of model and price reflected at share market.

Justification of Hypothesis 2
 Researcher tried to find out investors psychological perception and
thinking about the share price determination in share market. It is
require to check whether investors do investment with their own
analysis or with the help of others. What factors encourage them for
investment in share market?

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1.11 Scope of the Study:
Investment management or security analysis refers to valuation of market
price of share. The overall scope of investment management is very vast. All the
perspective from basic to wide which influence the price of share comes under the
preview of investment management. For example, company’s earnings and dividend,
management policy and competency, performance of sector in which company is
working, government policy, tax rate, political stability, flow of FDI and FII, rate of
return in other investment opportunities, overall economy condition of the country.
Investment management is diverse and driven by investor. It covers all aspects of
stock national and international.
This study covers investment patterns of retail investors in equity shares. It is
tried to analyse the applicability of share valuation models in real life scenario by the
investors. This study indicates the differences in preferences of retail investors, their
predominant objectives and decision making behaviour as per the available
information. This study covers factors affecting share valuation and relevance of share
valuation models in investor’s decision making.
The present study covers Indian stock market and the company listed in it. It
also covers the investment pattern of retail investors in equity shares. This study
opens the area of investor’s preference, perceptional differences and their
predominant objectives that motivate for the investment. This also paves the way to
study the pre and post investment satisfaction in an intensified manner. It also focuses
exact problems associated with equity investment of retail equity investors. This study
covers the available valuation models and their practical use for investment decisions.
This study provides insight the relationship between the price calculated with the help
of share valuation models and actual share price reflected in stock market.

1.12 Research Methodology:

To conduct this study researcher gone through the intensive study of literature,
identified the problem area, drafted the hypothesis and research objective based on the
identified problem, and finally tested the hypothesis with the help of statistical tools
such as regression analysis, correlation, deviation, chi square test and t-test. The
researcher collected information from the books, internet, publications, journals,
previously carried out research work and the retail investors. The collected

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 information and data are analysed with the help of pie chart, bar diagram, line
diagram, tabulation, percentage.

1.13 Research Design:

The research design for the current study is an arrangement of conditions for
collection and analysis of data. It provided proper direction with the help of suitable
methods and procedure for conducting this study. It has given the blueprint for the
collection, measurement and analysis of data in order to reach meaningful conclusion.
The present study is basically descriptive type of research in which researcher tried to
find out the opinion of retail investors through well designed questionnaire.
Following table clearly describes the research design framed by researcher for
conducting this study.
Table No.1.2: Research Universe and Sample Size
Sr. No of demat No. Of listed companies in
Information about sample
No account holders NSE
2
12,477 in 2014 1814 (as on May 2017)3
(in Pune City) in which1707 available for
1. Universe trading
2. Size Selected 1,500 25
3. Percentage (%) 12 1.46
4. Questionnaire Circulated(soft/hard copy) 1,500 N/A
5. Questionnaire Collected duly filled in 473 N/A
6. Questionnaire unreturned/no response - N/A
7. Invalid response of filled up Questionnaire 37 N/A
8. Valid response of filled up Questionnaire 436 N/A
Source: Compiled

1.14 Sampling Design:

Sampling design represents the size and number of population considered for data
collection. It is a process used for sample selection from the total population or
universe. The used important steps of sampling design are following:

2
http://www.livemint.com/Money/Pe0uOEwkRlSSM4ysAqqi2O/Top-20-cities-still-account-for-bulk-
of-equity-turnover.html
3
https://www.nseindia.com/products/content/equities/equities/historical_equity_businessgrowth.htm

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 1. Determination of types of population:
The type of population/universe is the total number of retail investors in Pune
who has invested money in equity share. The total numbers of Demat A/c
holders are 12,477 in 2014 in Pune City. As per this the researcher assumed
the total number of investors in equity share is 12,477 in Pune City that is
definite. The researcher tried to collect information from 12 % of respondents.
2. Sampling frame:
It is concerned with the overall boundaries of sampling area depending upon
the nature of research problem. The researcher intends is to study the
knowledge and actual utilization of equity share models for share purchase
decision by the retail investors of Pune City. The Sampling frames for this
study covers two universes that are a) Listed companies in NSE and b) retail
investors of equity share from Pune City.
a) Sampling frame of listed companies in NSE includes listed companies
from five different sectors that is Information Technology (IT), Fast
Moving Consumer Goods (FMCG), Pharmaceuticals, Energy and
Automobile. Thus the sampling boundaries are the total number of listed
companies in a particular sector among the selected sectors. It is disclosed
in the following table:
Table No.: 1.3 Sampling Frames of Secondary Data
Sr. Selected Sectors of Industry
Particulars
No. IT Pharma FMCG Automobiles Energy
Population
1. 10 10 15 16 10
area/ Universe
2. Sampling Area 5 5 5 5 5

b) Sampling frame of retail investors:

The selection of sample from retail investors is based on the total number
of investors of Pune City who has or is investing money in equity share of
company during last 8 years. It shows large universe size as given below:

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 Table No.: 1.4 Sampling Frames of Primary Data
Retail investors of
Sr. No. Particulars
Pune city
1. Population area/ Universe 12,477 in 20144
2. Sampling Area 1500

3. Deciding sample size

The sample size reflects the number of sample respondents selected for the
study. In present study it is the total number of retail investors (1500) selected
from Pune City. Similarly, the sample sizes of companies (25) consist of the
five companies of each sectors selected from the five different sectors belongs
to overall universe (listed companies in NSE).
For this purpose, researcher has taken following points into consideration:
a. Nature of universe:

Universe

Retail investors of equity

Listed Companies of NSE
Share

b. Nature of research study:

The present study is basically descriptive type of research in which
researcher tried to find out the opinion of retail investors through well
designed questionnaire. The researcher also calculated the share price
under different models of selected companies for the period of study.
The researcher tried to describe the different share valuation models
available and their applicability in real life. Researcher observed the
phenomena of changes in market price of share in selected time duration as
well as behaviour of investors with changing prices of share. To get more
information a well-designed questionnaire and the interaction with them is

4
http://www.livemint.com/Money/Pe0uOEwkRlSSM4ysAqqi2O/Top-20-cities-still-account-for-bulk-
of-equity-turnover.html

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 made. Descriptive research design is a scientific method which
involves observing and describing the behaviour of a subject without
influencing it in any way. It is a study designed to depict the participants in
an accurate way. More simply put, descriptive research is all about
describing people who take part in the study.
It also has the features of Basic Research due to the researcher intention to
do some kind of value addition in share valuation models by developing a
new model that is more suitable in this modern day. Basic research is an
investigation on basic principles and reasons for occurrence of a particular
event or process or phenomenon. It is also called theoretical research.
Basic researches sometimes may not lead to immediate use or application.
It is not concerned with solving any practical problems of immediate
interest. But it is original or basic in character. It provides a systematic and
deep insight into a problem and facilitates extraction of scientific and
logical explanation and conclusion on it. It helps in building new frontiers
of knowledge. The outcomes of basic research form the basis for many
applied research.
c. Types of sampling: The researcher applied convenience sampling in this
study for collection of primary data. Simple random sampling method is
also used as per requirement.
d. expenses/ finance
During the process of collection of primary data, the researcher incurred
expenditure in the nature of travelling expenses, printing charges etc.
e. size of population
The size of population is discussed in the (table no .1.2).
4. Sampling techniques used:
The researcher used the following sampling techniques as per the requirement
of this study:
(i) Survey method
(ii) Observation method
(iii) Personal Interaction

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1.15 Sample and Sample Size: The details of universe, sample and sampling
methods used by researcher is provided as below.

Table No. 1.5 Sample and Sampling Methods:

Particulars Company Investors
Universe 1814 (1707 effectively traded) 12477 (of Pune City in 2014 )
Sample 25 1500
Percentage (%) 1.46 12
Method Simple random sampling Simple random sampling
Source: Compiled
The universe of the selected companies for the sample is the listed companies in
National Stock Exchange (NSE). The 1814 companies are listed in NSE as on May
2017. The last six years’ data of numbers of companies listed and traded in NSE are
furnished in the following table:
Table No. 1.6 Numbers of Listed and Traded Companies
NSE
No of Companies No of Companies
Years
Listed Traded
2015-16 1,808 1,607
2014-15 1,733 1,514
2013-14 1,688 1,540
2012-13 1,666 1,542
2011-12 1,646 1,533
2010-11 1,574 1,450
Source: SEBI Publication (Handbook of Statistics 2016)
The table 1.6 clearly reflects the increasing trends of number of companies listed and
traded in NSE. It means investors have more options in terms of investment in equity
share of companies as compare to five years back.

1.16 Justification of Sample Size:

A) Sample Size for selected companies from different sectors:
As the population is definite in numbers 1814, the listed companies
from the five different sectors are taken for the study. The researcher selected

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 sample size of 25 companies represents 5 companies from each sectors of total
population. The studied sector is: i) Information Technology (IT) ii) Energy
iii) Automobile iv) Pharmaceuticals and v) Fast Moving Consumer Goods
(FMCG).
While selecting the companies for the purpose of sample, major
companies of different sectors who is actively traded in share market and was
part of Nifty 50, is considered by researcher to provide the reasonability of
sample with the population for this study.
B) Sample Size of retail investors:
Selection of sample size of retail investors was quite difficult if the
study is conducted with the national level population. As the universe (retail
investors) is very large at national level that is around 15 million people of
investors, it would become difficult if the study is conducted with even only
10% of sample of investors at national level due to money, time, human
resources constraint. The scope of study kept as Pune City where the target
respondents were investors. As the Pune City is hub of business,
manufacturing and service sector which provide the handy income to people
that resulted into good exposure for investment; it attracted the researcher to
select the sample data from this city. The other reasons behind selection of this
city are having the educational factor, young and active crowd, dynamic work
nature, employment, opportunity of professional development etc. It all
provides reasonability for the selection of sample and collection of primary
data for the present study. Therefore, the researcher selected the Pune city for
this study and used the convenience and simple random sampling
methodology for the selection of Sample and collection of data from diverse
retail investors.

1.17 Data Collection:

To conduct this study, the researcher has selected 25 listed companies from National
Stock Exchange (NSE). Selected companies represent 5 different sectors such as
Information Technology (IT), Energy, Fast Moving Consumable Goods (FMCG),
Auto and pharmaceuticals during the period of 2010-11 to 2015-16. But during the
study researcher also required to calculated the growth rate in dividend, earning,

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market price of share. To fulfil this requirement researcher used the past 5 year’s
average of earning per share (EPS), Dividend per share (DPS) & Market price per
share (MPS). So the effective secondary data is related to 2006-07 to 2015-16.

1.18 Sources of Data Collection:

This research requires both sources of data Primary as well as Secondary. The
primary sources of data require for getting information about investor’s psychological
thinking behind investment, their knowledge and awareness about different share
valuation models, practical use of these models in their investment decision making.
1.18.1 Primary Data
The primary data is basically collected through the well-designed
questionnaire that is circulated to retail investors. The researcher also tried to
observe the investment behaviour of them.
1.18.2 Secondary Data
The researcher used secondary sources of data to provide foundation of this
research. It helped in understanding the impact of financial statement and
dividend in share price of a company as well as basic concept of valuation
models. To collect secondary data researcher used official publication of
Reserve Bank of India (RBI), Securities exchange Board of India (SEBI),
National stock Exchange (NSE) and companies’ websites. Researcher also
gone through article, research paper, books, journals, periodicals, new paper
and the study made in this areas. The overview of overall sources of data
collection is compiled in following table:
Table No. 1.7 Sources of Data Collection
Sr. No Sources of Data Collection Methods used
1. Primary Sources Questionnaire
Observations
2. Secondary Sources Literature review
Published Financial statements
Stock Exchange
Published report
Journals
Internet

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1.19 Problems faced during Data Collection:
 Hesitation of respondents in providing information.
 To visit different places.
 Respondents were interested to give oral information.
 Respondents were not interested to disclose their own strategy and
methodology of valuation.
 Researcher not received the filled up form from the investors which was
forwarded through e mail.

1.20 Scheme of Chapters:

The overall research work carried out for this study is divided into six chapters. The
overview of all chapters is provided here as follow:
1. Chapter First deals with Nature and Scope of the Study. It provides details
information about the research work carried by the researcher. It covers
introduction, statement of problem, need of the study, research methodology,
limitations of the study and many more. Even though the field of investment is
growing rapidly and investment provides the engine of growth to any
economy, very few research have been conducted so far in investment models
and particularly on analysis of different models for investment valuation. This
study aims to provide the insight to investors for share valuation and use of
applicable models. The investor’s main concern is to get good return in their
invested money. The share market is treated a dynamic and high income
generated field if the investment is done properly in market. There is some
renowned personality like Rakesh Junjhunwala in the field of investment who
did and doing their investment in such a manner, their money worth is
increasing day by day. To being the lubricating area in generation of good
return, share market also vulnerable to the risk of ruining the people in case of
market crash like the 2007 impact when the Lehman Brothers was collapsed
and bankrupted. It was shaken the world market and investors. Therefore it
always requires doing investment in share with the proper analysis and
keeping some perception for deciding a target company. This all created a
high desire and motivated the researcher to do a study related in the field of
investment.

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 2. Chapter Second deals with Equity Share Valuation Models: Theoretical
Background. It highlighted the conceptual background of different equity
share valuation models. The researcher found theoretical evidence and
procedure of application of equity share valuation model in investment of
shares of company. It provides the information related to calculation of price
with the help of different Share Valuation Models. Researcher evaluated the
models on different parameters and tried to get the fundamental idea about the
share valuation models in real life.
3. Chapter Third deals with Review of Literature which provides insights
about the status of research work conducted on share valuation models at
national and international level. The present chapter highlighted the core
theme of different study carried out by researchers time to time related to
present topic. It provides basic understanding about the present research topic
as well as area of improvement in the selected field of study. In the review of
literature, it was discovered that very few studies have been carried out related
to share valuation models particularly on analysis of different models for
investment valuation. This study aims to provide the insight to investors for
share valuation and use of applicable models.
On surveying the existing literature on equity share valuation it has
been identified that there was the research gap of non-identified relationship
between prices calculated under different models and market prices reflected
at share market. Considering the need of a suitable model which can help the
investors in share valuation the present study is carried.
4. Chapter Fourth deals with Profile of the Company selected for the study.
This chapter compiled the financial information related to selected companies
from five different sectors such as IT, Pharmaceuticals, Auto, FMCG and
Energy during the period between 2010-11 to 2015-16. As the topic deals with
share valuation it becomes imperative to look into financial data of selected
companies to carry out this research. Researcher also throws light on company
major achievements in different field which also enhance the company’s value
in the eye of investors. There is a hindi Quote “Jo dikhta hai wahi bikta hai”
which seems perfectly fits into company strategy for growth and development
that is also highlighted in this chapter under company are of working.

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 5. Chapter Fifth deals with Analysis and Interpretations of Data. This chapter
provides the necessary insights and interference derived from the primary data
collected from the investors of Pune City. Collected data was presented in
tabular and graphical form to analyse and bring out some meaningful
conclusions. The secondary data also compiled, analysed and interpreted in
this chapter. This chapter reflects the established relationship between
different models and price reflected at share market by the researcher. It
provides core of analysis used by researcher in this study.
6. Chapter Sixth deals with Finding, Conclusions and Recommendation of
the study undertaken. This chapter outlines and compiled meaningful
information derived from the primary and secondary data. A new model is
recommended by researcher for share valuation is reflected in this chapter.
Thereafter,
 Bibliography
 Appendix – Questionnaire

1.21 Conclusion:
The first chapter provides proper direction for the present research work. It defines
and confines the scope of the research work carried out for this study. This chapter
provides the blueprint and outline of the present study. Researcher has planned this
research activity in such an order which can provide linkage between concepts and
field work.
The chapter outlines entire research work which consists of concept, problem
definition, objectives & hypothesis with justification, research methodology, methods
of data collection, Scope and limitations of the present study.

***

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