“Analysis of investor perception, apprehension

and decision making in Indian stock markets”

Final Project Report

Submitted to Punjab Technical University in partial fulfillment of the requirements for

the degree of

MASTER OF BUSINESS ADMINISTRATION

By

ACHINT GUPTA
616221021

GIAN JYOTI INSTITUTE OF MANAGEMENT AND TECHNOLOGY

MOHALI
2008

2
 “Analysis of investor perception, apprehension
and decision making in Indian stock markets”

Final Project Report

Submitted to Punjab Technical University in partial fulfillment of the requirements for

the degree of

MASTER OF BUSINESS ADMINISTRATION

By

ACHINT GUPTA
616221021

GIAN JYOTI INSTITUTE OF MANAGEMENT AND TECHNOLOGY

3
 MOHALI

2008

PREFACE

“It is generally agreed that casinos should, in the public interest, be inaccessible and

expensive. And perhaps the same is true of Stock Exchanges,” So wrote a British economist,

John Maynard Keynes, in 1935. Keynes’s jibe is not entirely misplaced; more than a few

punters approach the stock markets in the same spirit as the race track or the roulette wheel.

Yet for all their shortcomings, as Keynes himself acknowledged, stock markets offer one

singular advantage: they are the best way to bring people with money to invest together with

people who can put that investment to productive use.

4
 ACKNOWLEDGEMENT

This humble endeavor bears the imprint of many persons who were in one way or the other

helpful in the completion of my project. I would like to take this opportunity to present my

vote of thanks to my guides who acted as lighting pillars to enlighten my way through out

this project. This project would not have been possible without the kind assistance and

guidance of many people who indeed were helpful, cooperative and kind during the entire

course of my project.

My special thanks are due towards Mr. Raminder Bir Singh (Personal Banker, HDFC

BANK, Sohana) for his sincere advice and wholehearted cooperation that guided me to the

completion of this project.

The acknowledgment would not be complete without expressing my indebtedness to the

Hon’ble Chairman Sh J.S Bedi and revered and learned faculty guide Professor Dr. Manjeet

Kalra who guided me in this project and was the constant source of reference for me and

showed full interest at each and every step of my project.

5
 DECLARATION

I declare that the project entitled “Analysis of investor perception, apprehension and
decision making in Indian Stock Markets” is a record of independent research work
carried out by me during the academic year 2007-08 under the able guidance of my project
guide Professor Dr. Manjeet Kalra of Gian Jyoti Institute of Management and Technology,
Mohali .

Place: Mohali Achint Gupta

Date: 2008

6
 EXECUTIVE SUMMARY

The learning process of classroom is incomplete without any practical field research. It is the

reason that even professional programmes have a compulsory research part in its curriculum

to fill the gap between classroom theory and practical field experience. This report portrays

the research period spent by me, in partial fulfillment of the requirements for the M.B.A.

degree. This report contains the insight into Indian stock markets.

The report contains the introduction of the Stock Markets and the study about the investors

and traders in these. It also contains the methods and techniques adopted by me while doing

this research project under the head ‘Research Methodology’. A structured questionnaire was

designed and it consisted of close ended and rating scale. Respondents were asked to tick one

option in multiple choice questions and were asked to rate certain given parameters on rating

scale. Data is presented with the help of self-explanatory charts. Interpretations have been

made together. And the most crucial, the ‘Findings’ section bears my personal comments.

This report is a written account of what I learnt and experienced during training and I have

tried to complete this report with as much perfection as possible to make it more meaningful

and purposeful.

7
 CONTENTS
CHAPTER PARTICULARS PAGE
NO. NO.
CHAPTER 1 INTRODUCTION TO EQUITIES AND INDIAN 1 - 27
CAPITAL MARKETS
CHAPTER 2 REVIEW OF LITERATURE

CHAPTER 3 OBJECTIVES OF THE STUDY 36

CHAPTER 4 RESEARCH METHODOLOGY 37 - 40

CHAPTER 5 OBSERVATIONS AND ANALYSIS 41 - 62

5.1 INTERPRETATIONS
5.2 SWOT ANALYSIS
CHAPTER 6 FINDINGS AND DISCUSSIONS 63 - 65

CHAPTER 8 LIMITATIONS 69 - 70

BIBLIOGRAPHY

ANNEXURE

8
 LIST OF TABLES

Table No. Title Page No.

Table 1.1 List of various stock exchanges in India 7
Table 5.1 Distribution of respondents according to their nature 41

Table 5.2 Distribution of respondents who were investors according to 42

their tenure of investment
Table 5.3 Distribution of respondents who were traders according to 43
their type of trading
Table 5.4 Z-test calculations 44

Table 5.5 Awareness level of respondents about Anand Rathi and its 46
products and services
Table 5.6 Distribution of respondents according to the number of demat 46
accounts
Table 5.7 Distribution of respondents according to their preference of 47
dealing in two major stock exchange of India
Table 5.8 Distribution of respondents on the basis of their frequency of 48
trading
Table 5.9 Distribution of respondents according to their preferred mode 49
of trading
Table 5.10 Distribution of respondents according to their preference of 49
trading with margin funding
Table 5.11 Distribution of respondents according to the exposure they 50
desire
Table 5.12 Mean score and importance attached 51

Table 5.13 Chi-square test to test the hypothesis 54

Table 5.14 Chi-square test to test the hypothesis about most sought 55
investment instrument
Table 5.15 Importance of factors for choosing a brokerage house 59

Table 5.16 Distribution of respondents according to the returns they 60

expect from share market

9
10
 LIST OF FIGURES

Figure No. Title Page No.

1
CHAPTER 1

INTRODUCTION TO EQUITIES

1.1 ORIGIN OF EQUITIES

Equity, quite simply, means ownership. Equities, therefore, are shares that represent part

ownership of a business enterprise. The idea of share ownership goes back to medieval times.

It became widespread during the Renaissance, when groups of merchants joined to finance

trading expeditions and early bankers took part ownership of businesses to ensure repayment

of loans. These early shareholder-owned enterprises, however, were usually temporary

ventures established for a limited purpose, such as financing a single voyage by a ship, and

were dissolved once their purpose was accomplished.

The first shareholder-owned business may have been the Dutch East India Company, which

was founded by Dutch merchants in 1602 and issued negotiable share certificates that were

readily traded in Amsterdam until the company failed almost two centuries later. By the late

17th century, traders in London coffee houses earned their living dealing in the shares of

joint-stock companies. But it was not until the industrial revolution made it necessary to raise

large amounts of capital to build factories and canals that share trading become widespread.

1
 1.2 THE INDIAN CAPITAL MARKET - AN OVERVIEW

The function of the financial market is to facilitate the transfer of funds from surplus sectors

(lenders) to deficit sectors (borrowers). Normally, households have investable funds or

savings, which they lend to borrowers in the corporate and public sectors whose requirement

of funds far exceeds their savings. A financial market consists of investors or buyers of

securities, borrowers or sellers of securities, intermediaries and regulatory bodies. Financial

market does not refer to a physical location. Formal trading rules, relationships and

communication networks for originating and trading financial securities link the participants

in the market.

1.2.1 ORGANIZED MONEY MARKET:

Indian financial system consists of money market and capital market. The money market has

two components - the organized and the unorganized. The organized market is dominated by

commercial banks. The other major participants are the Reserve Bank of India, Life

Insurance Corporation, General Insurance Corporation, Unit Trust of India, Securities

Trading Corporation of India Ltd. and Discount and Finance House of India, other primary

dealers, commercial banks and mutual funds. The core of the money market is the inter-bank

call money market whereby short-term money borrowing/lending is effected to manage

temporary liquidity mismatches. The Reserve Bank of India occupies a strategic position of

managing market liquidity through open market operations of government securities, access

to its accommodation, cost (interest rates), availability of credit and other monetary

2
management tools. Normally, monetary assets of short-term nature, generally less than one

year, are dealt in this market.

1.2.2 UN-ORGANIZED MONEY MARKET:

Despite rapid expansion of the organized money market through a large network of banking

institutions that have extended their reach even to the rural areas, there is still an active

unorganized market. It consists of indigenous bankers and moneylenders. In the unorganized

market, there is no clear demarcation between short-term and long-term finance and even

between the purposes of finance. The unorganized sector continues to provide finance for

trade as well as personal consumption. The inability of the poor to meet the

"creditworthiness" requirements of the banking sector make them take recourse to the

institutions that still remain outside the regulatory framework of banking. But this market is

shrinking.

1.2.3 THE CAPITAL MARKETS:

It consists of primary and secondary markets. The primary market deals with the issue of new

instruments by the corporate sector such as equity shares, preference shares and debt

instruments. Central and State governments, various public sector industrial units (PSUs),

statutory and other authorities such as state electricity boards and port trusts also issue

bonds/debt instruments.

The primary market in which public issue of securities is made through a prospectus is a

retail market and there is no physical location. Offer for subscription to securities is made to

investing community. The secondary market or stock exchange is a market for trading and

3
settlement of securities that have already been issued. The investors holding securities sell

securities through registered brokers/sub-brokers of the stock exchange. Investors who are

desirous of buying securities purchase securities through registered brokers/sub-brokers of

the stock exchange. It may have a physical location like a stock exchange or a trading floor.

Since 1995, trading in securities is screen-based and Internet-based trading has also made an

appearance in India.

The secondary market consists of 23 stock exchanges including the National Stock

Exchange, Over-the-Counter Exchange of India (OTCEI) and Inter Connected Stock

Exchange of India Ltd. The secondary market provides a trading place for the securities

already issued, to be bought and sold. It also provides liquidity to the initial buyers in the

primary market to re-offer the securities to any interested buyer at any price, if mutually

accepted. An active secondary market actually promotes the growth of the primary market

and capital formation because investors in the primary market are assured of a continuous

market and they can liquidate their investments. The securities market moved from T+3

settlement period to T+2 rolling settlement with effect from April 1, 2003

1.2.4 Capital Market Participants:

There are several major players in the primary market. These include the merchant bankers,

mutual funds, financial institutions, foreign institutional investors (FIIs) and individual

investors. In the secondary market, there are the stock brokers (who are members of the stock

exchanges), the mutual funds, financial institutions, foreign institutional investors (FIIs), and

individual investors. Registrars and Transfer Agents, Custodians and Depositories are capital

4
market intermediaries that provide important infrastructure services for both primary and

secondary markets.

1.2.5 Market regulation:

It is important to ensure smooth working of capital market, as it is the arena where the

players in the economic growth of the country come together. Various laws have been passed

from time to time to meet this objective.

The financial market in India was highly segmented until the initiation of reforms in 1992-93

on account of a variety of regulations and administered prices including barriers to entry. The

reform process was initiated with the establishment of Securities and Exchange Board of

India (SEBI).

The legislative framework before SEBI came into being consisted of three major Acts

governing the capital markets:

1. The Capital Issues Control Act 1947, which restricted access to the securities market and

controlled the pricing of issues.

2. The Companies Act, 1956, which sets out the code of conduct for the corporate sector in

relation to issue, allotment and transfer of securities, and disclosures to be made in public

issues.

3. The Securities Contracts (Regulation) Act, 1956, which regulates transactions in securities

through control over stock exchanges. In addition, a number of other Acts, e.g., the Public

Debt Act, 1942, the Income Tax Act, 1961, the Banking Regulation Act, 1949, have

substantial bearing on the working of the securities market.

5
 1.3 HISTORY OF STOCK EXCHANGE

The trading in securities in India was started in the early of 1973. The stock exchange

operating in the 19th century was those of Bombay set up in 1875 and Ahmedabad set up in

1894. These were organized as voluntary non-profit making associations of brokers to

regulate and protect their interests. Before the control on securities trading becomes a control

on securities trading became a central subject under the constitution in 1950. It was a state

subject and the Bombay securities contact (control) act, 1925 used to regulate trading in

securities. Under this act, Bombay stock exchange was securities in 1927 and Ahmedabad

stock exchange in 1927 and Ahmedabad stock exchange in 1937. During the war boom, a

number of stock exchanges were organized at Bombay, Ahmedabad and other centers but

they were not recognized. Soon after it became a central subject, central legislation was

proposed and a committee headed by Mr. A.D. GORWALA went into bill for securities

regulation. On the basis of securities regulation, Securities Contract (control) Act became law

in 1956. At present there are 23 recognized stock exchanges in India. Number of Investors is

increasing day by day.

The stock exchange is a double auction market. Quite distinct from the common market in

which only one seller and many buyers in a stock exchange a number of potential buyers and

potential sellers co-exist all competing both among themselves and with one another in

making bids, counter-bids, offers and counter-offers.

6
1.3.1 WHO BENEFITS FROM STOCK EXCHANGE?

• INVESTORS: It provides them liquidity, marketability, safety etc. of Investment.

• COMPANIES: It provides them access to market funds, higher rating and public

interests.

• BROKERS: They receive commission in lieu of their services to investors.

• ECONOMY AND COUNTRY: There is large of saving, better growth moves

industries, higher income.

Table 1.1 LIST OF VARIOUS STOCK EXCHANGES IN INDIA

S. Years of Type of organization

Name of stock exchange
No. establishment
1 Bombay Stock exchange 1875 Voluntary Non-profit

organization
2 Ahmedabad Stock exchange 1897 Voluntary Non-profit

organization
3 Calcutta Stock exchange 1908 Public limited company
4 M.P. Stock exchange, Indore 1930 Voluntary Non-profit

organization
5 Madras Stock exchange 1937 Co. limited by guarantee
6 Hyderabad Stock exchange 1943 Co. limited by guarantee
7 Delhi Stock exchange 1947 Public limited company
8 Bangalore Stock exchange 1957 Pvt. converted into public ltd.

co.

7
9 Cochin stock exchange 1978 Public limited company
10 U.P. Stock exchange, Kanpur 1982 Public limited company
11 Pune Stock exchange 1982 Co. limited by guarantee
12 Ludhiana Stock exchange 1983 Public limited company
13 Jaipur Stock exchange 1983 Public limited company
14 Guahati Stock exchange 1984 Public limited company
15 Kannaar Stock exchange 1985 Public limited company
16 Magadh Stock exchange 1986 Co. limited by guarantee
17 Bhuvneshwar Stock exchange 1989 Co. limited by guarantee
18 Saurashtra stock exchange, 1989 Co. limited by guarantee

Kutch.

19 Vadora Stock exchange 1990 N.D.

20 Meerut Stock exchange 1991 N.D.
21 O.T.C.I. 1993 Pure demutualized

(Over the counter exchange of

India), Mumbai
22 National Stock exchange 1995 Pure demutualized
23 Coimbatore stock exchange 1996 N.D.
24 Sikkim Stock exchange 1997 N.D.

8
9
 1.4 NATIONAL STOCK EXCHANGE

1.4.1 ORIGIN

The National Stock Exchange of India was promoted by leading financial institutions at the

behest of the Government of India, and was incorporated in November 1992 as a tax-paying

company. In April 1993, it was recognized as a stock exchange under the Securities

Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt

Market (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSE

commenced operations in November 1994 and Derivatives in June 2000. It was set up as a

first step in reforming the securities market through improved technology and introduction of

best practices in management. It started with the concept of an independent governing body

without any broker representation thus ensuring that the operators' interests were not allowed

to dominate the governance of the exchange. It is the largest stock exchange in India and the

third largest in the world in terms of volume of transactions. NSE is mutually-owned by a set

of leading financial institutions, banks, insurance companies and other financial

intermediaries in India but its ownership and management operate as separate entities. As of

2006, the NSE VSAT terminals, 2799 in total, cover more than 1500 cities across India. In

July 2007, the NSE had a total market capitalization of 42, 74,509 crore INR making it the

second-largest stock market in South Asia in terms of market-capitalization

Before the NSE was set up, trading on the stock exchanges in India used to take place

through open outcry without use of information technology for immediate matching or

recording of trades. This was time consuming and inefficient. The practice of physical

trading imposed limits on trading volumes and, hence, the speed with which new information

10
was incorporated into prices. To obviate this, the NSE introduced screen-based trading

system (SBTS) where a member can punch into the computer the quantities of shares and the

prices at which he wants to transact. The transaction is executed as soon as the quote

punched by a trading member finds a matching sale or buy quote from counterparty. SBTS

electronically matches the buyer and seller in an order-driven system or finds the customer

the best price available in a quote-driven system, and, hence, cuts down on time, cost and risk

of error, as well as on the chances of fraud. SBTS enables distant participants to trade with

each other, improving the liquidity of the markets. The high speed with which trades are

executed and the large number of participants who can trade simultaneously allows faster

incorporation of price sensitive information into prevailing prices. This increases the

informational efficiency of markets. With SBTS, it becomes possible for market participants

to see the full market, which helps to make the market more transparent, leading to increased

investor confidence. The NSE started nation-wide SBTS, which have provided a completely

transparent trading mechanism. Regional exchanges lost a lot of business to NSE, forcing

them to introduce SBTS. Today, India can boast that almost 100% trading take place through

electronic order matching.

Prior to the setting up of NSE, trading on stock exchanges in India took place without the use

of information technology for immediate matching or recording of trades. The practice of

physical trading imposed limits on trading volumes as well as the speed with which the new

information was incorporated into prices. The unscrupulous operators used this information

asymmetry to manipulate the market. The information asymmetry helped brokers to

perpetrate a manipulative practice known as "gala". Gala is a practice of extracting highest

price of the day for "buy" transaction irrespective of the actual price at which the purchase

11
was actually done and give lowest price of the day for "sell" transactions irrespective of the

price at which sale was made. The clients did not have any method of verifying the actual

price. The electronic and now fully online trading introduced by the NSE has made such

manipulation difficult. It has also improved liquidity and made the entire operation more

transparent and efficient.

1.4.2 INNOVATIONS

NSE has remained in the forefront of modernization of India's capital and financial markets,

and its pioneering efforts include:

1. Being the first national, anonymous, electronic limit order book (LOB) exchange to

trade securities in India. Since the success of the NSE, existent market and new

market structures have followed the "NSE" model.

2. Setting up the first clearing corporation "National Securities Clearing Corporation

Ltd." in India. NSCCL was a landmark in providing innovation on all spot equity

market (and later, derivatives market) trades in India.

3. Co-promoting and setting up of National Securities Depository Limited, first

depository in India.

4. Setting up of S&P CNX Nifty.

5. NSE pioneered commencement of Internet Trading in February 2000, which led to

the wide popularization of the NSE in the broker community.

6. Being the first exchange that, in 1996, proposed exchange traded derivatives,

particularly on an equity index, in India. After four years of policy and regulatory

debate and formulation, the NSE was permitted to start trading equity derivatives

three days after the BSE.

12
 7. Being the first exchange to trade ETFs (exchange traded funds) in India.

8. NSE has also launched the NSE-CNBC-TV18 media centre in association with

CNBC-TV18, a leading business news channel in India.

1.4.3 MARKETS

Currently, NSE has the following major segments of the capital market. This include:

 Equity

 Futures and Options

 Retail Debt Market

 Wholesale Debt Market

1.4.5 NSE Group

• National Securities Clearing Corporation Ltd. (NSCCL)

It is a wholly owned subsidiary, which was incorporated in August 1995 and commenced

clearing operations in April 1996. It was formed to build confidence in clearing and

settlement of securities, to promote and maintain the short and consistent settlement cycles,

to provide a counter-party risk guarantee and to operate a tight risk containment system.

• NSE IT Ltd.

It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is

uniquely positioned to provide products, services and solutions for the securities industry.

NSE.IT primarily focus on in the area of trading, broker front-end and back-office, clearing

and settlement, web-based, insurance, etc. Along with this, it also provides consultancy and

13
implementation services in Data Warehousing, Business Continuity Plans, Site Maintenance

and Backups, Stratus Mainframe Facility Management, Real Time Market Analysis &

Financial News.

• India Index Services & Products Ltd. (IISL)

It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and index

related services and products for the Indian Capital markets. It was set up in May 1998. IISL

has a consulting and licensing agreement with the Standard and Poor's (S&P), world's

leading provider of investable equity indices, for co-branding equity indices.

• National Securities Depository Ltd. (NSDL)

NSE joined hands with IDBI and UTI to promote dematerialization of securities. This step

was taken to solve problems related to trading in physical securities. It commenced

operations in November 1996.

• DotEx International Limited

DotEx was formed to provide a well structured inter trading platform for the members to

further offer online trading facilities to their customers. With this facility, the members can

serve a larger clientele with the use of automated risk management features and hence

increase the volume. The investors also get comprehensive and updated information through

it.

• INDICES

14
NSE also set up as index services firm known as India Index Services & Products Limited

(IISL) and has launched several stock indices, including:

1. S&P CNX Nifty

2. CNX Nifty Junior

3. CNX 100 (= S&P CNX Nifty + CNX Nifty Junior)

4. S&P CNX 500 (= CNX 100 + 400 major players across 72 industries)

5. CNX Midcap (introduced on 18 July 2005 replacing CNX Midcap 200)

1.5 BOMBAY STOCK EXCHANGE

The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The

Native Share and Stock Brokers Association". It is located at Dalal Street, Mumbai. It is the

oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in

1878. It is a voluntary non-profit making Association of Persons (AOP) and is currently

engaged in the process of converting itself into demutualized and corporate entity. It has

evolved over the years into its present status as the premier Stock Exchange in the country. It

is the first Stock Exchange in the Country to have obtained permanent recognition in 1956

from the Govt. of India under the Securities Contracts (Regulation) Act, 1956. There are

around 4,800 Indian companies listed with the stock exchange, and has a significant trading

volume. As of May 2007, the equity market capitalization of the companies listed on the BSE

was about Rs. 40.7 trillion (US $ 999 billion). The BSE SENSEX (SENSITIVE INDEX),

also called the "BSE 30", is a widely used market index in India and Asia. As of 2005, it is

among the five biggest stock exchanges in the world in terms of transactions volume.

15
In the past and even now, it plays a pivotal role in the development of the country's capital

market. This is recognized worldwide and its index, SENSEX, is also tracked worldwide.

Earlier it was an Association of Persons (AOP), but now it is a demutualized and

corporatized entity incorporated under the provisions of the Companies Act, 1956, pursuant

to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities

and Exchange Board of India (SEBI).

The Exchange, while providing an efficient and transparent market for trading in securities,

debt and derivatives upholds the interests of the investors and ensures redressal of their

grievances whether against the companies or its own member-brokers. It also strives to

educate and enlighten the investors by conducting investor education programmes and

making available to them necessary informative inputs.

A Governing Board having 20 directors is the apex body, which decides the policies and

regulates the affairs of the Exchange. The Governing Board consists of 9 elected directors,

who are from the broking community (one third of them retire ever year by rotation), three

SEBI nominees, six public representatives and an Executive Director & Chief Executive

Officer and a Chief Operating Officer.

The Executive Director as the Chief Executive Officer is responsible for the day-to-day

administration of the Exchange and he is assisted by the Chief Operating Officer and other

Heads of Departments.

The Exchange has inserted new Rule No.126 A in its Rules, Bye-laws & Regulations

pertaining to constitution of the Executive Committee of the Exchange. Accordingly, an

Executive Committee, consisting of three elected directors, three SEBI nominees or public

16
representatives, Executive Director & CEO and Chief Operating Officer has been

constituted. The Committee considers judicial & quasi matters in which the Governing Board

has powers as an Appellate Authority, matters regarding annulment of transactions,

admission, continuance and suspension of member-brokers, declaration of a member-broker

as defaulter, norms, procedures and other matters relating to arbitration, fees, deposits,

margins and other monies payable by the member brokers to the Exchange, etc.

1.5.1 BSE INDICES

The BSE SENSEX (also known as the BSE 30 index) is a value-weighted index composed of

thirty scrips, with the base April 1979 = 100. The set of companies which make up the index

has been changed only a few times in the last twenty years. These companies account for

around one-fifth of the market capitalization of the BSE.

Apart from BSE SENSEX, which is the most popular stock index in India, BSE uses other

stock indices as well which are:

1. BSE Sensex

2. BSE 100 Index

3. BSE 200 Index

4. BSE 500 Index

5. BSE MIDCAP Index

6. BSE SMLCAP Index

7. BSE TECH Index

8. BSE PSU Index

17
 9. BSE AUTO Index

10. BSE BANKEX

11. BSE CG Index

12. BSE CD Index

13. BSE FMCG Index

14. BSE HC Index

15. BSE IT Index

16. BSE Metal Index

17. BSE Oil & Gas Index

1.5.2 BSE Vision

The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock

exchange by establishing global benchmarks."

1.5.3 BSE Management

Bombay Stock Exchange is managed professionally by Board of Directors. It comprises of

eminent professionals, representatives of Trading Members and the Managing Director. The

Board is an inclusive one and is shaped to benefit from the market intermediaries

participation.

The Board exercises complete control and formulates larger policy issues. The day-to-day

operations of BSE are managed by the Managing Director and its school of professionals as a

management team.

18
1.5.4 BSE NETWORK

The Exchange reaches physically to 417 cities and towns in the country. The framework of it

has been designed to safeguard market integrity and to operate with transparency. It provides

an efficient market for the trading in equity, debt instruments and derivatives. Its online

trading system, popularly known as BOLT, is a proprietory system and it is BS 7799-2-2002

certified. The BOLT network was expanded, nationwide, in 1997. The surveillance and

clearing & settlement functions of the Exchange are ISO 9001:2000 certified.

1.5.5 BSE's International Convention Hall

The Bombay Stock Exchange provides convention hall for listed companies and other

Institutions to hold their Annual/ordinary General Meetings, Listing ceremonies, Analyst and

any other important event.

It is centrally located at which can be easily reached from Churchgate or CST (VT) railway

stations. It has a capacity of around 700 to 900 persons with state-of-the-art infrastructure.

The hall has Projection Equipment, Web-cast facility and a Business Room with Facsimile,

Internet, Photocopier and telecom equipment.

19
 1.6 CAPITAL MARKET INTERMEDIARIES

There are several institutions, which facilitate the smooth functioning of the securities

market. They enable the issuers of securities to interact with the investors in the primary as

well as the secondary arena.

• MERCHANT BANKERS

Among the important financial intermediaries are the merchant bankers. The services of

merchant bankers have been identified in India with just issue management. It is quite

common to come across reference to merchant banking and financial services as though they

are distinct categories. The services provided by merchant banks depend on their inclination

and resources - technical and financial. Merchant bankers (Category 1) are mandated by

SEBI to manage public issues (as lead managers) and open offers in take-overs. These two

activities have major implications for the integrity of the market. They affect investors'

interest and, therefore, transparency has to be ensured. These are also areas where

compliance can be monitored and enforced.

Merchant banks are rendering diverse services and functions. These include organizing and

extending finance for investment in projects, assistance in financial management, acceptance

house business, raising Euro-dollar loans and issue of foreign currency bonds. Different

merchant bankers specialize in different services. However, since they are one of the major

intermediaries between the issuers and the investors, their activities are regulated by:

20
(1) SEBI (Merchant Bankers) Regulations, 1992.

(2) Guidelines of SEBI and Ministry of Finance.

(3) Companies Act, 1956.

(4) Securities Contracts (Regulation) Act, 1956.

Merchant banking activities, especially those covering issue and underwriting of shares and

debentures, are regulated by the Merchant Bankers Regulations of Securities and Exchange

Board of India (SEBI). SEBI has made the quality of manpower as one of the criteria for

renewal of merchant banking registration. These skills should not be concentrated in issue

management and underwriting alone. The criteria for authorization take into account several

parameters. These include: (a) professional qualification in finance, law or business

management, (b) infrastructure like adequate office space, equipment and manpower, (c)

employment of two persons who have the experience to conduct the business of merchant

bankers, (d) capital adequacy and (e) past track record, experience, general reputation and

fairness in all their transactions.

SEBI authorizes merchant bankers for an initial period of three years, if they have a

minimum net worth of Rs. 5 crore. An initial authorization fee, an annual fee and renewal fee

is collected by SEBI.

According to SEBI, all issues should be managed by at least one authorized merchant banker

functioning as the sole manager or lead manager. The lead manager should not agree to

manage any issue unless his responsibilities relating to the issue, mainly disclosures,

21
allotment and refund, are clearly defined. A statement specifying such responsibilities has to

be furnished to SEBI. SEBI prescribes the process of due diligence that a merchant banker

has to complete before a prospectus is cleared. It also insists on submission of all the

documents disclosing the details of account and the clearances obtained from the ROC and

other government agencies for tapping peoples' savings. The responsibilities of lead manager,

underwriting obligations, capital adequacy, due diligence certification, etc., are laid down in

detail by SEBI. The objective is to facilitate the investors to take an informed decision

regarding their investments and not expose them to unknown risks.

• CREDIT RATING AGENCIES

The 1990s saw the emergence of a number of rating agencies in the Indian market. These

agencies appraise the performance of issuers of debt instruments like bonds or fixed deposits.

The rating of an instrument depends on parameters like business risk, market position,

operating efficiency, adequacy of cash flows, financial risk, financial flexibility, and

management and industry environment.

The objective and utility of this exercise is twofold. From the point of view of the issuer, by

assigning a particular grade to an instrument, the rating agencies enables the issuer to get the

best price. Since all financial markets are based on the principle of risk/reward, the less risky

the profile of the issuer of a debt security, the lower the price at which it can be issued. Thus,

for the issuer, a favourable rating can reduce the cost of borrowed capital.

From the viewpoint of the investor, the grade assigned by the rating agencies depends on the

capacity of the issuer to service the debt. It is based on the past performance as well as an

analysis of the expected cash flows of a company when viewed on the industry parameters as

22
well as company performance. Hence, the investor can judge for himself whether he wants to

place his savings in a "safe" instrument and get a lower return or he wants to take a risk and

get a higher return.

The 1990s saw an increase in activity in the primary debt market. Under the SEBI guidelines

all issuers of debt have to get the instruments rated. They also have to prominently display

the ratings in all that marketing literature and advertisements. The rating agencies have thus

become an important part of the institutional framework of the Indian securities market.

• R& T AGENTS - REGISTRARS TO ISSUE

R&T Agents form an important link between the investors and issuers in the securities

market. A company, whose securities are issued and traded in the market, is known as the

Issuer. The R&T Agent is appointed by the Issuer to act on its behalf to service the investors

in respect of all corporate actions like sending out notices and other communications to the

investors as well as despatch of dividends and other non-cash benefits. R&T Agents perform

an equally important role in the depository system as well.

• STOCK BROKERS

Stockbrokers are the intermediaries who are allowed to trade in securities on the exchange of

which they are members. They buy and sell on their own behalf as well as on behalf of their

clients. Traditionally in India, individuals owned firms providing brokerage services or they

were partnership firms with unlimited liabilities. There were, therefore, restrictions on the

amount of funds they could raise by way of debt. With increasing volumes in trading as well

as in the number of small investors, lack of adequate capitalization of these firms exposed

23
investors to the risks of these firms going bust and the investors would have no recourse to

recovering their dues. With the legal changes being effected in the membership rules of stock

exchanges as well as in the capital gains structure for stock-broking firms, a number of

brokerage firms have converted themselves into corporate entities. In fact, NSE encouraged

the setting up of corporate broking members and has today has only 10% of its members who

are not corporate entities.

• CUSTODIANS

In the earliest phase of capital market reforms, to get over the problems associated with

paper-based securities, large holding by institutions and banks were sought to be

immobilized. Immobilization of securities is done by storing or lodging the physical security

certificates with an organization that acts as a custodian - a securities depository. All

subsequent transactions in such immobilized securities take place through book entries. The

actual owners have the right to withdraw the physical securities from the custodial agent

whenever required by them. In the case of IPO, a jumbo certificate is issued in the name of

the beneficiary owners based on which the depository gives credit to the account of

beneficiary owners. The Stock Holding Corporation of India was set up to act as a custodian

for securities of a large number of banks and institutions who were mainly in the public

sector. Some of the banks and financial institutions also started providing "Custodial"

services to smaller investors for a fee. With the introduction of dematerialization of securities

there has been a shift in the role and business operations of Custodians. But they still remain

an important intermediary providing services to the investors who still hold securities in a

physical form.

24
• MUTUAL FUNDS

Mutual funds are financial intermediaries, which collect the savings of small investors and

invest them in a diversified portfolio of securities to minimize risk and maximize returns for

their participants. Mutual funds have given a major fillip to the capital market - both primary

as well as secondary. The units of mutual funds, in turn, are also tradable securities. Their

price is determined by their net asset value (NAV) which is declared periodically. The

operations of the private mutual funds are regulated by SEBI with regard to their registration,

operations, administration and issue as well as trading.

There are various types of mutual funds, depending on whether they are open ended or close

ended and what their end use of funds is. An open-ended fund provides for easy liquidity and

is a perennial fund, as its very name suggests. A closed-ended fund has a stipulated maturity

period, generally five years. A growth fund has a higher percentage of its corpus invested in

equity than in fixed income securities, hence, the chances of capital appreciation (growth) are

higher. In Growth Funds, the dividend accrued, if any, is reinvested in the fund for the capital

appreciation of investments made by the investor. An Income fund on the other hand invests

a larger portion of its corpus in fixed income securities in order to pay out a portion of its

earnings to the investor at regular intervals. A balanced fund invests equally in fixed income

and equity in order to earn a minimum return to the investors. Some mutual funds are limited

to a particular industry; others invest exclusively in certain kinds of short-term instruments

like money market or Government securities. These are called money market funds or liquid

funds. To prevent processes like dividend stripping or to ensure that the funds are available to

the managers for a minimum period so that they can be deployed to at least cover the

25
administrative costs of the asset management company, mutual funds prescribe an entry load

or an exit load for the investors. If investors want to withdraw their investments earlier than

the stipulated period, an exit load is chargeable. To prevent profligacy, SEBI has prescribed

the maximum that can be charged to the investors by the fund managers.

• DEPOSITORIES

The depositories are important intermediaries in the securities market that is scrip-less or

moving towards such a state. In India, the Depositories Act defines a depository to mean "a

company formed and registered under the Companies Act, 1956 and which has been granted

a certificate of registration under sub-section (IA) of section 12 of the Securities and

Exchange Board of India Act, 1992." The principal function of a depository is to

dematerialize securities and enable their transactions in book-entry form.

A depository established under the Depositories Act can provide any service connected with

recording of allotment of securities or transfer of ownership of securities in the record of a

depository. A depository cannot directly open accounts and provide services to clients. Any

person willing to avail of the services of the depository can do so by entering into an

agreement with the depository through any of its Depository Participants.

• DEPOSITORY PARTICIPANTS

A Depository Participant (DP) is described as an agent of the depository. They are the

intermediaries between the depository and the investors. The relationship between the DPs

and the depository is governed by an agreement made between the two under the

Depositories Act. In a strictly legal sense, a DP is an entity who is registered as such with

26
SEBI under the provisions of the SEBI Act. As per the provisions of this Act, a DP can offer

depository related services only after obtaining a certificate of registration from SEBI. SEBI

(D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for stockbrokers,

R&T agents and non-banking finance companies (NBFC), for granting them a certificate of

registration to act as DPs. No minimum net worth criterion has been prescribed for other

categories of DPs. However, depositories can fix a higher net worth criterion for their DPs.

NSDL requires a minimum net worth of Rs. 100 lakh to be eligible to become a DP as

against Rs. 50 lakh prescribed by SEBI (D&P) Regulations.

27
CHAPTER 3

OBJECTIVE OF STUDY

Whenever a study is conducted, it is done on the basis of certain objectives in mind. A

successful completion of a project is based on the objectives of the study that could be stated

as under: -

28
 1. To study the expectations and apprehensions of Investors and Traders and also their

way of working in Indian stock markets.

2. To study the time period for which investments are generally made by investors in the

stock markets.

3. To study how comfortable people investing in stock markets are.

4. To study the importance of various factors which according to investors and traders

affect the share prices.

5. To study the decision making criterions of those investing in stock markets.

6. To determine the most preferred investment avenues of those dealing in stock

markets.

CHAPTER 4

RESEARCH METHODOLOGY

Research Methodology is a systematic way to solve the research problem. It may be

understood as a science of studying how research is done scientifically.

The present study was undertaken for the Study of Indian Stock Markets. This chapter gives

us the Research Design, Sampling Plan, Method of Data Collection and Tools used for Data

Analysis & Interpretation.

29
The study was conducted by designing a questionnaire. Before going for the research I

conducted a Pilot Run with 25 respondents which threw light on few aspects which needed

improvement. This pilot run also gave me few new things which I took care off while doing

the research. Then I personally contacted 200 respondents to get the questionnaires filled.

UNIVERSE

The universe of the study included respondents of tri-city Chandigarh who are currently

dealing into stock markets.

SAMPLING PLAN

Sampling is an effective step in collection of primary data and has a great influence on the

quality of results. The sampling plan includes the population, sample size and sampling

design.

POPULATION

The study is aimed to include all those people who are currently dealing into stock markets.

SAMPLE SIZE

The sample was drawn from the population using convenience sampling technique. The

sample size for the research was kept at 200.

SAMPLING DESIGN

30
The selection of the respondents was done on the basis of convenience sampling as the

universe under the coverage area of the study was too large.

METHOD OF DATA COLLECTION

To observe and probe into the perceptions of the investors and traders present in Stock

Markets in India, I have prepared a questionnaire containing 14 questions. I personally

contacted 200 respondents to get the questionnaires filled. All possible efforts were made to

gather information in some rational way to remove biasness.

DATA ANALYSIS & INTERPRETATION:

For the purpose of analyzing, raw data was summarized into charts and the results have been

carried out. The questions, which have alternative choices, were analyzed by taking

percentages. Proper analysis of the data has been made to get proper results.

STATISTICAL TOOLS

Various statistical tools of analysis like frequency distribution, percentages, mean, Z-test and

Chi-square test have been used to meet the objectives of the study. The details of the

techniques used are as follows:

LIKERT SCALE

31
The response to the opinion statement was measured on a 3 point scale. The scale consisted

of the options of very important, important and not important. The weights assigned to these

scales are 2, 1 and 0.

MEAN SCORE

The options were given scores (Sn) according to their importance or intensity. The total

scores (T) were calculated by finding the summation of Sn x fn where fn is the frequency of

response for every option. The mean scores (M) are calculated by dividing the total score (T)

thus obtained by the number of respondents.

Z-TEST

The z-test was used to determine whether the investors and traders are comfortable in

investing in the stock markets or not. The test was applied as under:

Where:

Xp : Population Mean

Xs : Sample Mean

N : Sample Size

S.E. : Standard Error

For the z-test following null hypothesis was formulated.

H0 : The investors and traders are not comfortable while investing in stock markets.

32
CHAPTER 5
ANALYSIS AND INTERPRETATIONS

This chapter presents the analysis of the primary data collected from the respondents.

5.1 INTERPRETATIONS

33
 5.1.1 NATURE OF INVESTMENT

A total of 200 respondents were studied. The split up of the respondents according to the

nature of their investment is as given in table 5.1

Table 5.1 Distribution of respondents according to their nature

NATURE NUMBER PERCENTAGE

Investor 70 35%

Trader 130 65%

35% of the respondents were investors and 65% were traders. Thus most of the respondents

covered during the course of survey were investors who invested their funds for certain

period of time.

5.1.2 TERM OF INVESTMENT BY INVESTORS

The investors were also asked to mark their choice for the term of their investments. The

sample size for this purpose remained at 70.

Table 5.2 Distribution of respondents who were investors according to their tenure of

investment

34
 TERM NUMBER PERCENTAGE

Short Term 20 28.57

Medium Term 33 47.14

Long Term 17 24.29

The study showed that around 29% of the respondents were short term investors, around 47%

medium term investors and only 24% were long term investors. Thus, it can be concluded

that most investors in share markets are either short or medium term investors.

5.1.3 TYPE OF TRADING BY TRADERS

The traders were asked to mark their choice for the most preferred type of trading. The

sample size for this purpose was 130.

Table 5.3 Distribution of respondents who were traders according to their type of

trading

TYPE OF TRADING NUMBER PERCENTAGE

Intraday 76 58.46

Cash/Delivery 23 17.70

Futures & Options 31 23.84

35
The study showed that around 58% of traders do intraday trading, 18% do cash or delivery

based trading and rest 24% trade in futures and options. Therefore, it can be clearly

concluded that intraday trading is the most preferred type of trading by traders, followed by

futures and options.

5.1.4 COMFORATABILITY LEVEL OF INVESTORS AND

TRADERS

In the present state of stock markets, it becomes really important to know whether the

investors and traders dealing in stock markets are comfortable investing in stocks or not.

An effort has been made in this project to know the comfortability level of those who are

currently dealing into stock markets. The respondents were asked to give their opinion

about their comfortability level on a 5 point likert scale. The points of scale being very

comfortable, somewhat comfortable, indifferent, somewhat uncomfortable and not at all

comfortable.

The weights attached to these waits were 5,4,3,2 and 1 respectively. Z-test has been used

to check the hypotheses, with null hypotheses being set as:

H0 : The investors are comfortable.

H1 : The investors are not comfortable

Table 5.4 Z-test calculations

N f Nf D D2 fD fD2
5 16 80 2 4 32 64
4 22 88 1 1 22 22
3 70 210 0 0 0 0
2 56 112 -1 1 -56 56
1 36 36 -2 4 -72 144
2
∑f = 200 ∑nf = 526 ∑D = 10 ∑fD= -74 ∑fD2 = 286

36
 • Mean = ∑nf/∑f

= 526/200

• Sample mean = 2.63

• Population mean = 2

(Assumed i.e. hypotheses)

• Standard Deviation = 1.137

• Standard Error = 0.08

• Z calculated is found out by dividing the difference of sample mean and population

mean by the standard error.

• Zc = 7.875

• Zt = 1.96

• Since Zc > Zt therefore H0 is rejected and H1 is accepted

• This shows that the investors are not comfortable at this point of time while investing

funds in stock markets.

Thus it is clear from the Z-test that the investors are not comfortable while investing their

funds in stock markets. It signifies the investor’s lack of confidence in Indian capital

markets.

5.1.6 NUMBER OF DEMAT ACCOUNTS

The respondents also had to mark for the number of demat accounts they currently hold.

Table 5.6 Distribution of respondents according to the number of demat accounts

37
 NUMBER OF DEMAT NUMBER PERCENTAGE

ACCOUNTS
0–2 119 59.5
2–4 59 29.5
4 & Above 22 11
As it is evident from the table, 60% of the respondents only had one demat account whereas

29% had either 2 or 3 demat accounts and only 11% had 4 or more number of demat

accounts. Therefore, it is clear that most people deal through one demat account and less

people have multiple number of demat accounts.

5.1.7 PREFERENCE OF STOCK EXCHANGE

All the respondents had to mark their choice for the most preferred stock exchange. Results

have been shown below:

Table 5.7 Distribution of respondents according to their preference of dealing in two

major stock exchange of India

STOCK EXCHANGE NUMBER PERCENTAGE

NSE 124 62

BSE 76 38

62% of the respondents marked their preference for NSE and only 38% for BSE. This

clearly shows that NSE outperforms BSE by a big margin and is the most preferred choice of

people to trade in.

5.1.8 FREQUENCY OF TRADING

38
The respondents were asked to mark their choice as to their general frequency of trading.

Table 5.8 Distribution of respondents on the basis of their frequency of trading

FREQUENCY NUMBER PERCENTAGE

Daily 60 30

Once a week 37 18.5

Once a month 16 8

Depends 87 43.5

The study revealed that 30% of the respondents traded daily, 18.5% traded once a week, 8%

traded once a month and 43.5% traded depending upon the market availability and

availability of funds. Thus, most people trade in tandem to markets and availability of funds.

5.1.9 PREFERRED MODE OF TRADING

The respondents were asked to mark their most preferred mode of trading among the

following four choices:

1. Dial and trade

2. Online Trading

3. Software loaded at their PC’s

4. At Broker’s House

39
Table 5.9 Distribution of respondents according to their preferred mode of trading

MODE OF TRADING NUMBER PERCENTAGE

Dial and trade 86 43
Online trading 40 20
Software 22 11
Broker house 52 26

The above table shows that 43% of the respondents preferred dial and trade, 20% preferred

online trading, only 11% preferred trading by softwares loaded on their PCs and 26%

preferred to trade at the broker’s house. Thus, it can be concluded that dial and trade and

trading at broker’s place are the two most preferred mode of trading of respondents.

5.1.10 PREFERENCE OF TRADING WITH MARGING FUNDING

Margin funding is a facility provided by brokers at a charge of some rate of interest on the

amount funded. Respondents were asked to mark their general preference for it.

Table 5.10 Distribution of respondents according to their preference of trading with

margin funding

FACILITY NUMBER PERCENTAGE

Yes 44 22
No 116 58
Sometimes 40 20
22% of the respondents preferred to trade with the facility of margin funding, 58% did not

prefer trading with margin funding and 20% traded on margin funding depending upon the

40
market conditions. Thus, market conditions play a major role for preference of margin

funding by respondents.

5.1.11 EXPOSURE DESIRED

Exposure is the number of times an investor can trade over and above his available funds.

Respondents had to mark their choice for the exposure they desired in normal market

conditions.

Table 5.11 Distribution of respondents according to the exposure they desire

EXPOSURE NUMBER PERCENTAGE

0 – 2 Times 98 49
2 - 4 Times 68 34
4 - 6 Times 17 8.5
6 - 8 Times 10 5
8 & more Times 7 3.5

As evident from the table, 49% of respondents desired exposure of only one time, 34%

desired of two or three times, 8.5% desired of four or five times, only 5% desired of six or

seven times and only 3.5% desired for exposure of eight times or more. Thus, most of the

respondents do not want themselves to be exposed to more of risk.

5.1.12 FACTORS AFFECTING MARKET PRICES OF SHARES

Today’s capital markets are dependent on a number of factors. In this study an attempt

has been made to understand the various factors that an investor thinks is responsible for

changes in market prices of shares.

41
 The respondents were given a set of factors and were asked to rate them on a 3 point

scale. The points on the scale were very important, important and not important. The

relative weights attached to these options were 2,1 and 0. Weighted means for each factor

were calculated. Inferences were drawn based on the following:

Table 5.12 Mean score and importance attached

MEAN IMPORTANCE
1.25 to 1.5 Fairly Important
Above 1.5 Very Important

Table 5.12.1 Factors considered responsible for changes in market prices of shares

SCORE 2 1 0
FACTORS Very imp. Important Not imp. Total score Mean score
Demand & 140 60 0 340 1.70

Supply

42
 Companies 126 52 22 304 1.52

Business

Developments
Global 150 47 3 347 1.735

Markets
Indian 119 49 32 287 1.435

Economy
Interest 84 76 40 244 1.22

Rates

The factors having mean score ranging between 1.25 to 1.50 are considered to be fairly

important and factors having mean score more than 1.50 are very important from the

investor’s perspective.

As it is clear from the table, Indian economy fall under the category of fairly important

factors with mean score of 1.435. Thus, it may be noted that the economy plays a vital

role in development of capital markets.

Three factors with mean score greater than 1.5 are in the category of very important

factors. At the top is the global market factor. Its mean score is 1.735 which is on the

higher side. Demand and Supply is another important factor that affects capital markets

with mean score of 1.70 which is quite high. The third important factor that affects

market prices of shares is a companies own business development. Its mean score is 1.52.

It is evident from the table that interest rates falls under the category of unimportant

factors. Thus, most respondents are of the view that interest rates have a relatively less

bearing on share prices as compared to other factors.

43
 5.1.13 FACTORS AFFECTING BUY OR SELL DECISION DURING

TRADING SESSION

There are a number of factors that influences the decision of investors to either buy or sell

shares during the trading session i.e. when the markets are operational. An effort has been

made to understand such factors.

Investors were asked to mark the most influential factor they thought which affects their

buying or selling decision during the trading session and the observed numbers (O) were

noted. Expected values (E) were set to be as equal i.e. all factors are equally responsible

for the investor’s decision.

Null hypotheses H0 : There is no significant difference between the factors and have

equal bearings on investor’s decision.

Chi-square was used to check the hypotheses. The observed and the expected values were

used and chi-square was calculated. Chi-square was applied as shown below:

Table 5.13 Chi-square test to test the hypothesis

Observed Estimated (O-E)2 (O-E)2 / E

Value (O) Value (E)

Own 52 50 4 0.08

judgement
Companions at 46 50 16 0.32

trading centre
Research 43 50 49 0.98

44
 Calls/Tips
Market News 59 50 81 1.62

Total 3

Table value at 95% confidence level (at degrees of freedom 3) = 7.81

As calculated value is less than table value therefore null hypothesis is accepted and alternate

hypothesis is rejected.

Thus, it can be concluded that an investor’s decision to buy or sell shares during the trading

session is influenced by a number of factors, the majority of them being own judgement,

companions at the trading centre, research calls/tips and market news and an investor’s

decision is influenced by each of them in some or the other way.

5.1.14 MOST SOUGHT INVESTMENT INSTRUMENTS

There are many investment instruments were an individual can invest his savings. Major

among those are in Stock markets, Fixed Deposits, Insurance and Mutual funds.

Respondents were asked to mark only that option from among the above mentioned 4

investment instruments in which they invest most part of their savings.

The observed values (O) were noted and Expected values (E) were set to be as equal i.e.

all investment instruments are equally invested in by all investors.

Null hypotheses H0 : There is no significant difference between different investment

instruments.

45
 Chi-square was used to check the hypotheses. The observed and the expected values were

used and chi-square was calculated. Chi-square was applied as shown below:

Table 5.14 Chi-square test to test the hypothesis about most sought investment

instrument

Observed Estimated (O-E)2 (O-E)2 / E

Value (O) Value (E)

Stock Markets 36 50 196 3.92
Fixed Deposits 92 50 1764 35.28
Insurance 33 50 289 5.78
Mutual Funds 39 50 121 2.42
Total 47.4

Table value at 95% confidence level (at degrees of freedom 3) = 7.81

As calculated value is greater than table value therefore null hypothesis is rejected and

alternate hypothesis is accepted.

So we can say that different investors invest in different investment instruments according to

their perceptions and pros and cons of different investment instruments.

46% of the respondents invested in fixed deposits which is quite high. The various factors

that could be attributed to this can be liquidity, high security of money and less but

guaranteed returns.

19.5% of respondents invested most part of their savings in mutual funds. The reason for this

can be liquidity, high returns, lower risk and tax advantages.

18% of the respondents invested mostly in stock markets, signifying thereby, their ability to

take higher risks, lust for higher returns and high amount of liquidity involved.

46
Only 16.5% respondents invested mostly in insurance products. The reason why people

invest less in insurance is its inability to provide good returns and liquidity to its investors.

Although, insurance has tax soaps attached to it, even then it’s the least preferred investment

avenue.

Therefore, from an investor’s point of view, the following factors are taken into account

while considering any investments:

1. Risk Involved in the investment

2. Liquidity of money

3. Tax advantages and

4. Returns

5.1.16 EXPECTED RATE OF RETURN

Respondents were asked to mark the rate of return they expected per annum out of their

funds invested in share markets.

Table 5.16 Distribution of respondents according to the returns they expect from share

market

RETURN NUMBER PERCENTAGE

0 – 10% 24 12
10% - 20% 118 59
20% - 30% 28 14
30% & Above 30 15

The above table shows that just 12% of the respondents expect 0 – 10% returns, 59% expect

10 – 20% returns, 14% expect 20 – 30% returns and 15% expect 30% and above returns.

47
Thus, it can be concluded that most people dealing in share markets are optimistic in nature

and expect returns on a higher end.

5.2 SWOT ANALYSIS OF INDIAN STOCK MARKETS

 Strengths

o World’s second fastest growing economy

o High Turnover with daily turnover averaging around 55,000 crores.

o Most sought Investment destination in Asia

o Large amount of Liquidity as flow of money has been continuous from

foreign sources.

o SEBI as a regulator efficacy

o Third largest Investor base in the World with more than 25 million

investors

o Macroeconomic Stability

o Technological Advanced

o One of the world’s lowest transaction cost based on screen based

transactions, paperless trading and a T+2 settlement cycle.

o P/E ratios of companies are moving in positive directions from last few

years.

o Level of inflation has also stayed at comfortable levels from quite some

time.

48
 WEAKNESSES

o Higher interdependence on global markets like U.S. The recent example in

this regard is the sub prime loan mortgage defaults in USA which has

triggered panic in Indian stock markets, though; Indian companies are not

exposed to it.

o Higher volatility and lack of stability

o Speculative in nature

o Monetary and fiscal measures

 OPPORTUNITIES

o Large amount of unutilized money with Public Sector Undertakings

(PSU’s).

o Pension Funds in the near future are to tap Indian stock markets.

o Large numbers of investors are still not exposed to stock markets, thus

large amount of savings still to reach stock markets.

 THREATS

o Indian economy is getting overheated. Growth of around 10% is

unsustainable.

o Inflationary Trend.

o Tightening of liquidity norms by RBI.

o Chinese Economy.

49
CHAPTER 6

FINDINGS AND DISCUSSIONS

In a nation with population of more than 1.1 billion, only a handful of them invest in stock

markets. It is a place for all those who dream of a better, financially comfortable tomorrow as

stock markets are obviously the perfect place to invest-especially when stock markets can

make them considerably rich in a short span of time, provided they play their cards right.

Therefore, stock markets is all about taking right decision at the right time in the light of all

the information available and keeping a close watch on various factors affecting the stock

markets.

This study aimed at analyzing the behaviour and expectations of those dealing in stock

markets and finding such factors which they think are responsible for price fluctuations.

The study revealed that most of the people dealing in stock markets are investors as against

traders. This signifies that stock markets, despite of its risky nature is a good investment

avenue for investors who are generally looking for short to medium term investment. On the

other hand, people with trading nature that prefer investment for very short term mostly trade

in cash/delivery, followed very closely by intra day and futures and options.

The study also discovered that many people in stock markets are dealing through multiple

demat accounts which not only exaggerates the investor base, but provides a false picture of

Indian capital markets. Thus, it can be concluded that capital markets are still not among the

50
favoured investment destination for most and huge amount of savings are still unavailable to

capital markets. The study also found that dial and trade and trading at broker’s house are

undoubtedly the preferred mode of trading for most people but online trading is also catching

up fast. This can be taken as a potential market for depository participants to tap up. It was

also clear from the study that most people traded depending upon the market conditions and

availability of funds which clearly throws light on the behaviour of people dealing in stock

markets indicating that swing in the market and liquidity also plays its part in stock markets.

It was also found out in the study that most people preferred to trade in National Stock

Exchange (NSE) as compared to Bombay Stock Exchange (BSE). The most stated reason for

it was said to be availability of futures and options on NSE and lesser volatility of the NSE

index Nifty as compared to BSE’s Sensex.

It was also clear from the study that most of the people currently investing in stock markets

are quite comfortable investing in it. This is a clear indication of investor’s confidence in

Indian capital markets and a positive sign for India’s growth. It was much more evident when

many of them answered in positive for the facility of margin trading and indicated for higher

exposure they desired in the normal market.

One of the most important objectives of the study was to determine most important factors

responsible for price fluctuation according to people dealing in stock markets, analyze the

decision making criterion for investment and their expectations from markets.

Though, stock markets are driven by a number of factors, yet from among the major factors

given as choices, the study revealed that most people gave high amount of importance to

51
demand and supply factors, global markets and a company’s business developments. Indian

economy was also considered to be an important factor whereas interest rate factor was

considered to be unimportant by the most. The study found out that people depended upon a

number of factors such as own judgement, companions at the trading centre, research

calls/tips and market news to buy or sell shares during trading session and they were more or

less equally important. The study was also aimed at finding out the returns that people expect

out of their funds invested in stock markets and most of the answers ranged between 10%-

30% which is a sheer sign of optimism among investors.

The study also made it clear that most people still are not much risk takers when it comes to

investing most part of their savings. They prefer to invest in one of the safest investment

instrument called fixed deposits followed by mutual funds, stock markets and insurance.

Other objective of the study was to find out the most important factor that influences the

decision of the people in stock markets for the choice of a brokerage house and awareness

regarding Anand Rathi and its products and services.

The most important factors which emerged were the account opening and annual charges and

brokerage charged, clearly indicating that brokerage houses should keep such charges at the

minimum to attract maximum customers. The other factor which influenced the choice of

many was the service being provided by brokerage house. This should be taken as a potential

area to work upon by all brokerage houses. The awareness regarding Anand Rathi and its

products and services was found to be very low as compared to the group’s stature. The

52
company needs to seriously work on its strategies to have a presence in the market, the

suggestions for which have been given personally by me in the next chapter.

53
CHAPTER 8

LIMITATIONS OF THE STUDY

Though every care has been taken to make this report authentic in every sense, yet there were

a few uncomfortable factors, which might have their influence on the final report. Linking

factors can be stated as: -

 Time Constraint

Due to lack of time it was not possible to deeply study every aspect of stock markets and

devote enough time for research work. But still sincere efforts were put to reach to the

reliable conclusion.

 Data Collection Constraints

There were many problems regarding the collection of data which are as follows:

Primary Data Constraints

1. As the questionnaires were filled during the working hours, the respondents had little

time to devote for filling the questionnaires.

2. Some respondents didn’t have their serious attitude towards the questionnaire and

hence their responses may not reflect the real picture.

54
 3. Some of the respondents were not candid enough to reveal all the required

information. They might have given inflated or wrong data.

4. The survey was conducted in the Chandigarh and its surrounding areas. Thus the

respondents belonged only to this region of country. This could have brought biasness

into the study.

5. However all the efforts were made to remove the biasness but it cannot be denied that

there is no possibility of individual biasness on the part of respondent.

Secondary Data Constraints

It was tried very harder to include the best of information from published and unpublished

sources available on internet, books and magazines but some of the data required for the

detailed study was not available freely.

55
 BIBLIOGRAPHY

Books

• Marc Levinson, Guide to Financial Markets

• Naresh K. Malhotra , Marketing Research

Web Sites

• www.surfindia.com

• www.wikipedia.com
ANNEXURE
 QUESTIONNAIRE

Dear Sir/Madam,
This information provided by you will be utilized in completion of our MBA project.
We will be thankful for the time & effort you will spend in filling the questionnaire.

o Name………………………………………………………………

o Address……………………………………………………………

o Phone number…………………………………………………….

o Profession………………………………………………………….

1. Are you a:
Investor

Trader
If an investor, go to Q2 otherwise proceed to Q3.

2. What type of investor you are:

Short Term

Medium Term
Long Term

3. As a trader which type of trading you do the most:

Intra Day

Cash/Delivery
Futures and Options
4. How comfortable you are while investing in current phase of stock markets:

Very Comfortable
Somewhat Comfortable
Indifferent
Somewhat Uncomfortable
Not at all comfortable

5. To what extent you are aware about Anand Rathi and its products and services:

Detailed Knowledge
Not detailed knowledge
Heard about it
Not Heard

6. How many demat accounts do you have?

0-2

2–4
4 and above

7. In which equity market you prefer to work the most and why(Please specify):

NSE BSE

…..........................................................................................................

8. How often do you trade in stock market?

Daily

Once in a week
 Once in a month
Depends on the market conditions and availability of funds

9. What is your preferred mode of trading?

Dial and trade

Online trading
Software loaded at your PC
At the broker house

10. Do you prefer trading with the facility of margin funding?

Yes

No
Sometimes, when the market is in full swing

11. What is the exposure you desire in the normal market?

0 -2 times 2 -4 times 4 - 6 times

6 - 8 times 8 and more times

12. What importance does the following factors have in the change in market prices of
shares in the share market: (Tick the appropriate option)

Very Important Important Not Important

Demand & Supply

Companies Business Developments
Global Markets
Indian Economy
Interest Rates
13. Which is the major factor that lures you to buy or sell shares during the trading
session?
Own judgment

Companions at the trading centre

Research Calls/Tips
Market News

14. In which of the following investment instruments you invest most part of your savings:
(tick only one)
Stock Markets

Fixed Deposits
Insurance
Mutual Funds

15. What are the factors that influence your decision to choose a brokerage house:(Rank:1
for most important criterion and 4 for least important criterion)
Account Opening Charges & Annual Charges

Brokerage
Services (Margin Funding, research calls)
Location

16. What percentage of return you expect per annum from your funds invested in share
market?
0 - 10%
10% - 20%
20% - 30%
30% & above