INVESTORS PERCEPTIONS AND PREFERENCES FOR CAPITAL MARKET: EVIDENCES FROM INDIA

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1 INTERNATIONAL JOURNAL OF MANAGEMENT (IJM) International Journal of Management (IJM), ISSN (Print), ISSN (Online), ISSN (Print) ISSN (Online) Volume 5, Issue 12, December (2014), pp IAEME: Journal Impact Factor (2014): (Calculated by GISI) IJM I A E M E INVESTORS PERCEPTIONS AND PREFERENCES FOR CAPITAL MARKET: EVIDENCES FROM INDIA Dr. SHIVAKUMAR DEENE Assistant Professor, Dept. of Commerce, School of Business Studies, Central University of Karnataka, Gulbarga (Karnataka-India) Prof. SATYANARAYAN PATHI Dept. of Business Administration, Brahampur University, Brahampur, Odhisa-India ABSTRACT This study aims to measure the investors perceptions and preferences towards Indian capital market with reference to small individual investors of India. This research is a descriptive research study, in which, an appropriate method of sampling namely stratified random sampling was used and to make the study acceptable, a sample of around 425 units were used. While selecting sample small investors proper representation was given to factors like age, income, education, and occupation etc. to make the sample representative of the population more apposite. INTRODUCTION The success of a country s economy largely depends upon the growth of the capital market to and the growth of the capital market depends upon the proper understanding of the small individual investors (Household) and attracting them towards the capital market, the reason is that all the individual investors have got the major chunk to invest as they have got more than what the spent and this holds quite opposite in case of all corporate entities. India with its more than 120 crore population could not able to attract many individual investors to exploit the opportunities properly and it is because of this only most of the precious opportunities went on without any notice. This is a red-light alarm for all the stakeholders specifically to all the policymakers and regulators and also to the corporate entities that, they must need to give at most important to the individual investors and also must try to explore all the possibilities, which enables them to understand each and every corner of the individual investors i.e. their perception, behaviour, attitudes and their preference towards the capital market and then only it is possible for them to come out with the instruments that could be to suited to their requirements of Small Individual Investors and can easily attract many number of small individual investors toward the capital market. The present article is an attempt in this 69

2 direction and wholly tried to assess the preference and perception of individual investors towards the capital market in the State of Karnataka. To address the above mentioned issues in the article, following factors were being identified and presented below and later-on dealt in detail title-wise. 1. Expectations from the Investment 2. Corporate Securities in Order of Preference 3. Sort of Investment Preferred 4. Perception on the Financial Performance Indicators 5. Level of Satisfaction on Your Investment 6. Perception on Management of Investment 7. Perception about a Kind of Information was Missing 8. Perception on the Securities Market as a Whole THE CONCEPT OF SMALL INDIVIDUAL INVESTORS According to Securities and Exchange Board of India (SEBI), small individual investor means an investor who applies or bids for securities of or for a value of not more than Rs.1,00,000. THE CONCEPT OF CAPITAL MARKET Though the capital market consists of all institutions, instruments and services, which pertain to long-term finance, the term here has been used to mean the industrial securities market only. OBJECTIVES OF THE STUDY To analyze the perceptions and preferences of small individual investors with reference to their investment in corporate securities. HYPOTHESES H1: The preference of the small individual investors differs significantly towards various issues. H2: The perception of the small individual investors differs significantly towards financial performance indicators. H3: The level of satisfaction and opinion on security markets differ significantly across small individual investors. METHOD Sample Respondents In a study of this kind involving large population with diverse features made the selection of sample bit difficult, but still to make the study more relevant, an appropriate method of sampling namely Stratified Random Sampling was used, since this is an appropriate method providing the appropriate sample size for the study representing all the districts in Karnataka State and to make the study acceptable, a sample of around 425 units were used (Robert & Morgan,1970). 70

3 RESEARCH SAMPLE AREA Table 1: Sample Units Divisions No. Respondents Gulbarga Division 107 Bangalore Division 106 Belgaum Division 106 Mysore Division 106 Total 425 SOURCES OF DATA The information on investors perceptions & preferences has been collected through a structured questionnaire. The data collected from small investors for a span of 6 months starting from January 2014 through June SCORING AND ANALYSIS OF DATA The sample investors perception of various concepts and ratio normally used in financial publications were measured by collecting their responses on different points scale. The scale points were High, Moderate and Low degree of understanding or strongly agree to strongly disagree. For the data collected chi-square tests were applied to see the significance of difference between frequencies. DATA ANALYSIS AND INTERPRETATION Tables 2 to 10 present expectations, preferences, perception on financial parameter indicators, investment management, information required, and levels of satisfaction and results of test statistics. a. Expectations from investment Table 2: Expectations from investment Sl.No. Expectations from Investment Frequency Percent 1. Reasonable Rate of Return Capital Appreciation Speculative Profits Ensuring Liquidity for the Investment Tax Incentive Securing Safety for the Investment Total X 2 = ;P=.000 Most of the sample investors invested in the securities market to earn a reasonable rate of return and this was ranked as the first expectation from their investment % of small individual investors reveal their expectations saying that, they entered into this securities market with an 71

4 expectation of tax incentive followed by capital appreciation and securing safety for the investment etc. But, the last and only few small individual investors end-up by revealing their expectation saying ensuring liquidity for the investment. X2 test revealed significant difference between these groups of frequencies. b. Corporate securities in order of preference Sl.No. Table 4: Corporate securities in order of preference (1-6) One of the most interesting facts unveiled by the study was that, out of the 425 sample respondents 59.5 % of sample investors ranked equity shares as their first preference. This was followed by other financial instruments namely cumulative convertible preference shares. The last preference was stood by the Non-CCP Shares. Chi-square test revealed a significant difference among these groups of frequencies. c. Sort of Investment Preferred Type of Corporate Securities Preferred Frequency Percent 1. Equity Shares Cumulative Convertible Preference Shares Non-CCP Shares Fully Convertible Debentures Partly Convertible Debenture Non-Convertible Debentures Total X 2 = P=.000 Table 5: Sort of Investment Preferred Sl.No. Investment Preferred Frequency Percent 1. Long Term Medium Term Short Term Total X 2 = P=.000 It was revealed by the facts mentioned above that, most of the small individual investors (59.8%) preferred medium term investments, and this was backed by long term investments with favoring of 108 small individual investors. Only 63 respondents had said that, they prefer short-term investments. The chi-square value mentioned above also supports the fact that, there existed a significance difference between the variables under the study. 72

5 d. Perception on the Financial Performance Indicators Table 6: Perception on the Financial Performance Indicators Sl.No. Particulars High Medium Low Chi-square a) Earnings per share 253(59.5%) 129 (30.4%) 43 (10.1%) X 2 = P=.000 b) P/E ratio 178 (41.2%) 207 (48.7%) 40 (9.4%) X 2 = P=.000 c) Dividend per share 212 (49.9%) 175 (41.2%) 38 (8.9%) X 2 = P=.000 d) Listing of securities 264 (62.1%) 120 (28.2%) 41 (9.6%) X 2 = P=.000 e) Technical analysis 274(64.5%) 112 (26.4%) 39 (9.2%) X 2 = P=.000 f) Rights of shareholders 212(49.9%) 184 (38.4%) 29 (6.8%) X 2 = P=.000 g) Fundamental analysis 178 (41.9%) 163 (38.4%) 84 (19.8%) X 2 = P=.000 h) Financial projections 191 (44.9%) 184 (43.3%) 50 (11.8%) X 2 = P=.000 i) Profit margin 253 (59.5%) 152 (35.8%) 20 (4.7%) X 2 = P=.000 j) Annual report 323 (76.0%) %) 17 (4.0%) X 2 = P=.000 k) Issue highlights 314 (73.9%) 60 (14.1%) 51 (12.0%) X 2 = P=.000 l) Regulation of companies 340 (80.0%) 66 (15.5%) 19 (4.5%) X 2 = P=.000 m) Investor protection 383 (90.1%) 39 (9.2%) 3 (.7%) X 2 = P=.000 n) Speculation 209 (49.2%) 146 (34.4%) 70 (16.5%) X 2 = P=.000 o) Risk factors 306 (72.0%) 107 (25.2%) 12 (2.8%) X 2 = P=.000 The table mentioned above unveils the perception of the small individual investors with regards to the various financial performance indicators. Nearly 15 financial performance indicators were identified and tried to know the perception on the same by the small individual investors. All most all the 15 parameters were being ranked as high only, followed by medium, with only few end up in saying as low, that means, most of the investors felt that, they used to consider these parameters before taking any kind of investment decisions. The respective chi-square values of all the parameters were presented in the table and scientifically believed that, there existed a significance difference among the groups of frequencies. 73

6 e. Level of Satisfaction on your Investment Table 10: Level of Satisfaction on your Investment Sl.No. Extent of Satisfaction Frequency Percent 1. Very Good Satisfactory Poor Total X 2 = P=.000 The analyses above clearly documented the fact that, most of the small individual investors (188 out of 425) were not happy with the securities market and placed their satisfaction as poor. And 35.8 % of small individual investors had agreed that, they were satisfactory in the securities market. But, 85 respondents out of 425 sample respondents had marked their satisfaction level by saying as very good. Though, the glance of the table presented above spoke about the differences among the variables, but to speak it in a scientific manner, the chi-square test was applied and the same was proved. f. Perception on Management of Investment Sl.N o. 1 2 Table 7: Perception on Management of Investment Statements S A So A So D S D C S Chi-square Confident that the financial institutions handle my money manage my accounts according to what is in my best interest Confident in my ability to buy and sell individual stocks without the assistance of stock broker 85 (20.0%) 56 (13.2%) 109 (25.6%) 109 (25.6%) 129 (30.4%) 173 (40.7%) 66 (15.5%) 52 (12.2 %) 36 (8.5%) 35 (8.5%) X 2 = P=.000 X 2 = P= Prefer to have others manage my investments for me, but I like to be involved in major investment decisions. 85 (20.0%) 254 (59.8%) 44 (10.4%) 27 (46.4%) 15 (3.5%) X 2 = P=.000 (SA: Strongly Agree, SoA: Somewhat Agree, SoD: Somewhat Disagree, SD: Strongly Disagree, CS: Cant Say.) When it was enquired to know the fact that, whether they were confident that the financial institutions handle their money manage the accounts according to their best interest or not. Then, 129 (30.4%) respondents out of 425 sample respondents opined that, they somewhat disagree with this statements and they were not satisfied with the conducts of the financial institutions managing the investments on behalf of the small individual investors. 25.6% of respondents had said that, they were somewhat agree. Only 85 respondents consented that, they strongly agree, but 66 respondents had opined that, they strongly disagree, this was followed by 36 respondents with a response of can t say. 74

7 When it was tried to test their ability to take an independent investment decisions without the support of the stock broker, the mixed responses were found and 195 respondents out of 425 had said that, they were not enough to take an independent decisions and 194 respondents had said that, they were sure of taking an independent decisions. But 35 respondents out of 425 sample respondents had given their responses as can t say at all. The chi-square values documented above supported the fact that, there existed a significance differences between the variables. When it was dug to know whether they allowed others to manage their investments or not. One interesting fact revealed by the analysis was, most of the respondents i.e. 339 out of 425 respondents had said that, they allowed others to manage their investments. Only 71 respondents had favored to allow others to manage their investments and this was end-up by remaining 15 respondents, who recorded their response by saying as can t say. There existed a significance difference among the variables understudy and this was rightly documented with the presence of the chi-square values mentioned above. g. Perception about a kind of information was missing Table 8: Perception about a kind of information was missing Sl.No. Type of Information Missing Frequency Per cent 1. My own research/understanding/lack of knowledge Lack of information/lack of details Protection/assurance/guarantees Transparency/trust/risky factors/dishonesty Uncertainty/fall in value/downturn of investments/economy Options/alternatives History/Long-term performance Everything / A lot Other None Not stated Total X 2 = P=.000 The above table landed spoke about the perception of small individual investors with regards to the kind of information they were missing. It was clearly revealed that, most of the respondents pointed out different information as missing components, but most of them clearly said that, the information related to the Uncertainty/fall in value/downturn of investments/economy was missing and this was followed by Protection/assurance/guarantees, History/Long-term performance and Transparency/trust/risky factors/dishonesty. The chi-square results also proved that, there existed a significance difference between the variables. 75

8 h. Perception on the securities market as a whole Table 9: Opinion on the securities market as a whole Sl.No. Opinion Frequency Percent 1. Favourable Unfavourable Do not know Total X 2 =159.11P=.000 The present table pictured above dealt with the overall opinion of the small individual investors with regards to the capital market as a whole. It was interesting to note down the fact that, though the concerned stakeholders had done many things to win the heart and confidence of these small individual investors, but till today they failed to win the confidence of the small individual investors as a whole. Out of the 425 sample respondents, 254 respondents had opined that, the securities market was not favorable at all and 128 respondents had said that, the market was favorable. This was followed by the do not know response by 43 respondents. It was also tried to establish the relationship between the variables and the chi-square results drawn clearly communicated that, there existed a significance difference among the variables under study. DISCUSSION Main findings of the study are Most of the sample investors invested in the securities market to earn a reasonable rate of return and this was ranked as the first expectation from their investment Most of the small individual investors preferred insurance as their best preference and ranked as first at the time of the investment in financial assets. Majority of the sample investors ranked equity shares as their first preference Most of the small individual investors preferred medium term investments, followed by long and short term investments Earnings per share, Listing of securities, Technical analysis, Profit margin, Annual report, Issue highlights. Regulation of companies, Investor protection and Risk factors were the major financial performance indicators as revealed by the sample selected. Majority of the investors preferred to have others to manage their investments for them, they like to be involved in major investment decisions. Most of the small individual investors had given unfavorable opinion with regards to the capital market. Majority of small individual investors said the level of satisfaction/experiences with the capital market is poor. H1 stated as the preference of the small individual investors vary significantly towards various issues is accepted H2 stated as the perception of the small individual investors varies significantly towards financial performance indicators is accepted. H3 stated as the level of satisfaction and opinion on security markets vary significantly across small individual investors is accepted 76

9 It is very clear from our analysis that, out of the total sample respondents most of the respondents answered that they entered into the capital market for the sake of reasonable rate of return. This results document a fact that they are not the speculators in the market and they have not considered the capital market in the form of gambling, due to the reason of assured risk in the form of gambling and speculations. The capital market of the country has matured enough in-terms of innovative instruments, so as to cater the diverse needs of the investor, be it whether institutional investors or small individual investors. But it is interesting fact to know that, thought the market has got very good number of innovative instruments, the major chunk of small individual investors were found of the traditional instrument that is equity shares. This clearly indicates that Indian small individual investors were bound of the traditional one and comfortable with that one only majorly. The reason is that the new instrument is not that much familiar in-terms of concept and in-terms of technicality. The small individual investors, who were in the market, were there majorly for medium term that is neither for long nor short term. This shows that the small individual investors in the chosen area were reluctant in trading short term and also in long term. Due to the risk factor involved in it. Most of the small individual investors do believe that the various financial indicators matter a lot at the time of taking an appropriate decision as most of the financial indicators portrait the sound otherwise the health of the enterprises chosen for investment. In other words the various financial indicators make the work of the small individual investors easier for investment. Above all the satisfaction of the small individual investors counts a lot, who are the one who could helps the nation in building the sound economy. The present study divulged a fact that most of the sample small individual investors were not happy and they responded by saying as POOR interms of satisfaction. This clearly unveils two reasons. The number one is that the small individual investors were not completely exposed to the capital market and the second one is that the policy makers, who were sitting at the helm of the affairs did not try to reach the small individual investors so honestly, otherwise the present situation would have been avoided to the great extent. The small individual investors though not satisfied completely with the conducts of fund manager/broker/sub-broker, they were of opinion that the funds must be managed by the specialist only (fund managers/brokers/sub-brokers) who are good enough in that field and who are trained in that particular field only. It seems that the global financial meltdown has really affected the very sentiments of the small individual investors and because of that only they had said majorly, the information pertaining to the uncertainty/fall in value/downturn of investments/economy was missing in the reports published by the companies. Last but not the least the perception of small individual investors with regards to the capital market is almost unfavorable, because of all the points highlighted above. This clearly awakes the minds of all the concerned stakeholders specifically the policy makers and the corporate elite, so as to do something to change the perception of the small individual investors and also the preferences too, so that all the untapped capital in the form of savings (of small individual investors) could be collected and channelized into productive ventures. REFERENCES 1. Ronald C. Sprecher: Introduction to Investment Management- Houghton Mifflin Company, Boston, 1975, Page No Donal E. Fischer and Ronald J. Jordan: Security Analysis and Portfolio Management- Prentice-Hall of India Pvt. Ltd., New Delhi. 1992, Page No LaxmanSaroop: Towards A Vibrant Capital Market- The Indian Journal of Commerce, September 1991, Vol. XLIV, Part III, No. 168, Page No

10 4. Gupta, L.C.: Indian Shareowners- A Survey- Society for Capital Market Research and Development, Delhi, 1991, Page No Siddaiah,T.: Stock Markets under Securities Scam- An Analytical Review-Fortune India, January 1-15,1993, Vol.XI, No. 5, Page No Maitin, T.P.: Corporate Capital Management- Modern Management, February- July 1989, Vol.VI, No.1 & 2, Page No Ramesh Gupta: Regulation of Securities Market in India: Some Issues- Chartered Secretary, June 1991, Vol.XXXI, No.6, Page No Simha, S.L.N.: Investor Protection- Southern Economist, April 15, 1990, Vol.28 No.24 Page No Suresh Thakur Desai: Investor Protection in India- Fortune India, June 1, 1992 Vol.X., No.15, Page No Chandra Prakash, R. and Anushuman, A.S.: Small Equtiy Shareholdings: The Repercussions- Chartered Secretary, July 1991, Vol. XXI, No. 7, Page No Dr. Shivakumar Deene and Prof. Satyanarayan Pathi, Investors Awareness About Capital Market Investments: A Study With Special Reference To Karnataka State International Journal of Advanced Research in Management (IJARM), Volume 4, Issue 3, 2013, pp ISSN Print: , ISSN Online: Dr. K. Rakesh and Mr. V S M Srinivas, Understanding Individual Investors Investment Behavior in Mutual Funds (A Study on Investors of North Coastal Andhra Pradesh), International Journal of Management (IJM), Volume 4, Issue 3, 2013, pp , ISSN Print: , ISSN Online: Dr. Narayan Baser, Dr. Mamta Brahmbhatt, Jay Talati & Riddhi Sanghavi, An Analytical Study on Investors Awareness and Perception Towards the Hedge Funds in Gujarat, International Journal of Advanced Research in Management (IJARM), Volume 3, Issue 1, 2012, pp ISSN Print: , ISSN Online: