CHAPTER-1

INTRODUCTION TO THE STUDY

1.1 INDUSTRY PROFILE

A stock exchange is “a body of individuals, whether incorporated or not, constituted for the purpose
of regulating or controlling the business of buying, selling or dealing in securities.”

“Securities refers to shares, bonds, scrip, stocks, debentures stock, and other marketable securities of
incorporated companies or similar, government securities, and rights or interest in securities.”

In India, the share market is a term used to refer to the two major stock exchanges in the country—
Bombay Stock Exchange (BSE), and the National Stock Exchange of India (NSE). There are also
22 regional stock exchanges.

History Of Indian Share Market

The Indian stock market traces its history back to the late 18th century when the trading floor was
under the shade of a sprawling banyan tree opposite the Town Hall in Mumbai. A few people would
meet under this tree to informally trade in cotton. This was mainly due to the fact that Mumbai was a
busy trading port and essential commodities were traded here often.

The Company’s Act was introduced in 1850 following which investors started showing an interest in
corporate securities. The concept of limited liability also put in an appearance around this time.
By 1875, an organization known as ‘The Native Share and Stock Broker’s Association’ came into
being. This was the predecessor of the BSE .

In 1894, the Ahmedabad Stock Exchange came into being primarily with the objective of enabling
dealing in the shares of textile mills in the city.

The Calcutta Stock Exchange was formed in 1908 with the intention of facilitating a market for
shares of plantations and jute mills. It was in 1920 that the Madras Stock Exchange took shape.

In 1957, the BSE was the first stock exchange to be recognized by the Government of India under
the Securities Contracts Regulation Act.

The SENSEX was launched in 1986 followed by the BSE National Index in 1989.

The Securities and Exchange Board of India (SEBI) was constituted in 1988 to monitor and regulate
the securities industry and stock exchanges. In 1992 it became an autonomous body with completely
independent powers.
In 1992, the NSE was formed as the first demutualised electronic exchange in the country with the
intention of ensuring transparency in the markets.

NSE began operations in the Wholesale Debt Market (WDM) segment in 1994, the equities segment
in 1994, and the derivatives segment in 2000.

It was in 1995 that the BSE made the switch to an electronic system of trading from the open-floor
system.

In 2015, SEBI was merged with the Forward Markets Commission (FMC) with the aim of
strengthening regulation of the commodities market, facilitating domestic and foreign institutional
participation, and launch of new products.

1.2 Background of the Study

Investment decisions relates to the decision made by the investors or the top-level management with respect to
the amount of funds to be deployed in the investment opportunities. The assumption is that information
structures and the market factors systematically influence personal investment decisions as well as the
market outcomes as noted in the background there is evidence that retail equity investors are
influenced by many factors including firm related, macro environment and investor psychology
factors. However, Phansatan et. al. (2012) recorded contradictory findings when the study
determined that retail traders were generally found to have marked poor trading performance while
institutional investors were found to possess informational advantages over other investor
categories, thus enhancing their trade outcomes and performances.

Throughout the last century, the philosophy of finance has been rapidly evolving. Modern Portfolio Theory,
which was established in the mid-1950s, and subsequent financial models played a significant role in this
rapid growth. These concepts tend to give an analytical viewpoint to finance in the conventional sense
by expressing an individual's investment desires mathematically. Individuals are required to make
reasonable preferences as a norm, and the models and techniques covered by conventional finance
literature and mentioned above assist them by so doing.

There has been observed an extraordinary growth in the investment sector both in terms of volume and
number of investors over the past three decades due to deregulation of financial sectors across the world. For
instance, in India, Bennet et. al. (2011) observed a rapid emergence of diverse investment products offering
numerous options to attract investors. The number of regional stock exchanges in India had increased
significantly and Husain (2016) observed that equity shares as an investment opportunity has advanced
from times it was preferred due to higher dividend expectations to present day where capital gains a key
consideration.

Price discovery through book building process had given tremendous boost to the initial public
offers and further public offers. The dynamic regulatory frameworks, the development payment
guarantees by the depositories, proactive government involvement, robust intermediaries and up
to date technologically advanced exchanges have instilled and nurtured confidence in the markets.

Minimizing risk, friends’ or family members’ opinions are not real concerns for investors. Further,
the immediate consumption needs of investor is also evidenced by past studies, for instance,
Yoseph (2015) determined that investors’ motivation to obtain extra- ordinary gains as quickly as
possible is one of the major determining forces in equity selections in Ethiopia.

Bennet et, al. (2011) noted five factors that influenced retail investors’ attitude towards investing in
equity stock markets. The study determined that five factors which included investors’ tolerance
for risk, media focus on the stock market, strength of the economy, political stability and
government’s business policies were very influential over retail investors’ attitude towards
investing in certain equity stocks.

Srinivas (2013) revealed that there seemed to be a certain degree of correlation between the
behavioral finance theory factors and previous empirical evidence identified as having influence
over the average equity investor and the individual behavior of existing investors.

Researchers have discovered this assumption of conventional finance from the beginning, and the
question of whether or not humans make reasonable choices has been investigated. Humans, as we
all know, are social beings with distinct beliefs who make decisions based on their emotions and
behavior. Humans should not be expected to make decisions purely on the basis of objective
criteria. At this point, behavioral finance offers a fresh viewpoint on those aspects of finance that
conventional finance failed to explain or struggled to explain.

Human attitudes and mood conditions are determinant variables in influencing investment preferences,
according to behavioral finance. which has made significant strides in the last 20 years and has been the
focus of several interdisciplinary studies. As a result, it is anticipated that this area of finance will
be studied in greater depth and that research will be focused on this area.
1.3 Problem Statement

There is always a positive relationship between stock exchange and economy, due to this, the ascent
of stock exchange will emphatically influence the improvement of the economy and the other way around.
Subsequently, the choices of investors on stock exchange assume a significant part in characterizing the
market pattern, which at that point impacts the economy. To comprehend and give some reasonable
clarification for the investor's financial choices, it is critical to investigate which determinants affecting the
choices of individual investor’s financial behavior in India.

This investigation plans to get into a basic conclusion about the key determinants affecting
speculation conduct. and ways these determinants sway on exchanging dynamic interaction among
individuals of various age groups, instructive foundation and occupation which is packed uniquely in
the stock exchange of India. This examination has great ramifications towards institutional or retail
investors; organizations enrolled in Bombay Stock Exchange [BSE] and National Stock Exchange
[NSE] and Government Policy creators.

It will be valuable for financial investors to comprehend normal practices, from which
legitimize their responses for better returns. Security associations may likewise utilize this data for
better comprehension about investors to estimate even more precisely and give better suggestions.
Accordingly, stock cost will mirror its actual worth and Indian stock exchange turns into the
measuring stick of the economy's wealth and causes endeavors to mise capital for creation and
extension.
1.4 Objective of the Study:

Primary Objective:

 To study the factors determining the investment decisionmaking of investors in India.

Secondary Objectives:

 To identify and prioritize the determinants that impact the investment decisions of investors.
 To rank the influence of various determinants of investment decision over investor’s behavior
 To provide awareness to the investors on the specific determinants to be considered whilemaking
an investment
1.5 Need for the Study

There are different factors that influence the investment decisions taken by the investors, these
factors play a major role that impact every investor’s financial behavior in the market. So, it becomes
significant to study the impact of those determinants on investor’s behavior. It is identified that investors
are more committed and enamored with delicate son of investment decision and inclinations. Thus, it
is a basic need to examine the variables considering financial elements that drive them for choosing
these speculation choices. It plays a significant part in deciding the conduct of investors; therefore, appropriate
utilization of investment can be seen in the market.
This investigation will help the Indian investors as well as the diverse monetary foundations, banks,
associations and guide specia1ists in considering and understanding the primary factors that persuades the
investors to put their money into various other market instruments.
1.6 Scope of the Study:

 This investigation plans to get into a basic conclusion about the key determinants affecting
speculation conduct. and ways these determinants sway on exchanging dynamic interaction
among individuals of various age groups, instructive foundation and occupation which is packed
uniquely in the stock exchange of India.
 This investigation will help the Indian investors as well as the diverse monetary
foundations, banks, associations and guide specia1ists in considering and understanding the primary
factors that persuades the investors to put their money into various other market instruments
1.7 Limitations of the Study:

 The study suffered from a few limitations. among which, first was spent a lot of time
administering the questionnaires, because the concept being tested had to be explained
fully to most of the respondents, Secondly, some responded were unwilling to participate in the
research.
 This made the study very costly in terms of time, and money, and secondly, the
methodology and analysis used was too involving in terms of arriving at the sample size and
setting the variables in the analysis.

Following are the other limitations of the study:

1. The views or respondents will be subjected to their bias and prejudice.

2. The findings of this study would be based on sample size, they cannot be generalized.
3. Study will be made on different locations, due to the online accounting of investors.
4. The research p e r i o d is very short. Therefore, time constraint could be a limiting factor
CHAPTER-2
 REVIEW OF LITREATURE

2.1 Introduction

This chapter discusses the results of numerous researchers on investment decisions. Behavioral finance
has made significant progress in understanding the psychological factors that influence investment
decisions. Behavioral finance is a branch of finance that studies how people make decisions when they
are unsure. In Prospect Theory, regret aversion and self-control are three main elements that
frame behavioral finance. Individual investor characteristics are captured in each feature

e. In late 1970’s the first empirical studies of individual investor behavior were carried out. Despite the
value of individual investment decisions, we know little about what influences them.

This review of the literature, therefore, focuses on work involving both individual and skilled investors
in the Indian share market. Over the last three or four decades, a wide study of observational
research has looked at people's investing behavior bias. As an example. Dividends, rapid growth,
investment for saving purposes, fact gains by trading, competent investment management, and long-term
growth are six factors that influence individual investors’ attitudes toward their investment
decisions, according to Potter (l971).

2.2 Theories of Investor’s Behavior

2.2.1. Regret-theory

It deals with the emotional reaction people experience after realizing they’ve made an error in
judgment. Faced with the prospect of selling a stock, investors become emotionally affected by the
price at which they purchased the stock.

So, they avoid selling it as a way to avoid the regret of having made a bad investment, as well as the
embarrassment of reporting a loss. Regret theory can also hold true for investors who find a stock
theyhad considered buying hut did not went up in value. Some investors avoid the possibility of feeling
this regret by following the conventional wisdom and buying only stocks that everyone else is
buying, rationalizing their decision with everyone else is doing it" (Pareto. 1997).

2.2.2 Theory of Mental Accounting

It argues that humans have a tendency to categorize events into mental compartments, and that the
differences between these compartments may have a greater effect on our actions than the events
themselves. The reluctance to sell an investment that once had monstrous returns but now has a
small gain is the best example of mental accounting in investing. People become accustomed
to healthy, albeit paper, gains during an economic boom and bull market. As investors' net worth is
deflated by a market correction, they are more hesitant to sell at a lower profit margin. For the gains they
once had, they construct mental compartments, causing them to anticipate the return of the profitable
time. (Thaler, 2001)

2 . 2 . 3 Prospect/Loss-Aversion Theory

It implies that people are more emotional when they win something than when they lose something.
People are more worried about potential losses than they are optimistic about fair profits. When an
investment manager reports a Rs: 500,000 gain in a client’s account, she won't usually get a barrage
of calls from her client. However, you can bet the phone will ring if it loses Rs. 500,000. When money
goes deep into our wallets, it affects the value of money, so a loss often looks greater than a gain
of similar size. Prospect theory also explains why investors hang on to losing stocks: people are
more likely to take chances in order to prevent losses than in order to benefit. For this reason, reason,
investors are able to hold a risky stock position in the hopes of a price recovery. Gamblers on a
losing streak will act similarly, doubling up bets to make up for what they've already lost. As a
result, despite our understandable desire to profit from the risks we take, we prefer to place a
higher value on something we own than we would naturally be willing to pay for it. Another
explanation why investors would want to keep their losers and sell their winners, according to the loss-
aversion principle, is that they believe today losers will soon outperform today's winners.
Research shows that money flows into high-performance mutual funds more rapidly than
money flows out from funds that are underperforming (Kahneman and Tversky, 1979).
2.2.4. Over/Under Reacting Theory

It claims that as the market rises, investors become confident, hoping that the trend will continue.
During downturns, on the other hand, investors become highly pessimistic. An over- or under-
reaction to market events is a function of anchoring, which involves putting too much emphasis on current
events while ignoring historical evidence. As a result, prices fall too much on bad news and rise too
much on good news. Investor greed pushes stocks above their intrinsic value at the height of
optimism (Hong and Stein, 1999).

2.2.5 Theory of Overconfidence

According to the theory, people usually rate themselves as being above average in their skills. They often
exaggerate the accuracy of their skills and its value in comparison to others. Many investors believe they can
correctly time the market on a regular basis. In fact, however, there is a mountain of evidence to the contrary.
Excessive trades are the product of overconfidence, and trading costs eat into earnings. (Yermo and
Tapia, 2007).

2.3 Determinants Influencing Investment Decision

2.3.1. Determinants based on the Market Image of the Organization

The majority of people consider themselves to be above average in their abilities. They often exaggerate
the accuracy of their skills and its value in comparison to others. Many investors believe they can
correctly time the market on a regular basis. In fact, however, there is a mountain of evidence to
the contrary. Excessive trades are the product of overconfidence, and trading costs eat into
earnings.

Firm’s credibility, firm’s status, feelings about the firm’s goods and services, and perceived ethics of the
firm are all variables that heavily influenced this construct, of these variables represents an individual's
value statement about the business. Given thal all factors except firm ethics are highly regarded as
investment considerations, it is reasonable to assume that many investors choose stocks based on qualitative
criteria. This is a significant challenge for an investment community that is used to quantitative
analysis and communication of security relative values (Epstein, 1994).
2.3.2. Determinants based on Financials of the Organization

Investors are regarded as a significant party who arc using accounting data. Investment decisions
are thought to be influenced by a number of variables, including market characteristics and
individual risk profiles, as well as accounting data. Investors are affected by sunk cost
assumptions and asymmetrical risk preferences for gain/loss conditions, regardless of accounting
details, as shown by the disposal error. Variables that loaded heavily on the accounting-information
factor include the condition of the firm's financial statements, condition of financial statements, the
results of valuation techniques (e.g... P/E und market-to-book), expected corporate earnings,
dividends paid, affordable share price, past performance of the firm’s stock etc. Investors place a
high value on expected earnings and the status of financial statements. despite the fact that other
factors influence them. These traditional stock valuation considerations seem to be valued by the
majority of investors in the study (Lipe, 199d).

2.3.3. Determinants based on Information Accessible

Market participants are constantly exposed with data, which ranges from quantitative financial data to
financial news in the media, as well as publicly shared views and recommendations. It's a daunting task
to process all of this data. Coverage in the financial and general press, recent stock index returns,
information gathered from the internet, current economic indicators, and investment advisory service
recommendations are all variables that heavily influenced this factor. Each of these variables reflects a
supposed neutral outside source of information. The factor analysis method does not allow for a rank
order of aggregate factor importance, it is worth noting that none of the variables that make up this
neutral-information factor are ranked significant by investors in aggregate. Given the market's rapid
reaction to new investors, this knowledge could be considered outdated and of limited utility.
(Francis and Softer, 1997)

2.3.4. Determinants based on Recommendation

Purchase recommendations from brokerage houses and individual stock brokers arc included in this factor.
Recommendations from friends or coworkers have had a minor impact on this aspect and of these
sources of knowledge could be interpreted as a recommendation from sources with a stake in the investor’s
ultimate decisions. While many investors clearly rely on professional advice, the majority of the investors
in the sample appear to be skeptical of these sources of knowledge. The investor receives the Summary
report
of analysts’ recommendations, which contains an average recommendation to buy (if the future prospects
seem favorable), hold (if the future prospects seem marginally favorable), or sell (if the future prospects
seem unfavorable), and some supporting arguments. The investor evaluates the report and decides to buy,
hold, or sell the stock (Malmendier and Shanthi Kumar, 2003).

2.3.5. Determinants based on Personal or Diversification Needs

This factor is dominated by considerations for competing financial needs, period of time
before invested funds will be needed for other purposes, ease of obtaining borrowed funds, expected
loss in other local investments, diversification requirements etc. Perhaps sophisticated investor’s
view investment capital and consumption expenditures as independent entities (Amihud and
Mendelson, 1986).

2.4. Empirical Studies

Literature Review:

Booker (2002) identifies the factors that influence investors' short-term decisions to
hold or sell a stock based on analyst recommendations. The findings show that a strong version of
the analyst summary recommendation study, i.e., one with more information supporting the analysts’
stance, decreases disposition error for gains and losses.

Pal (2004) attempts to investigate the stock market and the activities of various investor groups in
depth. He examines how the post-election withdrawal of international portfolio capital has
influenced the price and equity holding pattern of various Sensex firms. This has aided investors in
comprehending the stock market's dynamics in the post-election era.

Kiran and Rao (2005) used a sampling survey to see whether demographic and psychographic
variables had an impact on risk-bearing potential of Indian investors. They confirmed a close association
between risk taking attitude and demographic and psychographic variables by analyzing the collected data
using multinominal logistic regression and factor analysis (FA) in SPSS.

Gaurav kabra (2005) studied on "Factors Influencing Investment Decision of Generations in

India” was conducted with the goal of learning about key factors that influence investment behavior and how
these factors affect investment risk tolerance and decision-making among men and women of various
ages. The two people way be identical in every way, and they may even live next door, but their financial
planning needs are vastly different. It is by using different age groups along with Gender that synergism
between investors can be generated. Synergism between investors can be achieved by combining
various age groups and genders.

Demographics alone are no longer sufficient as a basis for segmenting individual investors in this
context. With this in mind, the current study aims to identify factors that influence individual
investment decisions. as well as differences in investor perceptions of investment decisions
based on age and gender. The study concludes that the risk-taking ability of investors is primarily
determined by their age and gender.

Government of India (2006) published an article named securities market which shows that
before investing in the equity market retail investor has use traditional sources for collecting
information like family and friends’ suggestions, which implies that demographic factors certainly
affect investment decision.

Kumar Singh (2006) examined at people’s investment patterns in Bangalore and

Bhubaneswar. The research was analyzed with the aid of a survey that was conducted. Investors in Bangalore
are more conscious of different investment opportunities and the risks associated with them, according to
the findings. And in Bhubaneswar, investors are more cautious by default, preferring to invest in
low- risk avenues such as bank deposits, small investments, and post office savings, among others.

Kannadhasan (2006) investigated the factors that affect retail investors' investment
decisions. Gender, age, marital status, educational level, income level, sensitivity, choice, and risk
bearing ability are all factors that influence retail investors’ decisions.

Fischer and Gerhardt (2007) conducted extensive research on how individual investors make
investment decisions. They discovered that individual investor investment decisions deviate from
financial theory recommendations. They demonstrate that these deviations result in significant
welfare losses. As a result, they arrive at the conclusion that financial advice is a potentially
correcting factor in the investment decision-making process, and they develop a simple model to
capture its effect on individual investors' investment performance, as measured by risk-adjusted return
and wealth.

Chandra, A. (2008) attempted to investigate the effect of behavioral influences and investor
psychology on investment decision-making, as well as the relationship between risk aversion and
behavioral decision-making. The author conducted a literature review to investigate investors'
psychology and behavioral decision-making. The author of this descriptive study used secondary data
on investments, finance, and economics. Individual investors, contrary to classical finance theory. do not
always make sound decisions, according to the findings. Further findings show that behavioral
factors such as greed and fear, cognitive dissonance, heuristics, mental accounting, and anchoring
affect investor decision-making.

Kabra, Mishra and Dash (2010) Aimed at gaining knowledge about key factors that influence
investment behavior and how these factors impact investors’ risk-tolerance and decision-making process
among men and women at different age groups. This study followed survey research methodology.
Primary data was collected through questionnaire administration. The data were analyzed using
standard techniques like factor analysis, regression analysis and other basic statistical tools. The sample
used for the study was regular investors. The perceptions of the investors were analyzed through SPSS
and concluded that, though investors are in new information age, are mature enough and groomed
adequately, they prefer investments according to their risk preferences and they were found to be
in trap of cognitive illusions, such as overconfidence and narrow framing. They consider
multiple factors and seek diversified information before taking decisions. Finally, it has been
proved that investors’ age and gender predominantly decide the risk-taking capacity of investors.

Srinivasa and Rasure (2011) An empirical survey of the factors, which mostly influence individual
investor behavior in the Indian stock market. The results revealed that there seems to be a certain
degree of correlation between the factors that behavioral finance theory and previous empirical
evidence identify as the influencing factors for the average equity investor, and the individual behavior of
active investors in the Bombay Stock Exchange (BSE) influenced by the overall trends prevailing at
the time of the survey in the BSE.
Suman and Dr. D. P. Warne (2012) the study reveals that the respondents integrate the
objectives of saving, the factors influencing the saving and the sources of information for decision
making. The annual income and the annual saving are given importance of consideration by the
respondents because the level of income decides the level of savings. Today’s investors are fully aware
about the stock market. The market movements affect the investment pattern of investors in the stock
market.
 Geetha and Ramesh (2012) studied the relevance of demographic factors in investment
decisions in Tamil Nadu, India, and claimed that the demographic factors have a significant
influence over some of the investment decision elements, while insignificant influence was
found on some other elements.

A. Kartasova I (2013) managed to identify what factors influence irrational individual

investor conduct in the Lithuanian stock market. The author used the methodology of literature
review, comparison of theoretical observations, networking, benchmarking analogy, and
generalization to investigate certain causes. He carried out the research in two phases. At the first
stage of the investigation, irrationality was discovered in individual investors, and the findings revealed
that individual investors in Lithuania were subjected to the majority of prejudices, such as
anchoring, mental accounting, confirmation and hind sight bias, herd behavior, overconfidence,
overreaction and availability bias. In the second stage of the research, a new questionnaire survey
was performed with a larger sample size of over 5000 individual investors. However, only 404
people completed the survey in its entirety. Basic statistical instruments were used to conduct the
analysis. According to the findings, individual investors in Lithuania were subject to all basic
prejudices, but overconfidence, anchoring, mental accounting, and herd behavior had a greater impact
on their financial decision-making method. lt also claimed that personal characteristics such as age,
experience, gender. and occupation influence the influence of factors shaping irrational individual
investor behavior.

A K Choudhury (2013) investigates the context and Significance of behavioral finance, as

well as its applications in investment decisions. The aim of this concept paper is to explain why investors
make irrational financial decisions. It showed how investors’ feelings and cognitive mistakes
affect their decision-making. Anchoring, Overconfidence, Herding Behavior, Over and Under-
reactions, and Loss Aversion are among the factors that influence investors' investment decisions,
according to the author. In essence, the behavioral finance approach looks at investor behavior
patterns and seeks to figure out how these patterns influence investment decisions. It provides a
framework for evaluating active investment strategies for the investors.

Smita Mazumdar (2014) conducted research on individual investment behavior in terms of

financial knowledge and investment risk preference, with the aim of determining whether there is a
significant relationship between financial knowledge and investment risk preference and individual
investment behavior. The sample was obtained via mail in Mumbai. Mails were sent to 55 people, and 30
people responded, which were used as samples. There was no significant relationship between
individual investment behavior and expertise, and no significant relationship between investor risk
preference and individual investment behavior, according to the report. It was also concluded that
significant correlation between knowledge and risk preference.

Viswanadham, Edward, Dorika and Mwakapola (2014), this study aims to identify the
factors that influence investors' buying behavior in Tanzania's equity market. Interviews,
questionnaires, and photographic documentation were used to gather information. The paper
discovered that all publicly traded firms place greater emphasis on factors such as quality control
decisions, brand building, and settlement accountability. To gain a better position in the market, business
should actively review interest rates and observe alternative companies' marketing strategies.

Parimalakanthi (2015), aim of this paper is to investigate the actions of individual investors in
Coimbatore, Tamil Nadu, in relation to available investment opportunities in Indian financial
markets. This also examines factors that influence investment decisions and determines individual
investor’s risk tolerance levels in relation to demographic variables. This research paper demonstrates
that investor education is critical for today's investors in Coimbatore. The paper also concludes that in
fixed income and investment for protection, safety was also a top priority. The most important
element of long-term investment was capital appreciation.

Kni-Yin Woo and Tai-Yuen Hon (2016) conducted a study on “The relationship between
personality type and investment risk preference” and found that personality traits of the investors have a
significant relationship with their risk preferences.

Sindhu, Rama Krishna, Y., & Reddy, A. S. (2017) conducted a study on “Understanding
the relationship between investors’ personal attributes and investment perceptions towards mutual fund
investments” and found that the relationship between age of the respondents and safety of
investments. No relationship was found between other personal attributes and investment
perceptions. Divya Verma Gakhar, Deepti Prakash (2017} conducted a study on “Relationship
between investor biases and Myers Briggs Type indicator personality” and found that personality
type is significant factor which affects risk taking behavior of investors.
2.5. Conclusions from the literature review

Considering the literature as a whole, it was evident that professional investors make extensive use of
methods and techniques that differ from those proposed by academics. However, it appears that the
traditional approaches, including both fundamental and technical analysis, may still be dominant in
many emerging financial markets. Thus, there exist a controversy in their findings concerning this area of
study.

LeBaron, Farrelly und Gula, (1992) advocated that individuals’ risk aversion is largely a
function of viseeral rather than rational considerations. It is this issue that this study attempted to
investigate. Whereas previous studies looked at factors influencing individual investment decisions in
developed markets, this study looked at factors influencing individual investment decisions in the
emerging Indian share market. It included not only the factors examined in previous studies and derived
from current behavioral finance theories, but it also introduced new factors lhat were discovered to
influence stockholders’ investment decisions.

T.R. Rajeswari (2007) conducted study on “factor influencing Mutual Fund selection by retail
investor”. It looks at a variety of factors that influence how a retail investor chooses investments.
Only knowledge regarding investor expectations, desires, attitudes, and behaviors is available in
existing "Behavioral Finance" research.

Bennet et at. (2011) conducted a study on Factors Influencing Retail Investor’s attitude towards
Investing in Equity Stocks: A Study in Tamil Nadu and discovered that five factors had a significant
impact on the retail investor’s attitude toward equity stock investing. When compared to other counties,
India conducts relatively little behavioral finance research. Over the last two decades, the
globalization of financial markets has boosted the number of retail investors by providing a diverse
range of market and investment options. It does, however, make their investment decision-making
process much more complicated. Investors' risk tolerance, the strength of the Indian economy, media
focus on the stock market, political stability, and finally government policy toward business were
the average values of the five top highly influential factors, according to the sample retail
investors. Four factors were given the lowest priority or had little impact on the altitudes of retail investors
who invest in stocks. The lowest influencing factors among the four were successful investor
stories, the get rich quick philosophy, information available on the internet, and company cost
cutting.
 The relationship between investor buying behavior and related variables is well established, as
shown by the reviewed literature. As a result, this research examines different variables and triggers of
investor purchasing behavior in order for stock exchange operators to come up with rational
solutions and take effective steps to address the issue of investors.

2.6 Research Gap

By considering the above researches we can conclude that these theories and studies does
not claim that all the investors will suffer from the same illusion simultaneously. The
susceptibility of an investor to a particular illusion is likely to be a function of several determinants. For
example, there is suggestive evidence that the expected returns for the investor have an explanatory
role in his/her regard with respect to the firm’s image, which will be considered as a prime
determinant by most of the investors in decision making process.

Similarly, behavioral factors play a vital role in the decision-making process of the
investors. As a result, investors must take the requisite measures to reduce or eliminate illusions
from affecting their decision-making process. We can explain this analysis by printing out that
none of the studies mentioned above define the determinants in detail, rather, they generalize the
determinants/factors. As a result, there is a research gap in which we can perform a study on the
importance of determinants on Indian investors, which are made up of a variety of factors that have
a significant impact on investment decisions.
CHAPTER-3
Research Methodology

3.1 Research Methods

This section deals with how the research was designed and the methodology used to
determine the factors influencing the individual investment decisions on the Indian Stock Exchange
Market. The survey research design was adopted with a population of approximately 350 investors from
whom a sample of 150 investors was randomly selected for study. Primary data was collected using
questionnaires (Appendix-1) which were examined by the researcher personally and collected dam was
coded and tabulated for analysis.

3.2 Research Design

For this study, a survey research design was used. A survey study aims to collect data from
members of a population and describes current phenomena by asking individuals about their
opinion, attitudes, behavior, or values, according to Mugenda and Mugendu (1999).

This design was appropriate for this type of study since it was created to gather information about
investments made by the investors. Surveys are used in this type of research to get direct feedback from
investors. It is often used to examine the general state of people and organizations because it
examines people's attitudes and opinions by questioning them. (Cooper and Schindler, 2003)

3.3 Population of the Study

The target population of this study u as all the investors in and around Coimbatore. Salem,
Erode and Madurai, to whom the questionnaire was shared online and by colleagues and with the
help of ads via social media.

3.4 Sampling method

A simple random sample was chosen, and 150 individual investors were chosen at random
targeting one questionnaire each. A calculator, a spreadsheet, written tables of random numbers, or
the more conventional form of drawing slips of paper from a hat may all be used togenerate random
numbers, Simple random sampling ensures that the survey is representative of the whole
population and is not selective or prejudiced against any single category. It also aids in removing
the propensity to choose based on a parameter (Cooper and Emory, 1995).
3.5 Method of Data Collection

Primary data was collected using questionnaires (Appendix-1) which were examined
thoroughly. Tire questionnaire items represented five categories: Corporate-Image & Market
Determinants, Financial or Accounting Determinants, Determinants based on Information
Accessible, Determinants based on Recommendation Factors and Determinants based on Personal
Needs. The questionnaires were administered to the individual investors personally with the help
of brokerage firms and friends.

This method was appropriate since it encouraged prompt responses from the respondents. The
questionnaire was structured into two sections. Section l sought to capture the general data
(Demographic data) about the investor. Section 2 was concerned with the data on factors that affect
individual investment decisions. Respondents were asked to indicate their degree of how they are
influenced by each of the items on live point Likert scale (Scale of I-5, based on 1 as Strongly
disagree and 5 as Strongly agree.

3.6Tools used for Data Analysis

The information gathered was coded and tabulated. Descriptive statistics were used to interpret the
results. Friedman's test and Factor analysis techniques were used in conjunction with the SPSS package
to enable data interpretation and statistical inferences. Names, standard deviations, and percentages
in relation to various characteristics of the respondents were used in particular for data relating to
Section I. Section II data necessitated the use of both factor analysis and Friedman's test techniques.

These techniques were used to determine the factors influencing individual investment decisions
and the relative importance of those factors. Factor analysis is a systemic, statistical procedure used to
uncover relationships amongst several variables and also reduces the responses to manageable factors.
The goal of the factor analysis is to identify factors which underlie the variables to discover simple
patterns in the pattern of relationships among the variables (Richard B, 1973). Factor analysis enables the
data to be summarized and organized in an effectively meaningful way as it provides tools for reducing
information into understandable form.
CHAPTER-4
 DATA ANALYSIS AND INTERPRETATION

4.1 Percentage Analysis

4.1.1 Gender of Respondents

Gender Frequency Percent Valid Percent Cumulative
Percentage
Male 100 66.67 66.67 66.67

Female 50 33.33 33.33 100.00

Total 150 100.00 100.00

Interpretation:
The Table 4.1.1 represents frequency of males and females who responded to questionnaire
and their percentage. It shows that 100 males responded to the questionnaire with a response rate of
66.67%, and 50 f e m a l e s responded with a response rate of 33.33%.

Chart 4.1.1 Gender of Respondents

Gender

50

Male
Female

100
4.1.2Age Group of Respondents

Age Frequency Percent

Under 20 years 1 0.67%
21 - 30 years 57 38%
31 years and above 92 61.33%
Grand Total 150 100.00%

Interpretation:
It is evident from the information presented in the table 4.1.2 that the majority
respondents age is (61.33%) between 31 years and above. Then (38%) of respondents are in the age
group of 21 — 30 years, (0.67%) respondents are in the age group Under 20 years.

Chart 4.1.2 Age Group of Respondents

Age
100
90
80
70
60
Years

50
40
30
20
10
0
Under 20 years 21 - 30 years 31 years and above
Age
4.1.3Work Experience of Respondents

Work Experience Frequency Percentage

Less than 5 years 4 2.67%
5 - 10 years 44 29.33%
10 - 15 years 102 68%
Grand Total 150 100.00%

Interpretation:
It is evident from the information presented in the table 4.1.3 that the majority
respondents are with the work experience between 10 - 15 years and above is (68%). Then (29.33%)
of respondents are with the work experience between 5 - 10 years and (2.67%) of the respondents are
having work experience less than 5 years.

Chart 4.1.3 Work Experience of Respondents

Work Experience

120

100

80
Number

60
s

40

20

0
Less than 5 years 5 - 10 years 10 - 15 years
Years
4.1.4Occupation of Respondents

Working Sector Frequency Percentage

Automobile 31 20.67%
Education 5 3.33%
IT & ITES 86 57.33%
Manufacturing 21 14%
Retail & E-Commerce 7 4.67%
Grand Total 150 100.00%

Interpretation:
In the conducted research occupation is one of the demographical characteristics
which plays a role in the investor behavior on investments decision, and it is inferred from the
table 4.1.4 that the majority of the respondents (57.33%) are working under IT & ITES
Companies, (20.67%) people are working under Automobile sector, (14%) are working in the
manufacturing sector, (4.67%) are working with Retail & E-commerce sectors, and (3.33%)
are working in education sector.

Chart 4.1.4 Occupation of Respondents

Occupation

100 86

80
Numbers

60
31
40 21
20 5 7

Working Sector
4.1.5Annual Income of Respondents

Annual Income Frequency Percentage

< 4Lakh per annum 6 4%
4-6 Lakh per annum 91 60.67%
> 6 Lakh per annum 53 35.33%
Grand Total 150 100.00%

Interpretation:
The Annual Income also one of the demographical characteristics that should be
considered while investing in the capital market. The below table 4.1.5 shows that the annual
income of 60.6 7 % respondents is 4-6 lac per annum, 35.33% of respondents are earning between
more than Rs 6,00,000 per annum, and 4% of total respondents were earnings under Rs.
4,00,000 per annum.

Chart 4.1.5 Annual Income of Respondents

Annual Income

> 6 Lakh per annum 53

Annual Income

4-6 Lakh per annum 91

< 4Lakh per annum 6

0 20 40 60 80 100
Numbers
4.2 Factor Analysis – The Factors influencing Individual Investment Decisions
4.2.1 Sampling Adequacy
The Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy and the Bartlett’s Test of
Sphericity are used to evaluate the suitability of data for factor analysis. The KMO measure
of sampling adequacy is a statistic that shows how much of the variance in the variables can be
attributed to the reduced factors. According to Kaiser (1974), a value of 0.5 is inappropriate, and
values between 0.5 and 0.7 are mediocre, 0.7 and 0.8 are fine, 0.8 and 0.9 are excellent, and
values above 0.9 areexceptional. The results of these tests are described in the table below.

4.2.1 KMO and Bartlett’s Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .783
Approx. Chi-Square 1634.61
0
Bartlett's Test of Sphericity df 378
Sig .000
.

KMO Measure (0.783) indicates that a factor analysis is quite useful for the data being used
in this study. The KMO measure provide strong evidence for sampling adequacy for these
data. Similarly, the significance value for Bartlett’s test of Sphericity is 0.000 which
indicates that there exist significant relationships among variables. The results of KMO and
Bartlett’s tests supports the fact that factor analysis is very much useful for the present data.
4.2.2 Test Validity and Reliability
The measure's reliability was determined using Cronbach's alpha. Cronbach's alpha can be
used to determine how consistent various groups are. It entails determining how much of the
variance in different factors' scores can be attributed to chance or random errors. Table 4.2.2
Shows the overall Cronbach’s alpha for the live categories which is 0.734.

Table 4.2.2 Overall Reliability analysis

Cronbach’s Alpha Number of Items

0.734 28

The Cronbach alpha, which is the most widely used index, is used to assess internal
accuracy (Kerlinger 1986). Cronbach's Alpha should be greater than 0.6, according to
Nunnally (1978). This survey's alpha coefficients are greater than 0.5, with a total alpha
value of 0.734 for the entire questionnaire. The high alpha value indicates a high level of
reliability and emphasizes the homogeneity of the items in the group.

4.2.3 Factor Analysis: Factors Summaries and Component Grouping

The results of the importance assigned to each of the determinants influencing

individual investment decisions in the Indian stock market were subjected to factor analysis.
First a correlation analysis was performed to see if the factors were interdependent, and then a
Principal Component Analysis (PCA) was performed. The correlation coefficients are closer to
one in the correlation matrix in Appendix II, indicating that there is a relationship between the
variables. The goal of performing PCA was to turn a set of interrelated variables into a set of
unrelated linear combinations of these variables. The factors were classified and reduced to
interpretable components using Varimax rotation and the Kaiser Criterion.
Table 4.2.3 Revealed Commonalities (Extraction Method: Principal Component Analysis)

Communalities
S. No Determinants Initial Extraction
1 Status of the firm in the industry 1 0.761
2 Feelings for a firm’s product (Ex: Share) 1 0.705
3 To attain wealth quickly 1 0.76
4 Ownership Structure of the firm 1 0.725
5 Reputation of the firm 1 0.761
6 The firm's involvement in solving community problems 1 0.787
(Ex: CSR)
7 Ethics of the firm 1 0.798
8 Expected corporate earnings from financial statements of the 1 0.653
firm
9 Profit position and condition of income statements, balance sheet of a 1 0.608
firm
10 Prevailing market price per share 1 0.722
11 Dividends paid 1 0.734
12 Goodwill of the firm 1 0.632
13 Issuance of Stock Split 1 0.692
14 Past stock performance of the firm 1 0.591
15 Information from the internet & social media 1 0.643
16 Stock index fluctuation & development 1 0.601
17 Press Report about the market 1 0.575
18 Official statement or report by the government 1 0.518
19 Economic Indicators (Ex: GDP or Interest Rates) 1 0.714
Fluctuation in the share price of the firm 1 0.661
Recommendation by the broker 1 0.6l8
22 Opinion by the family members 1 0.603
23 Recommendation from the co-workers & friends 1 0.645
24 Investors opinions on the Firm’s stock 1 0.748
25 Needs for diversification 1 0.715
26 Ease of obtaining borrowed funds 1 0.69
27 Issuance of Bonus share 1 0.626
28 Minimizing risk of loss on the market 1 0.544

Table 4.2.3 represents the communalities for factors influencing individual investment
decision in Indian share market. The squared multiple correlation coefficient for
variables rising factors as predictors is known as communality. The communality index
calculates the percentage of variance in a given variable that can be explained by all
variables taken together. and it can be used to determine the indicator’s reliability. It's the
percentage of variation shared by each object or attribute with other items.
 Table 4.2.4 Total Variance Explained
Component Initial Eigenvalues Extraction Sums of Squared
Loadings
Total % of Cumulative Total % of Cumulative
variance % variance %
1 3.455 12.341 12.341 3.455 12.341 12.341
2 2.171 7 753 19 094 2.171 7.753 19.894
3 1.937 6 917 26.011 1.937 6.917 26.011
4 1.564 6.657 31.667 1.864 6.657 31.667
5 1.507 6.455 37.122 1 .507 6.455 37.122
6 1.548 5.527 42.649 1.548 5.527 42.649
7 1.367 4.854 53.533 1 .307 4.554 53.533
8 1.219 4.63S 62.171 1.219 4.638 62.171
9 1.096 4.273 70.444 1 .096 4.273 70.444
10 0.957 4.058 73.532
11 0.923 3.825 74.359
12 0.876 3.128 76.487
13 0.857 3.062 78.549
14 0.837 2.991 79.542
15 0.756 2.699 50.239
16 0.7 l 2.535 82.774
17 0.656 2.342 84.115
18 0.594 2.1 21 86.237
19 0.572 2.042 85.279
20 0.553 1.976 90.255
21 0.476 l .7 91.955
22 0.441 1.573 93.528
23 0.425 I.5 1 8 95.046
24 0.349 1.246 96.292
25 0.328 l .1.7.1 97.464
26 0.293 1.047 95.5 l
27 0.214 0.765 99.275
28 0.203 0.725 100
 Table 4.2.4 indicates the total variance explained by each component (determinant). A total of 9
components were extracted from the determinants. The components are orthogonal to one
another, meaning they are uncorrelated. For a component to account for at least one variable, it
should have an Eigen value (the sum of squares of its factor loadings) of at least one. This is the
threshold for calculating the number of components to remove with maximum or near maximum
loadings. The largest observed variance is explained by component 1, then component 2, and so on.

From the table,

Component 1 accounts for 12.341% of the total observed variability,

Component 2 accounts for 7.753% of the total observed variability,

Component 3 accounts for 6.917% of the total observed variability,

Component 4 accounts for 6.657% of the total observed variability,

Component 5 accounts for 6.455% of the total observed variability,

Component 6 accounts for 5.527% of the total observed variability,

Component 7 accounts for 4.884% of the total observed variability,

Component 8 accounts for 4.638% of the total observed variability,

Component 9 accounts for 4.273% of the total observed variability,

The eleven extracted components explain 70.444% of the total variability for all the 28 variabl
Table 4.2.5 Rotated Component Matrix

Determinants 1 2 3 4 5 6 7 8 9
Status of the firm in the industry 0.814
Reputation of the firm 0.788
Fluctuation in the share price of the 0.558
firm.
Prevailing market price per share
Dividends paid 0.772
Expected corporate earnings from financial 0.615
statements of the firm (Ex:
EPS)
Profit position and condition of income 0.613
statements, balance sheet of a firm

Past stock performance of firm 0.588

Investors opinions on the Firm’s Stock 0.812

Needs for diversification 0.786

Ease of obtaining borrowed funds 0.855
Minimizing risk of loss on the market 0.505

Official statement or report by the

government
Stock index fluctuation & 0.729
development
Economic indicators (Ex: GDP or Interest 0.723
Rates)
Issuance of Stock Split
Recommendation from the co- 0.768
workers & friends
Recommendation by the broker 0.692
Opinion by the family members 0.797
To attain wealth quickly 0.512
Issuance of Bonus share 0.661
The firm's involvement in solving 0.778
community problems (Ex: CSR)
Ethics of the firm 0.536
Goodwill of the firm 0.686
Ownership Structure of the firm
Press Report about the market
Information from the internet & social media 0.822
Feelings for a firm’s product (Ex:
Share)
 Table 4.2.5 represents the rotated component matrix that was used to extract
independent variables highly related to particular components. The entries in the initial
factor were forced to be near 0 or 1 using orthogonal Varimax rotation and Kaiser
Normalization. Such loadings make it easier to see which variables go together and are
therefore more easily interpreted. The final matrix is a pattern as well as a structure
matrix. The correlation coefficient and regression weights arc also indicated by the
coefficients in the rotated matrix.
4.2.6 Factor selection

The table 4.2.6 represents the rotated component matrix of all the determinants
influencing individual investment decisions in the Indian Share Market. The rotated
matrix indicates both the correlation coefficient and the regression weights. Components
1 to 9 respectively represent the determinants influencing individual investment decisions
of the Investors. The variables extracted under the eleven factors are as follows:

Component 1 (Status & Reputation of the Firm) consists of Status of the firm in the
industry, Reputation of the firm and Fluctuation in the share price of the firm.

Component 2 (Return or Investment & Accounting Information of the Firm)

consists of Dividends paid, Expected corporate earnings from financial statements of the
firm (Ex: EPS), Profit position and condition of income statements, balance sheet of a
firm and Past stock performance of the firm.

Component 3 (Diversification & Risk Minimization) consists Investors opinions on the

Firm’s stock and needs for diversification, Ease of obtaining borrowed funds and Minimizing
risk of loss on the market.

Component 4 (Economic & Stock Market Condition) consists of determinants Stock

index fluctuation & development and Economic Indicators (Ex: GDP or Interest Rates)

Component 5 (Third Party Opinion) consists of the determinants Recommendation from the
co- workers & friends, Recommendation by the broker and Opinion by the family members.

Component 6 (Wealth Maximization) consists of determinants to attain wealth quickly

and Issuance of Bonus share.

Component 7 (Perceived ethics of the firm) consists of the determinants Ethics of the
firm and the firm's involvement in solving community problems (Ex: CSR).

Component 8 (Goodwill status) involves of Goodwill of the firm.

Component 9 (Information from the Internet) involves Inlormation from the internet
& socialmedia.
 Table 4.2.6 Heavy Loading Components

Initial Eigenvalues
Component Total % of Variance Cumulative %
1 3.455 12.341 12.341
2 2.17.1 7.753 19.094
3 1.937 6.917 26.011
4 1.864 6.657 31.667
5 1.807 6.455 37.122
6 1.548 5.527 42.649
7 1.367 4.554 53.533
S 1.219 4.638 62.171
9 1.096 4.273 70.444

Table 4.2.6 shows a summary of the factor loading heavily to a particular. The factor
loading heavily on a particular component should have the greatest corresponding value entry across
all the nine components in the rotated component matrix. The first three components clearly
indicate that the most important factors influencing individual investment decisions in the
Indian stock market relate to Status & Reputation of the firm, Return on Investment &
Accounting information of the firm. Diversification & risk Minimization and determinants
based on Economic conditions and the third- party opinion.
4.3 Friedman’s Factor Ranking Method

4.3.1 Impact of the Determinants that affect investment Decisions of Individuals

The impact of each determinant is calculated by ranking them according to the weightage or
importance that it has over the decision-making process of the individual investors. This is calculated
with the help of Friedman’s test or ranking method. Friedman’s test or ranking method analysis allows
identifying most of the important criteria based on participants’ replies and it is also an appropriate
tool to prioritize indicators rated on Likert type scales.

Table 4.3.1 The Friedman’s Factor Ranking

Component Rank Mean Std. Deviation
Status of the firm in the industry 1 4.66 0.608
Reputation of the firm 2 4.56 0.615
Fluctuation in the share price of the firm 3 4.47 0.678
Prevailing market price per share 4 4.34 0.517
Dividends paid 5 4.27 0.62
Expected corporate earnings from financial statements of 6 4.24 0.663
the firm (Ex: EPS)
Profit position and condition of income statements 7 4.23 0.731
Past stock performance of the firm 8 4.21 0.72
Issuance of Bonus share 9 4.2 0.644
To attain wealth quickly 10 4.17 0.624
Recommendation by the broker 11 4.08 0.649
Minimizing risk of loss on the market 12 4.04 0.637
Official statement or report by the government 13 4.01 0.644
Stock index fluctuation & development 14 3.91 0.756
Investors opinions on the Firm’s stock 15 3.86 0.554
Economic Indicators (Ex: GDP or Interest Rates) 16 3.84 0.699
Needs for diversification 17 3.72 0.701
Ea.se of obtaining borrowed funds 18 3.67 0.642
Ethics of the firm 19 3.61 0.685
Press Report about the market 20 3.57 0.79
Ownership Structure of the firm 21 3.52 0.482
Goodwill of the firm 22 3.45 0.693
Opinion by the family members 23 3.41 0.661
Recommendation from the co-workers & friends 24 3.32 0.542
Information from the internet & social media 25 3.27 0.679
The firm’s involvement in solving community problems (Ex: 26 3.18 0.82
CSR)
Issuance of Stock Split 27 3.07 9.72
Feelings for a firm's product (Ex: Share) 28 3.05 0.566
 Friedman rank test which assigns weights based on the degree of importance of factors
(i.e., most important to least important). Table 4.3.1 indicates the factors that influence and thus
affect investment decisions in the Indian stock market. In the stock market several factors were
given the greatest consideration when making investment decision on the market.

These rankings are based on the decision or evaluation criteria which are tabulated according
to the distribution of mean & standard deviation values of the determinants. The decision
criteria are mentioned is as follows.

Table 4.3.2 Decision Criteria

Range Decision Criteria Impact

1.00 - 1.79 Strongly disagree No Impact
1.80 - 2.59 Disagree Very Less Impact
2.60 - 3.59 Neutral Less Impact
3.60 - 4.19 Agree High Impact
4.20 - 5.00 Strongly agree Very High Impact

The determinants that were identified and ranked were of the classical wealth maximization
criteria, such as the “Status of the firm”, “Reputation”, “Stock Price Fluctuation”, “Market
Price of the share”, “Dividends paid”, “Expected corporate earnings”, “Profit position of the
company”, “Past stock performance” and “Bonus share issuance”.

These determinants were ranked I to 9 as the most important determinants that influence
individual investor. determinants 10 to 19 as averagely important, while the determinants 20 to 25 as of
no consequence to investors. The determinants that were ranked between 20 to 28 reflected very low.
averages showing that they had no influence on the investor's decisions. This was due to the fact that
the investors did not see any contribution from third-party data, feelings for the particular share or
the company's social responsibility.
 CHAPTER-5

FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 Introduction
The objective of this study was to identify the factors influencing individual investment
decisions in Indian stock market. This chapter presents the summary, discussions and conclusions
from the research findings as per the objective of the study. Based on the findings of this study,
recommendations have been given on the factors influencing individual investment decisions in
NSE & BSE. The limitations of the study as well as suggestions for further research have also been
discussed.

5.2 Summary and Findings

The study was conducted with the sample size of 150 investors. To collect data the method used was
a structured questionnaire that was personally administered to the respondents. The questionnaire
constituted of demographic questions and a list of 28 determinants. The respondents were the
individual investors. In this study, data was analyzed using frequencies, mean scores, standard
deviations, percentages, Friedman’s test and Factor analysis techniques.

5.2.1 Percentage Analysis:

 Frequency of males and females who responded to questionnaire and their percentage. It
shows that 100 males responded to the questionnaire with a response rate of 66.67%, and 50
females responded with a response rate of 33.33%.

 Majority respondents age is (61.33%) between 31 years and above. Then (38%) of
respondents are in the age group of 21 — 30 years, (0.67%) respondents are in the age group
Under 20 years.

 Majority respondents are with the work experience between 10 - 15 years and above is
(68%). Then (29.33%) of respondents are with the work experience between 5 - 10 years and
(2.67%) of the respondents are having work experience less than 5 years.

 Majority of the respondents (57.33%) are working under IT & ITES Companies, (20.67%)
people are working under Automobile sector, (14%) are working in the manufacturing sector,
(4.67%) are working with Retail & E-commerce sectors, and (3.33%) are working in
education sector.
 The annual income of 60.67 % respondents is 4-6 lac per annum, 35.33% of respondents are
earning between more than Rs 6,00,000 per annum, and 4% of total respondents were
earnings under Rs. 4,00,000 per annu
5.2.2 Factor Analysis:

The factor analysis was performed to find out the underlying factors that are present in the
variables, and a total of 9 components were extracted and the factors were named, based upon the
relationship of the determinants and for future identification. The components extracted were;
o Component 1 - Status & Reputation of the Firm
o Component 2 - Return on Investment & Accounting Information of the Firm
o Component 3 - Diversification & Risk Minimization
o Component 4 - Economic & Stock Market Condition
o Component 5 - Third Porty Opinion
o Component 6 - Wealth Maximization
o Component 7 - Perceived ethics of the firm
o Component 8 - Goodwill Status
o Component 9 - Information from the Internet
5.2.3 Friedman’s Factor Ranking Method:

• The Friedman’s test was performed to identify the impact of each determinant and is calculated by
ranking them according to the weightage or importance that it has over the decision-
making process of the individual investors by allowing to identify most of the important criteria
based on participants’ replies and responses.
• The ranking was provided based on the decision criteria of the mean value, and found that
around the first nine components play a major role in impacting the investment decisions
and those are;
o Status of the firm,
o Reputation of the firm,
o Stock Price Fluctuation,
o Market Price of the share,
o Dividends paid,
o Expected corporate earnings,
o Profit position of the company,
o Past stock performance and
o Bonus share issuance
5.3 Discussions and Conclusions

The objective of the study was to identify the determinants influencing investment
decisions of individuals in Indian stock market. Results of factor analysis revealed that the most
important determinants were: Status & Reputation of the firm, Return on Investment & Accounting
information of the firm, Diversification & Risk Minimization and Determinants based on Economic
conditions and the third-party opinion; Investment returns; Diversification and loss minimization;
The goodwill of the firm and accounting information; Perception towards the firm.

Friedman’s ranking was used to identify the most important individual determinants that
influence investment decision. The factors were status & reputation of the firm, fluctuation of the share
price, dividends paid, expected corporate earnings, profit and condition of statement, past performance firm’s
stock and issuance of the bonus share.

Finally, this study put the basic principles of behavioral finance theory to the test in terms
of the determinants that influence investment decisions in the face of uncertainty. The analysis of
the data collected appears to provide a fairly accurate picture of the average Indian stock market investor. The
structure and relative weights of the chosen categories, according to experienced and
knowledgeable investors, reflect a still unsophisticated and immature investor profile on average.

The findings of our sample of 150 respondents confirm that there appears to be a degree of
correlation between the influencing factors identified by behavioral finance theory and previous
empirical evidence for the average equity investor, and the individual behavior of active investors in the Indian
share market influenced by the overall trends prevailing at the time.
5.4 Recommendations

According to this study, before making an investment decision, investors should carefully
analyze the investment factors using reasonable business knowledge. Because market and economic
indicators influence the performance of the stock on the market, investors should be able to interpret
them. Rather than focusing on just one variable, investors should consider all of the variables in the
environment. To minimize risks and maximize returns, investors must diversify their investments
across different companies by developing n portfolio of investments.

5.5 Future Scope of the Study

This study analyzed the determinants that seem to have the greatest impact on individual stock
investors, which included not only the factors that have been studied previously and derived from current
behavioral finance theories, but also additional factors derived from personal interviews that have been
found to influence stockholders' investment decisions in the Indian share market, before and during
the time of investment.

Future research could be attempted to explain the relative importance of decision variables have for
individual investors making stock purchase decisions. Secondly, the study was conducted to investors in
southern part of the India. The findings can be verified by conducting the same study in the rest of
the country, and thirdly, it can be investigated whether there are homogeneous clusters or groups of
variables that form measurable decision determinants that investors rely upon when making stock investment
decisions.
BIBLIOGRAPHY

5.5.1 Krishnan. R and Booker, D.M., (2002), “Investors’ use of” Analysts’ recommendations”,
Behavioral Research in Accounting, Vol. 14, pp. 129-158.
5.5.2 Kiran, D., Rao, U.S. (2005), Identifying Investor Group Segments Based on Demographic
and Psychographic Characteristics, 8th Capital markets conference, Indian Institute of
Capital Markets
5.5.3 Gaurav kabra (2005). “Factors Influencing Investment Decision of Generations in India: The
Bombay State Cooperative Union Journal. Volume.7, Issue. 1. April 2008, pp.30- 43.
5.5.4 Kannadhasan. M, (2005), Risk Appetite and Attitudes of Retail Investors with Special
Reference to Capital Market, The Management Accountant, pp. 448-453
5.5.5 Fischer, Rene, and Ralf Gerhardt (2007). 'Investment Mistakes of’ Individual Investors and
the impact of Financial Advice”, European Business School Working Paper.
5.5.6 Chandra, A., (2008), Decision Making in the Stock Market: Incorporating Psychology
with Finance. Published in Conference Proceedings: FFMI 2008, IlT Kharagpur (29, Dec 2008). pp
461-483.
5.5.7 Gaurav Kabra, Prashant Kumar Mishra, Manoj Kumar Dash, (2010). Factors Influencing
Investment Decision of Generations in India: An Econometric Study.
5.5.8 Suman and Dr. D. P. Warne (2012) - “Investment Behavior of’ Individual Investor in Stock
Market.” IJRFM Volume 2, Issue 2 (February 201 2) (ISSN 2231 -5985)
5.5.9 Geetha, N., & Ramesh, M. (2012), A Study on Relevance of Demographic Factors in
Investment Decisions. International Journal ol Financial Management (IJFM), 1(1), 39-
56
5.5.10 Kartasova.J (2013). Factors forming Irrational Lithuanian India individual Investors’
Behavior, The Business Systems and Economics, ISSN 2029-5234, VO1. 3(l). pp. 69-79
5.5.11 Chaudhary, A. K. (2013), “Impact of behavioral finance in investment decisions and strategies: A
fresh approach”, International Journal of Management Research and Business Strategy, Vol.
2 (2), pp. d5-92.
5.5.12 Smita Mazumdar (2014). “Individual Investment Behavior with Respect to Financial
Knowledge and Investment Risk Preference: A Study”. International Journal of
 Management Research and Business Strategy 3.2: 47-55 2.
5.5.13 Viswanadham N..N.E.Dorika, & D. Mwakapala. (2014). A Study of Perceptual Factors of
Influencing Investors buying Behavior in Tanzanian Equity Market. Journal of Finance
and Investment Analysis, vol. 3, no.2. 99- 105.

5.5.14 K Parimalakanthi and M Ashok Kumar (2tJ1 5). “A Study pertaining to Investment Behavior of
Individual Investors in Coimbatore University”, International Journal of Advanced Research in
Computer science and Management Studies, Vol.3, No.6, pp. 146- 157.

5.5.15 Kai-Yin Woo and ’Lai-Yuen Hon (2816), “The relationship between personality traits and
investment risk preference”. International Journal of Revenue Management, 2016, vol. 9 (1),
pp. 57-71

5.5.16 Sindhu, Rama Krishna, Y. & Reddy, A.S. (2017). Understanding the relationship between
investors’ personal attributes and investment perceptions towards mutual mind investments.
Indian Journal of finance, 1.1(2). 23 - 34. doi: 10.17010/ijf/2017/v11i2/ 110231

5.5.17 Divya Verma Gakhar, Deepti Prakash (2017), “Investment Behavior: A Study of Relationship
between Investor Biases and Myers Briggs Type Indicator Personality”. CPUS NR Journal,
2017, Vol. 8, No.1, pp-32-60.

5.5.18 Abhijit Dutta." investors reaction to good and Bad news in secondary market: A study relating to
investors Behavior," Finance India. 15 (2). June 2001. pp: 567-576.

5.5.19 Agu C.C "Interest rate policy in Nigeria and its attendant distortion", savings and
development. 7(1), I 9h8, pp 17-2 1.

5.5.20 Aldus Salam Md and Umma Kulsun, "Savings Behavior in India. An Empirical study”,
The Indian Economic Journal, 50(1), July - September, 2002 pp 77-80.

5.5.21 Anwar Yousuf S.M and Akhtar Jahan, "Correlates of risk- taking behavior as a process of
decision making, " Labor studies, 24 (4) October 1999. pp:243 - ?48.

5.5.22 Aregbehyen O and Mbadiugha S.O, (2011) “Factors Influencing Investors Decisions in
Shares of Quoted Companies in Nigeria”. The Social Sciences, Vol. 6 No.3, 205-212.

5.5.23 Autar S. Dhesi and Tejinderjit Singh, "The Impact of Household and structure on household,
Labour supply, Income and saving Behavior in urban Indie,” Artha Vijmana, 30(2), June
1995. Pp 1 h2- 175.
5.5.24 Avadhani V.A. (1992). “Investment and Securities Markets in India: Investment
Management”.

5.5.25 Bhole L M (1922), "Proposals for 1-inancia1 Sector Reforms in India: An Appraisal
(Perspectives) “, Vikalpa, Vul. 17, No. 3 (Jul-Sep), p. 3-9.

5.5.26 Avery, Robert B and G.E. Elichausen, “Financial Characteristics of High-Income Families”,
Federal Reserve Bulletin, March 1986. pp: 163 - 177.

5.5.27 Bhalla. V.K. (l983), Investment Management, New Delhi: S. Chand & Company Ltd.

5.5.28 Bhattacharya C D (1981). "Variance Analysis to chances in return of Investment", Working

Paper No. 365, (Apr-Jun), Indian Institute of Management, Ahmedabad.

5.5.29 Brimson, Gray., Hood, Randoff and Bee bower, Gi1lort.L.,"Determinants of portfolio
performance”, Financial Analysts Journal, 1.1995, pp: 135 - 137.

5.5.30 Dr. Syed Tabassum Sultana. Dr S Pardhasaradhi (2812), An Empirical Analysis of

Factors Influencing Indian Individual Equity Investors’ Decision Making and Behavior,
European Journal of Business and Management www.iiste.org ISSN 2222- 1905 (PaPer)
ISSN 2222-2539 (Online) Vol 4; PAGE (50 -61)

5.5.31 Khoacuongphan, Jian Zhou (2014), Factors Influencing individual Investor Behavior: An
Empirical Study of the Vietnamese Stock Market; American Journal of Business and
Management Vol. 3, Nti. 2; PAGE (77-94)

5.5.32 Dr. Taqadusbashir (2013), An Assessment Study on the “Factors Influencing the Individua1
Investor Decision Making Behavior; IOSR Journal of Business and Management (IOSR-
JBM) e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 9, Issue 5 (Mar-Apr. 2013), PP 37-
44

5.5.33 Tomola Marshal Obamuyi; (2013); Factor Influencing Investment Decisions in Capital
Market: A Study of Individual Investors in Nigeria; Issue 2029-4581: Vol. 4, No. 1(7); Page
(141 – 161)

5.5.34 Mark Grinblatt and mattikeloharju; (2001); What Makes Investors Trade; The Journal of
 Finance, Vol. 56, No. 2, pp. 589-6 16.

5.5.35 Samreenlodhi;(2014); Factors Influencing Individual Investor Behavior: An Empirical Study

of City Karachi; IOSR Journal of Business and Management ( IOSR-IBM) e-ISSN: 2278
487X, p- ISSN: 2319-7668. Volume 16. Issue 2. Ver. III, PP 68-76.

5.5.36 Bhole L M (1992), Financial Institutions & Markets: Structure Growth and Innovations, II
Edition. Tata McGraw Hill, Delhi, p. 527.

5.5.37 Bicksler, James L. (Ed), (1979). Hand Rook of Financial Economics, New York: North
Holland Publishing Company.

5.5.38 Bourman, F.1.A, (1989): Small, Short and Unsecured Informal Rural Finance in India,
Oxford University Press, Delhi.
 APPENDIX-I

QUESTIONNAIRE
1. Name Initial

2. Investment in Stock Market

a. If you have already invested in stock market or planning to invest, please

continue.,!
b. If you are not interested in investing in stock market, thank you very much.,!

3. Age
a. Under 20 years
b. 21 - 30 years
c. Above 31 years

4. Gender

a. Male
b. Female

5. Work Experience
a. Less than 5 years
b. 5 - 10 years
c. 10 - 13 years
d. 15 years and above

6. Working Sector
a. IT & ITES
b. Retail & E—commerce
c. Healthcare services
d. Manufacturing
e. Education
f. Automobile
 7. Annual Income

a. Under 4 lac per annum

b. 4 to 6 lac per annum
c. More than 6 lac per annum

Questionnaire (Impact of Determinants)

Below are some determinants/ factors influencing individual investment decisions. In relation to
individual investors’ behavior. indicate to what extent each of the following determinants affects your
investment decision.

Note:
Instructions: You are required to respond to the statements by choosing the response which is most
relevant to you. There are no right or wrong answers. Even if a statement does not seem entirely
relevant, choose the response you consider would be most likely to you.

Determinants based on the Market Image Strongly Disagree Neutral Agree Strongly
of the Organization Disagree Agree
Status of the firm in the industry
Feelings for a firm's product (Ex: Share)
To attain wealth quickly
Ownership Structure of the firm
Reputation of the firm
The firm’s involvement in solving
community problems (Ex:
CSR)
Ethics of the firm

Determinants based on Financials of Strongly Disagree Neutral Agree Strongly

the Organization Disagree Agree
Expected corporate earnings from financial
statements of the firm (Ex: EPS)
Profit position and condition of income
statements, balance sheet of a firm
Prevailing market price per share
Dividends paid
Goodwill of the firm
Issuance of Stock Split
Past stock performance of the firm

Determinants based on Information Strongly Disagree Neutral Agree Strongly

Accessible Disagree Agree
Information from the internet & social media
Stock index fluctuation & development
Press Report about the market
Official statement or report by the
government
Economic Indicators (Ex: GDP or
Interest Rates)
Fluctuation in the share price of the firm

Determinants based on Strongly Disagree Neutral Agree Strongly

Recommendation Disagree Agree
Recommendation by the broker
Opinion by the family members
Recommendation from the co-workers &
friends
Investors opinions on the Firm’s stock

Determinants based on Personalor Strongly Disagree Neutral Agree Strongly

Diversification Needs Disagree Agree
Needs for diversification
Ease of obtaining borrowed
funds
Issuance of Bonus share
Minimizing risk of loss on the
market
 APPENDIX-II

CORRELATION MATRIX

D1 D2 D3 D4 D5 D6 D7 D8 D9
D1 1.000 .084 .363 .168 .284 .382 .376 .216 .173
D2 .084 1.000 -.202 -.034 .068 .228 .180 .037 -.2O1
D3 .363 -.202 1.000 -.022 -.089 .327 .269 .173 .009
D4 .168 -.034 -.022 1.000 -.058 .251 .037 .517 .102
DS .284 .068 -.089 -.058 1.000 -.202 .394 -.041 .264
06 .382 .228 .327 .251 -.202 1.000 .346 .273 -.088
D7 .376 .180 .269 .037 .394 .346 1.000 .050 .050
D8 .216 .037 .173 .517 -.041 .273 .050 1.000 -.055
D9 .173 -.201 .009 .102 .264 -.088 .050 -.055 1.000
D10 .300 .012 .092 .265 .104 .483 .162 .423 .035
D11 -.017 .201 -.084 .093 -.019 .115 .303 .226 -.152
D12 -.099 .165 -.059 .177 -,041 ,123 .237 . 148 -.073
D13 .186 -.174 .080 .384 .027 .167 .049 .406 .104
D14 .044 .027 -.198 -.010 .214 -.106 .023 -.069 .172
D15 .314 .047 .267 -.006 .165 .052 .136 .051 -.010
D16 .052 .090 -.025 .079 -.033 .054 -.017 .104 .004
Correlation D17 .072 -.002 .323 -.022 .018 .089 .085 .084 -.057
D18 .105 .099 .178 .053 -.010 .190 .070 .075 -.081
D19 -.025 -.010 -.022 .065 .057 -.023 .060 .098 -.035
D20 .153 .048 .154 .087 .051 .167 .158 .146 .011
D21 .046 -.068 -.161 -.088 .016 -.070 -.023 -.095 .038
D22 -.051 -.125 -.073 -.029 -.137 -.033 -.257 .060 -.012
D23 .089 -.146 .217 .100 -.101 -.032 -.019 .033 .099
D24 .222 .006 .017 -.124 .039 .035 -.060 -.044 .053
D25 .158 .069 .098 -.028 .016 .141 .098 .158 -.186
D26 .076 .047 .069 -.031 -.017 -.002 -.055 .078 -.179
D27 .259 .130 -.008 .178 .114 .052 .068 .253 -.008
D2B -.091 .049 .049 -.102 -.029 .049 .027 -.124 -.020
 D10 D11 D12 D13 D14 D15 D16 D17 D18
D1 .300 -.017 -.099 .186 .044 .314 .052 .072 .105
D2 .012 .201 .165 -.174 .027 .047 .090 -.002 .099
D3 .092 -.084 -.059 .080 -.198 .267 -.025 .323 .178
D4 .265 .093 .177 .384 -.010 -.006 .079 -.022 .053
D5 .104 -.019 -.041 .027 .214 .165 -.033 .018 -.010
D6 .483 .115 .123 .167 -.106 .052 .054 .089 .190
D7 .162 .203 .237 .049 .023 .136 -.017 .085 .070
DB .423 .226 .148 .406 -.069 .051 .104 .084 .075
D9 .035 -.152 -.073 .104 .172 -.010 .004 -.057 -.081
D10 1,000 .188 -.179 .394 -.033 .136 -.032 .072 .089
D11 .188 1.000 .088 .310 -.116 .073 .011 .067 .138
D12 -.179 .088 1.000 -.039 .005 -.108 .107 .048 .175
D13 .394 .310 -.039 1.000 -.057 .034 .181 .081 .079
Correlation D14 -.033 -.116 .005 -.057 1.000 -.055 .161 -.064 -.001
D15 .136 .073 -.108 .034 -.055 1.000 -.201 .314 .118
D16 -.032 .011 .107 .181 .161 -.201 1.000 -.023 .158
D17 .072 .067 .048 .081 -.064 .314 -.023 1.000 .231
D18 .089 .138 .175 .079 -.001 .118 .158 .231 1.000
D19 .045 .066 .029 .085 .109 .125 -.027 .052 -.081
D20 .105 .094 .178 .167 .101 .030 .302 .062 .302
D21 -.060 -.013 .013 -.022 ,071 -.100 .098 -.099 .052
D22 .032 -.028 -.073 .091 -.006 -.115 .165 -.048 .049
D23 -.147 -.022 -.015 -.024 .017 .016 .046 .065 .062
D24 -.019 -.042 -.102 .086 .127 .065 .141 -.055 -.047
D25 .211 .122 .015 .157 .071 .010 .223 -.003 .234
D26 .039 -.068 .015 -.020 -.00B .045 .084 .098 .128
D27 .060 .064 .090 .104 .060 .032 .064 -.013 .171
D28 -.094 -.081 .026 -.118 .089 -.058 -.028 -.111 -.010
 D19 D20 D21 D22 D23 D24 D25 D26 D27 D28
D1 -.025 .153 .046 -.051 .089 .222 . 158 .076 .259 -.091
D2 -.010 .048 -.068 -.125 -.146 .006 .069 .047 .130 .049
D3 -.022 .154 -.161 -.073 .217 .017 .098 .069 -.008 .049
D4 .065 .087 -.088 -.029 .100 -.124 -.028 -.031 .178 -.102
D5 .057 .051 .016 -.137 -.101 .039 .016 -.017 .114 -.029
D6 -.023 .167 -.070 -.033 -.032 .035 ,141 -.002 .052 .049
D7 .060 .158 -.023 -.257 -.019 -.060 .098 -.055 .068 .027
D8 .098 .146 -0.95 .060 .033 -.044 .158 ,078 .253 -.124
D9 -.035 .011 .038 -.012 .099 .053 -.186 -.179 -.008 -.020
D10 .045 .105 -.060 .032 -.147 -.019 .211 .039 .060 -.094
D11 .066 .094 -.013 -.028 -.022 -.042 .122 -.068 .064 -.081
D12 .029 .178 .013 -.073 -.015 -.102 .015 .015 .090 .026
D13 .085 .167 -.022 .091 -.024 .086 .157 -.020 .104 -.118
Correlation D14 .109 .101 .071 -.006 .017 .127 .071 -.008 .060 .089
D15 .125 .030 -.100 -.115 .016 .065 .ß10 .045 .022 -.058
D16 -.027 .302 .098 .165 .046 .141 .223 .084 .064 -.028
D17 .052 .062 -0.99 -.048 .065 -.055 -.003 .098 -.013 -.1 1 1
D18 -,081 .302 .052 .049 .062 -.047 .234 .128 .171 -.010
D19 1.000 .033 .087 -.141 .187 .095 .103 -.031 .078 .123
D20 .033 1.000 -.128 -,054 .055 .012 .088 -.097 -.052 -.037
D21 087 -.128 1.000 .239 .168 .159 .151 .103 .054 -.010
D22 -.141 -.054 .239 1.000 -.043 .232 .180 .305 .174 -.004
D23 .187 .055 .168 -.043 1.000 .104 .078 .037 .040 .109
D24 .095 .012 .159 .232 .104 1.000 -.021 -.016 .075 .022
D25 .103 .088 .151 .180 .078 -.021 1.O00 .463 .223 .037
D26 -.031 -.097 .103 .305 .037 -.016 .463 1.000 .083 .053
D27 .078 -.052 .054 .174 .040 .075 .223 .083 1.000 -.097
D28 ,123 -.037 -.010 -.004 . 109 .022 .037 .053 -.097 1.000