Black Book

UNIVERSITY OF MUMBAI
PROJECT REPORT ON
“STUDY ON VARIOUS FACTORS THAT AFFECT PEOPLE’S
PERCEPTION OF PRICE FLUCTUATIONS IN THE STOCK MARKETS”
T.Y.B.F.M (SEMESTER VI)
ACADEMIC YEAR: 2019-2020
SUBMITTED BY
TANUSHKA VAID
THIRD YEAR BACHELOR OF FINANCIAL MARKETS
ROLL NO - 70
PROJECT GUIDE
PROF. SHWETA SINGH
H.R. COLLEGE OF COMMERCE AND ECONOMICS VIDYASAGAR
PRINCIPAL K.M. KUNDNANI CHOWK 123, D.W. ROAD, CHURCHGATE,
MUMBAI – 400 020.
2019-2020
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UNIVERSITY OF MUMBAI
PROJECT REPORT ON
“STUDY ON VARIOUS FACTORS THAT AFFECT PEOPLE’S
PERCEPTION OF PRICE FLUCTUATIONS IN THE STOCK MARKETS”
SUBMITTED
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF
DEGREE THIRD YEAR BACHELOR OF FINANCIAL MARKETS
BY:
TANUSHKA VAID
ROLL NO: 70
T.Y.B.F.M (SEMESTER VI)
H.R. COLLEGE OF COMMERCE AND ECONOMICS VIDYASAGAR
PRINCIPAL K.M. KUNDNANI CHOWK 123, D.W. ROAD, CHURCHGATE,
MUMBAI – 400 020.
2
H.R. College of Commerce and Economics
VIDYASAGAR PRINCIPAL K.M. KUNDNANI CHOWK, 123, DINSHAW VACHA

ROAD, CHURCHGATE, MUMBAI – 400020
Certificate
This is to certify that Miss Tanushka Vaid student of H.R. College of Commerce &
Economics studying in T.Y.B.F.M (Semester VI), has successfully completed her
project report on Study On Various Factors That Affect People’s Perception Of
Price Fluctuations In The Stock Markets in the academic year “2019-2020”. The
information submitted is true and original to the best of the knowledge.
___________________________ ____________________________
(Signature of Project Guide) (Signature of Principal)
_____________________________ ____________________________
(Signature of Internal Examiner) (Signature of External Examiner)
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Acknowledgement:
I acknowledge the value assistance provided by H.R. College of Commerce &
Economics, for three-year degree course in B.FM.
I specially thank the Principal Prof. Parag Thakkar, the Co-ordinator of B.F.M and
project guide Prof. Shweta Singh for guiding me in the right direction to prepare the
project and giving their valuable time, knowledge and guidance to complete the
project successfully.
My family and friends were a great source of inspiration throughout my project, their
support is deeply acknowledged.
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Declaration by Learner
I, Miss Tanushka Vaid the student of H.R. College of Commerce & Economics,
studying in T.Y.B.F.M (Semester VI), hereby declare that I have completed the
project report on “Study On Various Factors That Affect People’s Perception Of
Price Fluctuations In The Stock Markets” in the academic year 2018-2019.
The information submitted is genuine and practical to the best of my knowledge.
Date: March 2020
Place: H.R. College, Mumbai
NAME: Tanushka Vaid (Roll No. 70)
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Index:
Serial Number Chapter Title Page

1. Introduction 6
1.1 Selection and Relevance of Problem: 6
1.2 Historical Background: 7
1.3 Brief Profile of Study Area: 8
1.4 Definitions of Related Terms 9
2. Research Methodology: 11
2.1 Objectives: 11
2.2 Hypothesis: 12
2.3 Scope of the Study: 13
2.4 Sample Size: 13
2.5 Limitations of the Study: 14
2.6 Significance of the Study and Selection of the Problem: 15
2.7 Data Collection: 16
2.8 Techniques and Tools: 19
3. Literature Review 21
4. Data Analysis 32
4.1 Secondary Data Analysis: 32
4.1 Primary data analysis 46
5. Conclusion 83
* Appendix 87
** Bibliography 92
Serial Number Table Title Page

Table showing Different Instruments and their Risk-
1.
Return Characteristics With Different Aims of 38
Investment
2.
Student Comparison 72
3.
Adult Comparison 75
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4.
Senior Comparison 78
Serial Number Chart Title Page

1. Predicted Returns VS Actual Returns 43
2. Age 44
3. Income 45
4. Profession 46
5. Education 47
6. Investment 48
7. Type of investment 49
8. Source of Investment 50
9. Primary Purpose of Investment 51
10. Relationship With Risk: 52
11. Safety of Markets 53
12. Regulation of Markets 54
13. Returns from Markets 55
14. Primary Source of Income: 56
15. Impact of Unofficial News 58
16. Impact of Promoter 61
17. Impact of Other’s Opinions 64
18. Impact of Other’s Losses 67
19. Emotions VS Economics 70
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Introduction:
Selection and Relevance of Problem:
Stock prices have been fluctuating since the beginning of stock markets themselves.
The prices move up and down on a daily basis due to a variety of factors, including
but not limited to, demand and supply, expected earnings, growth prospects, national
and international factors.
Various theories exist that try to explain the degree to which a particular factor can
determine the final price reflected of the stock, and very often popular theories can
also contradict each other.
The EHM (Efficient Hypothesis Model) theory disregards the need for investor
interference and desire to beat the market as it assumes that the market already
discounts all information and reflects it in the stock price. Whereas the DDM
(Dividend Discount Model) says that the stock is worth the total of all its future
dividends discounted back to its present value.
Whichever school of thought an investor might support - and most usually support the
latter and hence invest in the first place – it is common knowledge that both these
theories are looking at price fluctuations from an economic point of view, thus
disregarding what I believe to be a major factor that also causes price volatility – the
emotional point of view.
Through this research project, the degree to which different subjective and personal
factors affect people’s perception of a particular stock is explored. By effectively
understanding the nature and amount of people’s perception about the market, an
investor can make wiser investment choices by leaving scope for emotional factors to
raise or reduce the price of a stock in addition to the prevalent economic variables.
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Historical Background:
India’s GDP has increased from a 414 billion dollar economy in 2001 to a 1.3 trillion
dollar economy in 2012. This has also resulted in an eight-fold increase in market
capitalisation of the Indian Stock Markets1. As an underdeveloped economy, most of
the stocks were undervalued with their intrinsic values (what a company is actually
worth) were greater than their market values (what people think a company is worth).
As Indian Stock Markets gained prominence on the world stage, the prices of stocks
of Indian Companies started to rise, resulting in large returns for investors. Jindal
Steel has given a return of 1223.21% return in last five years starting from 2006.
Similarly Bajaj autos, State bank of India, HDFC Bank have given 357.47%, 221.72%
and 221.58% return respectively2.
With this massive increase in inflow of capital, the economy began to steadily rise,
more companies began getting listed and commoners started to pump in their hard-
earned money into the markets with the hope of imitating the success of the frontline
investors. But the markets started to top-out, intrinsic values started to match the
market values of stocks and soon overtook them.
The global stock market crash of 2008 saw a massive drop in people’s perceptions of
the stock market which up till then had been rising, albeit mistakenly, that the stock
markets were a ‘get-rich-quick’ solution.
Large-scale investors as well as simple households lost a lot of their savings in the
crash, while on a larger scale foreign investors withdrawing a staggering amount of
12 billion dollars from India’s capital markets3 and the Reserve Bank of India slashed
policy interest rates from 7% to a new low of 3.25%.4
This sudden shift in people’s fortunes made a lot of people view stock markets
suspiciously with many liking it to a form of ‘organised gambling’. Though the
government has taken many steps to dispel this notion, many people still look at stock
market price fluctuations through an emotional lens instead of an economic one and
this paper attempt to find out the degree of this perception.
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Brief Profile of Study Area:
This research paper shines a light on people’s perception of price fluctuations in the
Indian stock markets. Most of the trading in the Indian stock market takes place on its
two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock
Exchange (NSE).
The BSE is Asia’s first stock exchange, which was established in 1875. It is one of
the world’s largest stock exchanges with a median trade speed of 6 trillion
microseconds. It is the world's 11th largest stock exchange with an overall market
capitalization of 1.83 Trillion dollars as of March 2017. BSE has more than 5500
stocks publicly listed on it5.
The NSE was founded in 1992 and started trading in 1994 as the country’s first
demutualised electronic exchange. It has a market capitalisation of more than 1.41
Trillion Dollars making it the world’s 12th largest stock exchange as of March 20166.
This paper will cover perceptions related to stocks listed on either the BSE or the NSE
or both.
This paper surveyed 107 people between the ages of 15-65 years. Most of the people
were either self-employed (41.1%), students (24.3%) or working a job (20.6%). The
income of people varied nicely ranging from students receiving pocket money to
those earning over 25 lacs a year. Majority of the people were from a commerce
background (69.2%) and almost half invested personally in the stock markets (49.5).
The study area was thus broad and an adequate representation of the real world.
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Definitions of Related Terms7:
i. Stock: A stock (also known as "shares" or "equity") is a type of security that

signifies proportionate ownership in the issuing corporation. This entitles the
stockholder to that proportion of the corporation's assets and earnings.
ii. Stock Market: The stock market refers to the collection of markets and
exchanges where regular activities of buying, selling, and issuance of shares of
publicly held companies take place. Such financial activities are conducted
through institutionalized formal exchanges or over-the-counter
(OTC) marketplaces which operate under a defined set of regulations
iii. SEBI: The Securities and Exchange Board of India (SEBI) is the most
important regulatory body of the securities market in the Republic of India.
SEBI is the counterpart of the Securities and Exchange Commission (SEC) in
the U.S. Its stated objective is “to protect the interests of investors in securities
and to promote the development of and to regulate the securities market and
for matters connected therewith or incidental thereto.”
iv. Promoter: A stock promoter is an individual or organization that helps raise

money for some type of investment activity. Stock promoters may raise
money for a company by offering investment vehicles other than traditional
stocks and bonds, such as limited partnerships and direct investment activities.
Often, promoters are paid in company stock or a percentage of the capital
raised.
v. Investing: Investing is the act of allocating funds to an asset or

committing capital to an endeavor (a business, project, real estate, etc.), with
the expectation of generating an income or profit.
vi. Trading: Trading implies active participation in the financial markets as

opposed to investing, which suggests a buy-and-hold strategy. Trading success
depends on a trader's ability to be profitable over time.
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vii. Price fluctuation: A price change in the stock market is a shift in the value of a
security or another asset to either a higher or lower level. The term also refers
to the difference between a stock's closing price on a trading day and its
closing price on the previous trading day.
viii. Return on Investment: Return on Investment (ROI) is a performance measure

used to evaluate the efficiency of an investment or compare the efficiency of a
number of different investments. ROI tries to directly measure the amount of
return on a particular investment, relative to the investment’s cost. To
calculate ROI, the benefit (or return) of an investment is divided by the cost of
the investment. The result is expressed as a percentage or a ratio.
ix. Economic Factors: They can be split as (1) Fundamental Factors and (2)
Technical Factors. Fundamental factors drive stock prices based on a
company's earnings and profitability from producing and selling goods and
services. Technical factors relate to a stock's price history in the market
pertaining to chart patterns, momentum, and behavioral factors of traders and
investors.
x. Perception: The perceived value of a stock is the customers' evaluation of the

merits of a product or service and its ability to meet their needs and
expectations, especially in comparison with its peers
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Research Methodology:
Objectives:
1. To determine the impact of unofficial news on people’s perception of a stock
2. To study the correlation between people’s personal perception of the promoter

and the stock
3. To understand the degree to which opinions of friends / relatives / colleagues

change one’s own opinion of the stock
4. To determine whether someone else’s loss on a stock can alter one’s personal
view of the stock
5. To explore the degree to which people perceive stock price fluctuations to be

an outcome of economics or emotions
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Hypothesis:
1. H1.1- Unofficial news does not affect people’s perception of a stock
H0.1- Unofficial news does affect people’s perception of a stock
2. H1.2 - People’s personal opinion of the promoter does not affect their
perception of a stock
H0.2 - People’s personal opinion of the promoter does affect their perception
of a stock
3. H1.3 - Opinions of friends / relatives / colleagues does not have significant

impact on own perception
H0.3 - Opinions of friends / relatives / colleagues has significant impacts on

own perception
4. H1.4 - Someone else’s loss on a stock does not alter one’s personal view of
the stock
H0.4 - Someone else’s loss on a stock does alter one’s personal view of the
stock
5. H1.5 - People perceive stock price fluctuations to be an outcome of more

economics than emotions
H0.5 - People perceive stock price fluctuations to be an outcome of more

emotions than economics
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Scope of the Study:
This paper surveyed 107 people between the ages of 15-65 years.
Most of the people were either self-employed (41.1%), students (24.3%) or working a
job (20.6%) with the survey also covering those who were retired or housewives /
husbands.
The income of people varied nicely ranging from students receiving pocket money
(23.4%) to those earning over 25 lacs a year (16.8%) with a majority of those (28%)
earning between 5 to 15 lacs a year.
Majority of the people were from a commerce background (69.2%) followed by

Science (13.1%) and a few were from a Combination stream or Arts.
Almost half of the people surveyed invested personally in the stock markets (49.5)
and 19.6% of them had someone else invest on their behalf.
The study area was thus broad and an adequate representation of the real world.
Sample Size:
The sample size of the study was 107 people. The method of Random Sampling was
used.
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Limitations of the Study:
• This project surveyed only people living in Mumbai and did not cover
investors living outside of the city, or even outside the country.
• The investors were those who predominantly traded on either the Bombay
Stock Exchange or the National Stock Exchange, and so it does not cover the
perceptions of investors relating to either regional exchanges or global ones.
• Moreover, compared to the millions of investors on the two exchanges, this

study had a sample size of 107 people so one cannot be sure how accurately
the sample matches the sentiments of the greater majority.
Despite its limitations, the study has tried to cover people across age groups, income
levels, and professions to gain as broad of an understanding as possible of the topic.
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Significance of the Study and Selection of the Problem:
The importance of the study lies in the fact that it focuses on an area that is often
ignored, but highly meaningful when it comes to understanding the nature of price
fluctuations in Indian stock markets.
A lot of the country is greatly mobilised by emotions and passions as compared to

pure logic. This is demonstrated in every facet of the country from elections to rituals
and also to money.
Through this research project, the degree to which different subjective and personal
factors affect people’s perception of a particular stock is explored.
By effectively understanding the nature and amount of people’s perception about the
market, an investor can make wiser investment choices by leaving scope for
emotional factors to raise or reduce the price of a stock in addition to the prevalent
economic variables.
This study also dives into discovering the prevalent investor sentiments and ideas of
the common man with regard to safety and surety in financial markets. It shows the
extent to which people’s opinions are based on subjective factors, objective
parameters, or some variable combination of the two.
By knowing how much of a price’s perception is based on objective factors, one can
understand how much is within the company’s control and how much is beyond it.
Accordingly we can know how much does a company, or even the Exchange as a
whole, need to work on improving its fundamentals and how much on improving its
perception of its fundamentals.
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Data Collection:
Sources of Information:
1. Primary Data:
Primary data is data that is collected by a researcher from first-hand sources, using
methods like surveys, interviews, or experiments. It is collected with the research
project in mind, directly from primary sources8
Some Advantages of using Primary data:
• The investigator collects data specific to the problem under study.

• There is no doubt about the quality of the data collected (for the investigator).
• If required, it may be possible to obtain additional data during the study
period9.
2. Secondary Data:
Secondary data is data gathered from studies, surveys, or experiments that have been
run by other people or for other research.
Some Advantages of using Secondary data:
• The data’s already there- no hassles of data collection

• It is less expensive
• The investigator is not personally responsible for the quality of data
This research mainly uses primary methods of data collection to ensure more accurate
responses from people and to help the study discover new depths and insights.
The secondary data used in minimal and mainly helps lay a foundation for what they
primary data discovers during the course of the study.
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Nature of Information:
1. Quantitative Methods:
This study used Quantitative methods for collecting data. Quantitative methods are
those that emphasize objective measurements and the statistical, mathematical, or
numerical analysis of data collected through polls, questionnaires, and surveys10.
This project used a questionnaire with 20 multiple choice questions asked that
facilitated convenient and efficient form filling. The data was then gathered together,
sorted, and processed to come up with specific points of information to help lead to an
eventual conclusion.
2. Qualitative methods:
Qualitative data is information that cannot be counted, measured or easily expressed

using numbers. It is collected from text, audio and images and shared through data
visualization tools, such as word clouds, concept maps, graph databases, timelines and
info graphics. Qualitative data analysis tries to answer questions about what actions
people take and what motivates them to take those actions11.
This project referred to past works and other notable research papers to form a
foundation and establish a past connection to the topic. It analyzed the qualitative data
to understand its significance, limitations, and scope of study area. The qualitative
data added more flavor to the essence of the project that was primarily derived from
used quantitative methods of data collection.
The advantages of Quantitative data collection over qualitative methods is:
• It is faster, and can reach a greater number of people in a shorter time.
• The questions and responses are both objective, hence facilitating more
accurate studies.
• It is easier to analyze and tabulate the responses

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• Quantitative data also helps to separate the researcher from the research done.
Due to these reasons, the method of quantitative research and data collection was
used as the main method.
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Techniques and Tools:
Random Sampling12:
Definition: Random sampling is a part of the sampling technique in which each

sample has an equal probability of being chosen. A sample chosen randomly is meant
to be an unbiased representation of the total population. If for some reasons, the
sample does not represent the population, the variation is called a sampling error.
Description: Random sampling is one of the simplest forms of collecting data from
the total population. Under random sampling, each member of the subset carries an
equal opportunity of being chosen as a part of the sampling process.
For example, the total workforce in organizations is 300 and to conduct a survey, a
sample group of 30 employees is selected to do the survey. In this case, the population
is the total number of employees in the company and the sample group of 30
employees is the sample. Each member of the workforce has an equal opportunity of
being chosen because all the employees who were chosen to be part of the survey
were selected randomly.
But, there is always a possibility that the group or the sample does not represent the
population as a whole, in that case, any random variation is termed as a sampling
error. An unbiased random sample is important for drawing conclusions.
In this project random sampling was used by sending out the questionnaire to people
across age groups, income levels, professions and ideologies to best represent what
the general population looks like.
Although there are distinct advantages to using a simple random sample in research, it
has inherent drawbacks.
Advantages13:
• Lack of Bias
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Because individuals who make up the subset of the larger group are chosen at
random, each individual in the large population set has the same probability of being
selected. This creates, in most cases, a balanced subset that carries the greatest
potential for representing the larger group as a whole.
• Simplicity
As its name implies, producing a simple random sample is much less complicated
than other methods, such as stratified random sampling. As mentioned, individuals in
the subset are selected randomly and there are no additional steps.
Disadvantages:
• The disadvantages include the time needed to gather the full list of a specific
population, the capital necessary to retrieve and contact that list, and the bias
that could occur when the sample set is not large enough to adequately
represent the full population.
Overall, random sampling has more advantages than drawbacks and when conducted
methodically can help the researcher arrive at a fairly accurate estimate.
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Literature Review:
1. The Importance of Perception14:

Prof. Dr. Durmaz Yakup, Ibrahim Diyarbakirlioglu (2011), Asian Journal of
Business and Management Sciences, Vol. 1 No. 4
The role of the human perception is one of the most important questions. If we would
be able to understand how the human brain perceives information and operate it, and
how do we make our decisions, we could more precisely make the future forecasts
and increase our efficiency.
We obtain information from the external world from our senses: taste, hearing, smell,
touch, sight. Than we somehow integrate and analyze perceived information and
make our decision.
Decision is an "outcome of mental processes (cognitive process) leading to the

selection of a course of action among several alternatives. Every decision making
process produces a final choice". How do we make a decision, or even better to ask
what leads us to make a decision? All our decisions are directed by our instincts,
unconsciously. The basic human instinct is self-preservation or, in other words,
survival and reproduction. But the decisions, which we make according to our
instincts, are different.
Perception is the most important psychological factor that affects human behavior. It
is a process consisting of several sub-processes (Khan, 2006). Perceptions are built
depending upon the role of an individual in conceiving and understanding
communication (Rajagopal, 2007).
One person’s perceptions may be faulty or idiosyncratic (Andreasen, 2002).

Perception occurs when an individual interprets information through the sensory
system (vision, smell, sound, touch, taste) and a cognitive filter that selects certain
information from a vast array of stimuli. Perception depends upon the person,
situation, and the object.
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2. Persistent Hesitancy of Indians to invest in Stock Markets15:
https://shodhganga.inflibnet.ac.in/bitstream/10603/125151/6/06_chapter%201.
pdf
With one of the largest pools of domestic savings, the equity penetration is abysmally
low in India. The retail participation in the stock market has declined from 20 million
in the 1990s to 12 million in 1999, and just around 8 million in 2009 despite the fact
that the Sensex has grown by 20 times during this period.
As a percentage of the total population, the retail investor participation is just 1.3%,
whereas in the US and China it is 27.7% and 10.5% respectively.
Gold and real estate are the two asset classes that have given superlative returns with
much lower volatility in comparison to equity markets over the past few years;
Moreover, equity investors have to rely on the kindness of strangers - brokers,
advisors - to scan profitable investing opportunity/stock while in case of gold and real
estate it can be evaluated individually.
Equity markets provide unparalleled opportunity to create widespread prosperity in

the country. However, the measures taken by the government are insufficient and do
not appreciate the problems faced by retail investors while investing in equities.
The market is riddled with problems ranging from the difficulties for investors in
opening a D-mat account to price manipulation, poor grievance solutions and the lack
of proper guidance. Retail investors face a tough time, and to add to this they are
taken for a ride by greedy investment advisors.
Major volatility in the markets over the last three years and a virtual collapse in mid-
cap stocks have severely shaken the confidence of retail investors.
Since Indian equity markets are largely dependent on FII inflows, the risk of investing
in equities heightens. During times of global risk aversion, markets become
vulnerable to sharp falls as FIIs withdraw money.
Retail equity investors in India systematically lose out to other categories of players
because they sell the winning stocks too quickly and hold on to the losing stocks too
long.
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Common sense warrants buying shares when prices are down and selling the same
when prices move up. But common sense is extremely uncommon and in capital
market retail investors, adopt herd mentality. They enter when the market is high and
unfortunately, resort to panic exit when markets fall.
This behavior of retail investors in capital market is not in consonance with the
general human propensity of looking for a discount/ deal while buying. In other
words, if there is a “sale” or an attractive price discount going on, the consumers flock
to such offerings.
Unfortunately, when stocks are available at a significant discount to their expected

market value, retail investors stay away from the market. Historically, the fate of
retail investors in the capital markets has been unsatisfactory due to the above
phenomenon. They try to time the market and get it horribly wrong.
An analysis indicates that retail investors increase both buying and selling if their
trades in the recent past are marginally profitable or barely in the positive territory,
and decrease them if they are unprofitable or in the negative territory, ignoring
transaction costs. Since, on an average, they lose more than they gain the trades of the
retail investors end up being value-destroying for themselves
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3. Behavioral Factors Influencing Investment Decisions16:
Aruna P and Dr. H Rajashekar (December 2016) “Factors Influencing
Investment Decisions of Retail Investors- A Descriptive Study” International
Journal of Business and Management Invention, Volume 5 Issue 12
Investors are always assumed to be rational creature, prior to invest that hard earned
money, investors analyze the market condition by using approaches like technical,
fundamental, Capital asset pricing model, Arbitrage Pricing theory.
Behavioral finance assumes that characteristics of market participants and information

structure systematically have an influence on individual’s investment decisions.
Within behavioral finance it is assumed that characteristics of market individuals and

information structure influence investment decisions of individuals and market
outcomes as well. The main focus of behavioral finance is upon the ways people do
interpret and act upon information for making investment decisions.
Behavioral finance is a part of finance. It investigates and explains factors of human

psychology and their effects on investment decision-making in financial market. It
also uses the special knowledge in Psychology, Sociology as well as Finance to
explain uncommon behaviors of investors, which cannot be understood fully by
Traditional Finance.
Behavioral finance evaluates people in the real world because individual investors are
normal people who are affected by factors of demography, psychology, economic,
social and organization.
It can be denied that investors make decisions rationally but also depend on various
factors. As they have a good feeling, they will become overoptimistic while with a
bad emotion, they tend to criticize, claim or become excessively pessimistic.
• Demographic factors
Demographic factors are personal characteristics are used to collect and evaluate
data on people in a given population. Demographic factors include age, gender,
marital status, race, education, income and occupation. Each variable under
26
demographic factor has influence on the investment decision and such influence
may vary from person to person, place to place and securities to securities etc.
• Economic factors
Economic factors are the set of fundamental information that affects an

investment’s value. Various economic factors need to be taken into account when
determining the current and expected future value of an investment portfolio. For
an investment, key economic factors include Income, price, interest rates,
government policy, taxes and management.
• Psychological factors
Psychology is the study of behavior and mind, embracing all aspects of human
experience. It is the science that deals with mental processes and behavior - the
emotional and behavioral characteristics of an individual, a group, or an activity.
The most influencing psychological factors are Over-confidence, Excessive
optimism, Excessive pessimistic, Herd behavior, Risk tolerance
• Social factors
Social factors usually take many forms and may help to explain why human
behavior goes wrong or right. Social factors reflect the region and socio-economic
background from which he/she come. These factors help to shape the thoughts,
beliefs and actions of an individual. The various social factors are family,
educational setting, religion, peer pressures, firm’s reputation in the industry,
firm’s governing body, contribution of a firm towards social cause, etc.
• Organizational factors
Organizational factors relate to the type of working condition, incentives, pay

scale, retirement benefit etc. available to the employees. These factors can
influence the individual’s behavior in investment also. The most influencing
variable under this factor are Job security, pay scale, retirement benefit by the
organization, working environment, promotion system, incentives, financial
assistance, increment etc.
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4. Significance of Emotions on Economic Decisions17:
Margaret Sasi Okumu (February 2017), “The effect of investor perception
on share price fluctuations at the Nairobi securities exchange”
International Journal of Economics, Commerce and Management, Vol. V,
Issue 2
Investor Perception and its Effect on Share Price Fluctuations
According to Ware et al. (2006), standard finance describes people as rational while
behavioral finance describes them as normal. Psychology is a force guiding human
emotions and cognitive errors on financial decisions (Statman, 2001). Much of
economic and finance theory is based on the notion that individuals act rationally and
consider all available information in decision-making analysis (Bodie et al, 2008).
Behavioral finance disputes rational markets and rational economic decisions. Eugene
Fama, one of the pillars of the efficient market school of thought admits that the stock
market prices could become somewhat irrational (Hilsenrathy, 2004).
Cognitive and Emotional Biases and their Effect on Investment Decisions
According to Kahneman and Riepe (1998), biases are heuristics or rules of thumb that
involve systematic errors in judgment due to beliefs or preferences. Behavioural
biases fall into two broad categories including cognitive and emotional biases
(Pompian, 2006).Cognitive biases stem from faulty reasoning. Better information and
accepting advice from experts correct the biases. Financial advisors may not feel
comfortable asking their clients personal questions and so, they let investors to
continue distorting market activity outcomes (Ziegler & Skinner, 2006). Some of
these investors experience life trauma such as divorce, death in the family and loss of
job, which makes them highly emotional. According to Ware et al. (2006),
conventional thinking of investment professionals is that emotions hinder investment
performance and cloud our thinking and spoil objectivity (Pompian& Longo, 2004).
Researchers differ and argue that emotions and intuition are resources that will greatly
improve decision-making and teamwork in an investment (Pompian& Longo,
2004).According to Kahnemann and Tversky (1979), people do not employ statistical
methods in their decision- making but rely on a limited number of cognitive biases
and heuristic principles that reduce the complex tasks of assessing probabilities.
28
5. How a WhatsApp note triggered crash in Infibeam Avenues18
Rajesh Mascarenhas, October 1st 2018, Economic Times,
Shares of Infibeam Avenues fell as much as 73 per cent on Friday after a WhatsApp
message doing the rounds alleged corporate governance issues in the company. This
is the steepest single-day fall after Satyam Computers Services which plunged 83 per
cent on January 7, 2009, after the accounting scam broke out.
Nearly Rs 9,200 crore worth of investor wealth in Infibeam, India's first listed e-
commerce company was eroded on Friday as market capitalization of the company
plunged to Rs.3900 from Rs.13105 crore on Thursday. Infibeam shares ended at
Rs.58.80, down by Rs.138.75, or 70.24 per cent, over the previous day.
The note said the company gave an interest-free and unsecured loan to a subsidiary
with negative net assets to be repaid over eight years. The note also mentioned that
the company has re-classified its co-founder, who continues to hold a large chunk of
shares, as non-promoter. This triggered a sell-off in the shares, said dealers. Equirus
Securities denied it had issued the note.
6. Priority of Factors:19
Bennet E., Selvam M., Eva Ebenezer, Karpagam V..and Vanitha S. (2011):
“Investors’ Attitude on Stock Selection Decision” International Journal of
Management and Business Studies, Vo l. 1 (2).
E. Bennet, M. Selvam, Eva Ebenezer, V. Karpagam and S. Vanitha (2011) asserted

that the average value of the five factors, namely, Return on Equity, Quality of
Management, Return on Investment, Price to Earnings Ratio and various ratios of the
company influenced the decision makers. Further, other five factors, namely,
recommendation by analysts, Broker and Research Reports, recommendations by
friends, family and peer.
Geographical Location of the company and Social Responsibility were given the
lowest priority or which had low influence on the stock selection decision by the retail
investors
29
7. Stock Market Crash And An Increase In Desire For Information20
Koustabh Kanti Ray, Investment Behavior and the Indian Stock Market Crash
2008: An Empirical Study of Student Investors”, The IUP Journal of
Behavioral Finance
The year 2008 has been a year of global slowdown and slump for the global equity
market, in general and stock markets of India, in particular. During 2008, Sensex
(BSE Index) fell down from 21,206 (Indian Historical High of Sensex) to 16,000
points in a single month, i.e., in January 2008. In October 2008, it crossed the support
level of 8,000 points.
Weak global atmosphere coupled with heavy selling by FIIs and hedge funds led to
this market crash. Against this backdrop, this paper analyzes the investment behavior
of student investors. Furthermore, the purpose of the study is to identify the factors
responsible for this crash and investigate whether the investment objectives and
factors influencing investment decision-making are different during and after the
market crash.
This empirical study was based on a structured questionnaire directed towards the
management students who invest and actively trade in the equity market.
The results obtained in the research suggest that the behavior of market participants
during the speculative bubble was to some extent unreasonable and that the
composition of investments has changed as a consequence of market crash.
When compared the time period after the speculative bubble, information available
from companies gained significance for all investors. This specifies an increase in the
importance of fundamental data of the companies after the crash than during the
speculative bubble, when intuition and other unclear valuation methods seemed to
have influenced investments to a greater extent.
30
8. Muhurat Trading – Emotions Prevail Over Economics21
Karvy Financial Academy: https://www.karvyonline.com/knowledge-
center/advanced/muhurat-trading
Goddess Lakshmi, the Goddess of wealth is worshipped on this day by performing

special puja. The financial world gears up to get the blessings of Goddess Lakshmi on
this special day. Stock market diwali muhurat trading has a great significance among
investors. Some investors buy stocks especially for their children on Diwali and hold
them forever without selling them as a part of sentiment and tradition.
The new accounting year Samvat 2075 begins on Diwali. Many first time investors
buy stocks on this particular day. It’s a very special day for the stock market, the
brokers, investors and traders as there is so much sentiment and beliefs associated
with Diwali and investments.
Muhurat trading is observed by the stock exchanges on Diwali. Stock market muhurat
trading time is the best time to invest in the stock market either in stocks or gold.
People believe that at this particular time, the planets are aligned in such a way that all
the evil forces are destroyed and good prevails over evil. People have a general belief
that Muhurat trading brings in lots of profit as they expect Sensex to have a bullish
trend on account of Diwali.
9. Common Man and The Market22:

https://shodhganga.inflibnet.ac.in/bitstream/10603/125151/6/06_chapter%201.
pdf
An investor has to be an Investor only. Small Investors should not indulge in or get
attracted to the theory 'double your income' in a short span in the easiest way. It must
be a long-term investment.
In order to have lucrative profit in a short-term investment investors most likely do

not apply their mind, and enter into the transaction without any perspective planning.
This will result in heavy damage to their hard earned savings and small investments
alike.
Globalization has opened up the lndian Capital Market's tremendous potential. The
Stock Exchange, which was known as "Share Bazar-Satta Bazaar", "Capital Market-
31
Speculation Market-Gambler's Market”, has become an instrument of development of
the 21"century.
In India from 1,00,000 Small investors at the beginning of the 20 century, in the 21''
century it has risen almost to 1 Crore Small Investors directly involved in Capital
Market.
10. Stock Markets and Gambling:23

Prashanth Rao, Nabhi Bansal (2017), “A study on the perception of general
public towards stock market as a gambling den”, International Conference on
Emerging Trends in Business
A stock market is a place in which shares of companies issued to the investing public
are traded either through exchanges or Over-the-Counter (OTC) markets (Stock
Market, n.d.).
Investing is directing money into stocks, mutual funds, bonds, bullion, agricultural
and non-agricultural commodities, real estate or any commercial venture with the
expectation of profits. The contemporary view has been investing in stock market is
often treated similarly to betting. In many cases, it is even dubbed as gambling
wherein one player gains and the other loses simultaneously.
Gambling is popularly treated as a zero-sum game for a player, to achieve monetary

gains in gambling. On the other hand, it means monetary losses for another player of
the same value. For stock market to be perceived as gambling, the invested amount of
the shareholder needs to be more or less the same over the period of time. In simple
words, the money should go from the person who makes the right bid from the person
who makes the wrong bid.
However, in the stock market, the stock prices increase and decrease during the
course of trading and this is not a random phenomenon. Numerous factors like
company performance, competition management, industry trends, market sentiments,
etc. affect the floor prices of listed stocks on daily basis. Thus, an individual who
invests in such scripts without any prior knowledge tends to incur monetary losses in
the stock market whereas a prudent participant who invests after gaining some
insights about market dynamics manages gains from their investments.
32
In the long run, all investors can look forward to appreciation in value of their
holdings as long as the stock market index is on the upward. This is even more
imperative in India where the economy is expected to grow at around 7.6% in
2017. Such a high growth has been attributed to the strengthening of
manufacturing, fast-tracking reforms and a higher boost to the services sector (PTI,
2016).
There are reasons why individuals coin the term gambling. Such individuals tend
to make the following mistakes and face embarrassing losses in this stock market:
1. Over-exposure and non-diversification
2. Investing based on “tips” without a proper research
3. Holding onto losses while booking profits too quickly
4. Trying to catch a falling knife and not buying because a stock is up 10% in a
day
5. Leveraging too much (Bacha, 2015).
Things to understand to change this perception about the stock market are forces
that lead to the change in stock prices are:
Fundamental Factors: EPS of the share, Different Ratios like the Price Earnings
Ratio, Price to Book Ratio, etc.
Technical Factors: Inflation, Economic Strength of the Market, Stock Trend,

Liquidity of the Stock & Market Sentiments.
33
Secondary Data Analysis: Variables Collected – Types and Importance:
1. Age:
Individuals who grow up at the same time are a generation and often share many of
the same experiences as others of the same age group. They exhibit a set of shared
values, beliefs, and attitudes that are important to consider when preparing a research.
Generations In the Study24:
i. The Baby Boom generation were born after World War II, from 1946 to
1964. In general, baby boomers are associated with a rejection or redefinition
of traditional values. Boomers tended to think of themselves as a special
generation, very different from those that had come before them.
ii. Generation X is the generation defined as those born after the baby boom
ended, from 1965 to 1981.Change is more the rule for the people of
Generation X than the exception. Unlike their parents, who challenged leaders
with an intent to replace them, Gen Xers tend to ignore leaders and work for
more long-term institutional and systematic change through economic, media,
and consumer actions
iii. Millennials, also known as Generation Y, describes the generation following

Generation X, from 1981 to 1999. One segment of this age group has often
been called the “eighties babies” generation. Millennials are generally marked
by an increased use and familiarity with communication, media, and digital
technologies. In most parts of the world its upbringing was marked by an
increase in a neoliberal approach to politics and economics.
iv. Generation Z, also known as “Digital Natives,” is a term that reflects the
pluralistic and fragmented society of those with birth dates between 1997 and
2012. Generation Z is highly connected, as many members of this generation
have had lifelong use of communications and media technologies. No longer
limited to the home computer, the Internet is now increasingly carried in their
pockets on mobile Internet devices.
34
2. Income25:
i. Active Income
This is income for which services have been performed. This includes wages, tips,
salaries, commissions, and income from businesses in which there is material
participation.
ii. Passive Income

Most types of passive income are derived from real estate/property, while other
types of passive income are derived from royalties from patents or license
agreements. An income stream falling into this category is one where money is
received usually on a regular basis, where no additional effort has taken place.
Most passive income streams require great effort to start with. Some examples:
Interest Income paid from bank deposits, rental income from real estate/property,
royalties from writing a book, dividends from shares holding. Another example of
passive income come from network marketing.’ Passive income flows to you or
your family whether you are sick, or vacationing, or dead. Passive income streams
allow you to make money without having to be there.
iii. Portfolio Income

Portfolio income is income from investments, including dividends, interest,
royalties, and capital gains. I would say that portfolio income is a subset of
passive income.
The total of these three types adds up to total income. Differences in income alter
our perceptions since at different income levels we lead different standards of life
and interact with a different set of people. we often end up imitating the general
perceptions of that category of people when it comes to making any type of
decision, in this case about price fluctuations in the stock markets.
35
4. Education:
A surprising variable was the fact that whether you were from a background of arts,
science or commerce, didn’t seem to matter much when it came to investing trends
and perceptions. It was not necessary that commerce based education would give you
more faith in the markets than a science based one and this fact has also been backed
up by previous researchers.
Finance-education obtained by students on campus does not have a significant

influence on the risk perception of students on stock investments. Education or
financial knowledge received in college is not able to change students' perceptions of
the risks of equity investment. Students still believe that investing in stocks is a form
of high-risk investment, capital-intensive, provide large returns form but maybe it is
likely to lose the entire capital and profits, so that will provide a long-term
inconvenience to students.
Therefore the information and knowledge of various financial instruments, how to

manage financial risk, risk diversification cannot change the mindset or preparation of
their opinion about the future of the investment and is not change their behavior in
managing finances get better.
Finance-education obtained by students at the college also gives no significant effect

on investment decisions. This means that education and financial knowledge given,
cannot assist students in making investment decisions as an investor in the investment
gallery of universities in Medan and Aceh.26
36
5. Profession:
There is definitely a correlation between career choice and peoples’ attitudes toward
income, independence, risk, and work effort. Entrepreneurs are often described in
terms of the strength or weakness of their attitudes in these dimensions. Significant
relationships were found between the utility expected from a job and the
independence, risk and income it offered. Similarly, the strength of intention to
become self-employed was significantly related to the respondents’ tolerance for
risk and their preference for independence.
Specifically, it is likely that better educated individuals are able to spot more
profitable opportunities; therefore, they expect to derive higher financial returns from
the entrepreneurial endeavor in comparison to less educated individuals (e.g., Douglas
and Shepherd, 2002). The higher expected returns create the potential for a less
financially constrained situation, which, again, reduces the dependence of the nascent
venture on family members' work and buffers the detrimental effects27.
This study basically proved that those people who were self employed had a higher
risk appetite than those with secure jobs This attitude also translated into their
attitudes about the stock markets and how they would perceive price fluctuations.
37
6. Risk and Return:
Risk is the possibility of losing some or all of an original investment. Every saving
and investment action involves different risks and returns. In general, financial theory
classifies investment risks affecting asset values into two categories: systematic
risk and unsystematic risk. Broadly speaking, investors are exposed to both systematic
and unsystematic risks28.
Systematic risks, also known as market risks, are risks that can affect an entire
economic market overall or a large percentage of the total market. Beta is a measure
of an investment's risk relative to the overall market. Market risk cannot be easily
mitigated through portfolio diversification.
Unsystematic risk, also known as specific risk or idiosyncratic risk, is a category of

risk that only affects an industry or a particular company. Unsystematic risk is the risk
of losing an investment due to company or industry-specific hazard. Investors often
use diversification to manage unsystematic risk by investing in a variety of assets.
In addition to the broad systematic and unsystematic risks, there are several specific
types of risk, including:
i. Business Risk
Business risk refers to the basic viability of a business—the question of

whether a company will be able to make sufficient sales and generate
sufficient revenues to cover its operational expenses and turn a profit.
ii. Credit or Default Risk
Credit risk is the risk that a borrower will be unable to pay the contractual
interest or principal on its debt obligations. This type of risk is particularly
concerning to investors who hold bonds in their portfolios. Government
bonds, especially those issued by the federal government, have the least
amount of default risk and, as such, the lowest returns. Corporate bonds, on
the other hand, tend to have the highest amount of default risk, but also higher
interest rates.)
38
iii. Country Risk
Country risk refers to the risk that a country won't be able to honor its
financial commitments. When a country defaults on its obligations, it can
harm the performance of all other financial instruments in that country – as
well as other countries it has relations with. This type of risk is most often
seen in emerging markets or countries that have a severe deficit.
iv. Foreign-Exchange Risk
When investing in foreign countries, it’s important to consider the fact that
currency exchange rates can change the price of the asset as well. Foreign
exchange risk (or exchange rate risk) applies to all financial instruments that
are in a currency other than your domestic currency.
v. Interest Rate Risk
Interest rate risk is the risk that an investment's value will change due to a
change in the absolute level of interest rates, the spread between two rates, in
the shape of the yield curve, or in any other interest rate relationship. This type
of risk affects the value of bonds more directly than stocks and is a significant
risk to all bondholders. As interest rates rise, bond prices in the secondary
market fall – and vice versa.
vi. Political Risk
Political risk is the risk an investment’s returns could suffer because of

political instability or changes in a country. This type of risk can stem from a
change in government, legislative bodies, other foreign policy makers, or
military control. Also known as geopolitical risk, the risk becomes more of a
factor as an investment’s time horizon gets longer.
vii. Liquidity Risk
Liquidity risk is associated with an investor’s ability to transact their

investment for cash. Typically, investors will require some premium for
illiquid assets which compensates them for holding securities over time that
cannot be easily liquidated.
39
Types of Investor Relations With Risk29:
Risk Neutral Investor:
A risk neutral investor is someone who is only concerned about the return but does
not worry about the risk posed by the investment. As long as an investment provides
high returns, this type of investor will go for it.
Risk Averse Investor:
As we mentioned earlier, most investors are risk-averse, that is, they want to reduce
the amount of risk they take for a given level of return. If the returns provided are
higher, they will be willing to take proportionately higher risk.
Risk Lover/Risk Seeker:
The third category of investor is a risk lover. In our example, such an investor will
choose to gamble because it’s not about the returns. Rather he loves taking risk, and
gets additional pleasure by taking the risk. A risk lover definitely wants to increase his
returns but his utility (level of happiness) increases from the extra risk that he takes.
For risk lovers, the risk-return curve slopes downwards, i.e. the return they receive
reduces and the risk increases. This is the typical profile of a gambler.
This paper has shown how different risk appetites alter people’s perceptions of price
fluctuations in the stock markets because depending on their thirst or aversion to risk,
their fear of market movements increase or decrease.
40
7. Investment avenues:
1. Non – Marketable Financial Assets:
Non – marketable financial assets represent a good portion of financial assets. These
can be classified into the following broad categories: Bank Deposits, Post office
Deposits, Company Deposits, Provident fund Deposits
2. Equity Shares:
Equity shares represent ownership capital. As an equity shareholder, investor has an

ownership stake in the company. This essentially means that investor has a residual
interest in income and wealth. Perhaps, the most romantic among various investment
alternatives, equity shares are classified into the following broad categories by stock
market analysts: Blue chip shares, Growth shares, Income shares, Cyclical shares, or
Speculative shares.
3. Bonds:
Bonds or debentures represent long-term debt instruments. The issuer of a bond

promises to pay a stipulated stream of cash flows. Bonds may be classified into the
following categories: Government securities, Government of India relief bonds, PSU
bonds, Debentures of private sector companies, Preference shares
4. Money Market Instruments:
Debt instruments that have a maturity of less than one year at the time of issue are
called money market instruments. The important money market instruments are as
follows: Treasury bills, Commercial paper, Certificates of deposit
5. Mutual Funds:
Instead of directly buying equity shares and / or fixed income instruments, investor
can participate in various schemes floated by mutual fund houses that, in turn, invest
in equity shares and fixed income securities. There are three broad types of mutual
fund schemes: Equity schemes, Debt schemes, or Balanced schemes.
41
Table 1.1 - Table showing Different Instruments and their Risk-Return Characteristics
With Different Aims of Investment30:
Value Rede
Type of Type of
Duration Risk Return Liquidity Apprec ema
Asset Return
iation ble
Government Medium Low to
Low Low No Fixed Yes
Securities to long moderate
Bank Low to
Medium Low High No Fixed Yes
Deposits moderate
Medium / Low /
Debentures Moderate Moderate No Fixed Yes
Long Moderate
Preference Medium /
Moderate Moderate Moderate No Fixed Yes
Shares Long
Medium / Moderate
Bonds Moderate Low No Fixed Yes
Long to high
Equity
Long High Unsure High / Low Unsure Unsure No
Shares
Physical
Assets like
gold, silver, Moderate
Long Unsure Low Unsure Unsure No
diamond, to high
real estate,
etc.
Different theories of investment relate to different perceptions about price fluctuations

in the stock markets.
42
8. Regulation of Indian Markets31:
Regulations are very important for the growth of capital markets all through the
world. The development of a market economy is dependent on the growth of the
capital market. The regulation of a capital market encompasses the regulation of
securities. These rules enable the capital market to function more competently and
fairly.
India has one of the most refined new equity issuance markets. Disclosure
requirements and the accounting policies followed by listed companies to offer
financial information are comparable to the best systems in the world. In Indian
scenario, the securities market is regulated by various agencies such as department of
economic affairs, department of company affairs, and the reserve bank of India.
The capital markets and protection of investor's interest is now primarily the
responsibility of the Securities and Exchange Board of India (SEBI), which is located
in Bombay. The activities of these agencies are coordinated by high level committee
on capital and financial market. SEBI has full autonomy and authority to regulate and
develop capital market.
SEBI's functions include:
1. Regulating the business in stock exchange and any other securities markets.
2. Registering and regulating the working of collective investment schemes,
including mutual funds.
3. Barring fraudulent and unfair trade practices relating to securities markets.
4. Promoting investor's education and training of intermediaries of securities
markets.
5. Prohibiting insider trading in securities, with the imposition of monetary
penalties, on erring market intermediaries.
43
An Interview with the CEO of BSE by Quartz Magazine about Low Investor
Participation and Confidence32:
“We have a market that is not safe for investors to a large extent,” said Ashish Kumar
Chauhan, CEO and managing director of the 140-year-old BSE, also known as the
Bombay Stock Exchange. The BSE, Asia’s first stock exchange, has developed the
Sensex, India’s benchmark equity index. Chauhan, who was one of the founders of
the National Stock Exchange (NSE)—India’s biggest bourse by trading activity—told
Quartz that poor investor awareness and market volatility are the main reasons for
such low participation.
Q: What is the reach of equity markets in India today?
A: India has a population of around 1.2 billion, out of which only 20-25
million people invest in shares or mutual funds. We have touched only 2% of India
and we have to reach the remaining 98%. That is the issue, BSE has been working for
140 years. The stock market has created a lot of wealth of around $1.4 trillion. And,
with respect to India’s GDP, this is not bad compared to other countries. But
for wealth creation, job creation and channelizing savings in India, markets are not the
primary vehicle today.
Q: So why do you think participation is so low?
A: Exchanges have to be blamed for not doing their job well. Also, the volatility has
to be blamed. Since markets are so volatile, people are afraid of investing. Even when
they want to invest, a lot of mis-selling happens. People with very low understanding
of derivatives are trading in them. The markets are also being used for tax evasion and
44
speculation. Today, India is practically the second most speculative nation in the
world after Korea. Due to our tax structures, which charge less on the transactions for
derivatives, and high on equities, people take to derivatives. We have a market that is
not safe for investors to a large extent. Newcomers and gullible people have problems
understanding products and end up choosing high-risk products. Once they lose
money, they practically leave the market forever.
Q: What is the BSE doing to increase this reach?
A: We are trying to increase investor awareness. We do over 2,500 investor
awareness programmes every year. But that is small compared to what India needs.
So we reach out to schools, colleges and self-help groups. The basic goal is financial
literacy. Today equities and derivatives are volatile, so we need to give some
instruments that have a risk-free framework. We have asked the Reserve Bank of
India (RBI) to allow small investors to easily invest in government bonds which are
risk-free instruments, and this process is on.
Q: There are many illegal stock exchanges in India and the trading there is huge.
How does one clamp down on these?
A: This is an educational issue. We haven’t reached out to consumers so that they
know the difference between formal and informal activities. So we are working to
improve this. There is also a law & order situation. In most cases, the police force is
busy in day-to-day criminal activities. So, they do not take financial crimes seriously.
Some are not even aware this is a crime.
45
9. Predicted Returns VS Actual Returns:
Expectations depend on the portfolio. As a general rule, the higher the risk, the higher
is the expected return. So, equity is expected to yield more than fixed-income
securities and bank fixed deposits.
The National Stock Exchange Nifty has given an average annual return of 12.5% in
the past 15 years. This is tax-free and five percentage points more than the average
inflation of 7% during the period. If we consider the 10-year return on every trading
day since December 2007, the Nifty has risen 16% a year. This shows that though
there have been periods when equity has returned 20% or more, you should expect
just 12-15% a year over long periods33.
One reason for unrealistic expectations is investors' tendency to look at just the top
performers (best performing funds, stocks, etc). However, studies show that returns
from an asset class converge towards the long-term average. If the long-term stock
market return is 12%, it is better to go with that than take very high short-term return
as the norm.
Often, high expectations leave investors disappointed. As a result, they may be

alienated from an asset forever, which can damage the overall portfolio.
Chart Showing Comparison:
We can compute the predicted and actual returns of the India stock market over a
given time period, T. In the calculation, we set T to equal eight years, the approximate
length of a full economic cycle.
The calculated results are presented in the chart below. The green line indicates the
expected, or predicted return if the market ratio trends near the average ratio
of 76% over the next eight years.
The blue line indicates the actual, annualized return of the India stock market over
eight years. We use “BSE SENSEX” to do the actual return calculation.
We can see the calculations largely predicted the trend in the stock market, as the blue
line is closely parallel to the green line34.
46
Chart 1: Predicted Returns VS Actual Returns
47
Primary Data Analysis: Input Factors:
1. Age:
This study surveyed 107 people between the ages of 15 to 65. This covered most of
the segments that exists in a society from teenage students to those recently retired
and the working class.
The largest category was that of people between the ages of 45 to 55 with 36 people
surveyed followed by students (29) and seniors (22). The study also interviewed 20
people between the ages off 25-45 years of age, making it a diverse pool of subjects.
Chart 2: Age
48
2. Income:
This survey interviewed 107 people across income strata.
Out of that the highest number of people (30) earned between 5-15 lacs per annum. 25
were students who earned pocket money from their parents, 19 were those who
earned below Rs.5 lac and 18 earned above Rs.25 lacs. The number of people earning
between 15 to 25 lacs was 15.
Thus, the survey covered everyone from those dependent on others for basic income
to High Net worth Individuals and formed a broad and diverse pool of subjects.
Chart 3: Income
49
3. Profession:
Across the 107 people interviewed, most of them (44) were those who were self-
employed in various fields of business.
26 students and 22 people who were employed in some type of job in the corporate
sector followed the self-employed by number. The survey also looked at the
perceptions of 10 housewives / househusbands and 5 retired people.
The perceptions of these diverse professions varied sometimes predictably and other
times randomly as we will see below.
Chart 4: Profession
50
4. Education:
Education forms the base of whatever one may chose to do or not do in life and is an
important determinant when looking at people’s behavioral patterns.
Out of the 107 people surveyed, majority (74) were from a commerce background
that gave them better understanding into the subject of financial markets. There were
also 14 people from the scientific community, 10 with a background in arts and 9 with
a combination background of some sort.
This varied educational pool lent depth and diversity to the research.
Chart 5: Education
51
5. Investment in Markets:
One of the fundamental questions before I could ask about their perceptions in the
market was to know whether they invested in the markets in the first place. This
would be the starting point of understanding their opinions.
Almost half the people surveyed (53) said that they did indeed invest in the markets
personally. 33 said that they didn’t invest whereas 22 people had someone else,
perhaps a spouse / friend / relative who invested on their behalf and in their name in
the markets.
Chart 6: Investment
52
6. Type Of Investment
Another important aspect, straight after asking if they invested, was learning what
time of investments they made. This could be short term, long term or a combination
of both. There were also options of ‘not sure’ keeping in mind those who said they
had others investing on their behalf and ‘do not invest at all’ for those who don’t.
Majority of the people (41) said they practiced a combination of short and long-term
portfolios followed by 34 who said they had only a long-term portfolio. 23 people did
not invest at all, while those investing only in short-term securities and the number of
those who were unsure of their investing patterns remained negligible.
Chart 7: Type of Investment
53
7. Source of Investment:
Now that I knew what type of investment they were looking at it was important to
know where they were channeling their money. There are a variety of options
nowadays to suit every type of investor need and a few common options were laid out
for them.
44 people said they invested in some combination of the various options provided,
whereas 25 people said they would invest only through mutual funds. 20 people chose
equity stocks and 18 of them chose bank fixed deposits. Surprisingly, not one person
invested solely in debentures showing the lack of their popularity among the common
man.
Chart 8: Source of Investment
54
8. Primary Purpose of Investment:
Everyone has a purpose behind investment; these can range from simple objectives to
larger complicated plans. But they can basically be narrowed down into two
categories – are investors looking for earning dividend / interest regularly or were
they looking for capital gains in the long term.
More than half the people surveyed (67) said that their main aim was that of capital
appreciation whereas an equal number of people (20 in each case) said that they were
looking to earn interest / dividend or were not sure of their motives behind
investment.
Chart 9: Primary Purpose of Investment
55
9. Relationship With Risk:
An investor’s relationship with risk is one of the fundamental factors that need to be
considered when determining his investing behavior. Risk and return are the two
components of any investment and are usually directly related to each other. More
risk means chances of more return and vice versa.
More than half of the people surveyed (57) said that they would take calculated risks
occasionally whereas a strong number of people (38) said that they would never risk
their money and choose safety of investment over returns.
A small proportion of the people, only around 12, said that they love taking risks if
there are chances of high returns on investments.
Chart 10: Relationship With Risk:
56
10. Do you consider Stock Markets Safe?
Depending on their personal risk appetite comes the next question of what they
consider the general risk levels of the markets to be. Depending on how safe they
perceive the markets, one can know how safe they consider their investments and how
much of a deterrent or aid these perceptions can be to their investing behavior.
A whooping 66 people chose the middle ground and said that markets can be
occasionally safe or unsafe depending on market behavior and investor attitudes.
Whereas 26 people said that confidently that markets and investors are both always
safe. Taking the contradictory route were 15 people who went as far as to say that the
markets are just a form of legalized gambling.
Chart 11: Safety of Markets
57
11. Do you think Markets are Regulated and Investors Protected?
Whether markets are considered safe or not leads to the supplementary question of
whether markets are regulated by the institutions that are in charge and whether these
institutions / establishments are really taking care of investor interests or not.
Over half the people (60) surveyed said that investors were ‘sort-of’ protected, usually
in high-profile cases and not for individual investors among the common man. 25
people were convinced that there was no protection or control for investors in any
situation and only a small minority of 21 people thought that investor rights were
protected in all cases.
Chart 12: Regulation of Markets
58
12. Average Returns from the Market:
Now that we know what their opinions are about risk, it is time to talk about return.
Return is the main component for which people go in for investing money at the first
place. Return is the additional money made on the primary investment that increases
the total wealth of an investor. The logic is simple: more the money, more attractive
the instrument.
Almost half the people (47) expected an annual return of 7-14% from the markets
whereas the other almost equal half (44 people) expected between 14-21%. 8 people
expected a return of less than 7% while the number of people who chose the other
options were negligible.
Chart 13: Returns from Markets
59
13. Primary Source of Income:
Once their return expectations are in place, it needs to be asked whether this is their
primary source of income or not. If it is, their expectations, demands, and risk from
the market will obviously be much greater than in cases when its not the only source
of funding.
This question also shows the dependency of people on the stock markets for the basic
functioning of their lives and the trust that they place on market machinery.
88 people said that it was only a source of secondary income whereas for 19 people it
was the primary and perhaps, only source of income.
Chart 14: Primary Source of Income:
60
Primary Data Analysis: Output
1. If you get a negative WhatsApp forward about a company, what effect

does that have on your opinion of the stock, assuming you have invested
in it?
i. Which Age Group was mostly likely to say:

No Effect – Ages 45 to 55
Would Speak to Others – Ages 55 to 65
ii. Which Income Bracket was mostly likely to say:

No Effect – 5 to 15 lacs
Would Speak to Others – Above 25 lacs
iii. Which Profession was mostly likely to say:

No Effect – Self-employed
Would Speak to Others – Self-employed
iv. Which Educational Background was mostly likely to say:

No Effect – Commerce
Would Speak to Others – Commerce
v. Which Relationship With Risk was mostly likely to say:

No Effect – Take calculated risks
Would Speak to Others – Would not risk
vi. Which Market Regulation Perception was mostly likely to say:

No Effect – No, not at all
Would Speak to Others – Yes, in all cases
vii. Which Return Expectation was mostly likely to say:

No Effect – 7 to 14%
Would Speak to Others – 7 to 14%
61
Analysis:
Majority of the people (39) said that they would speak to others before deciding on a
course of action showcasing the high levels of dependency that people tend to have on
each other.
Close behind at 36 people was the strong opinion of ‘no effect’ because forwarded
messages cannot be trusted. 25 people claimed that it would have substantial effect
and make them research immediately on their own.
The number of people who said it would have some effect, or full effect was
negligible.
Chart 15: Impact of Unofficial News
62
Summary:
The most independent people were those in the age group of 45 to 55 years earning a
modest income of 5 to 15 lacs per annum. They had no faith in the regulatory
institutions governing the stock markets and believed that every investor fended for
himself or herself. Perhaps due to this, they didn’t even have faith in messages
forwarded to them preferring to rely solely on their own knowledge.
These were moderately cautious people who took risks after proper consideration and
had below average return expectations from the market. They were least likely to
have any reaction to unofficial messages about stock or company news.
The most dependent group was that in the age group 55 to 65 years possibly because
of their seniority. They were high income individuals earning over 25 lacs a year but
still showed little reliance on themselves or their own opinions choosing instead to
depend on others.
They strongly believed that markets were well regulated and that investors would
always be protected. They were risk averse and this can be seen in their desire to
confirm and reconfirm their decisions with others before making an actual move.
The most dominant factor in reacting to a forwarded message was the income and
market regulation perception. The least was the educational background and return
expectations.
63
2. If the promoter of the stock is known to be a person of integrity, how
would that affect your decision to invest or not invest in the stock?

i. Which Income Bracket was mostly likely to say:

No Effect – Below 5 lacs
ii. Which Profession was mostly likely to say:

Would Speak to Others – Housewife / househusband
iii. Which Educational Background was mostly likely to say:

iv. Which Relationship With Risk was mostly likely to say:

No Effect – Would not risk
Would Speak to Others – Would not risk
v. Which Market Regulation Perception was mostly likely to say:

No Effect – No, not at all
Would Speak to Others – No, at all
vi. Which Return Expectation was mostly likely to say:

64
Analysis:
This chart was split quite evenly among the options. The most favorable reaction was
that it would have ‘some effect’ with 34 people choosing this option.
22 people said that it would have no effect at all, whereas 20 people reverted to the
standard response of speaking to others before deciding on a course of action, and 20
others said that it would have a substantial effect on their behavior.
11 people were convinced that it would have ‘full effect’ because if the promoter is
good then the stock has to succeed.
Chart 15: Impact of Promoter
65
Summary:
Those who were most concerned with the promoter, or rather most curious about
knowing more in cases of promoter integrity were students in the age group of 15 to
25 years of age or housewives / househusbands. In many cases this category also
included people who earned a high net worth of above 25 lacs a year.
The people for whom promoters had no influence were adults in the age group 45 to
55 years of age or those earning a meager amount of less than 5 lacs a year. Perhaps it
was this lack of income that made them doubt the capability of other promoters who
had earned large amounts in pretty much the same time frame as them.
They were self-employed people in most cases, and since they probably knew how to
handle a business, they knew that there were other factors much more important than
the person in charge which contributed to the overall success and failure of the
company.
Factors such as educational background, relationship with risk, market return

expectations or investor protection perceptions seemed to make no difference in
influencing this variable.
The most important factors in this case turned out to be age, can also be called
experience, and annual income capacities.
66
3. If a trusted close friend / relative asks you to invest in a particular stock
because he/she is convinced it will rise, do you:

Invest Immediately – Ages 45 to 55
Opinion doesn’t matter – Ages 55 to 65

Invest Immediately – Uncertain
Opinion doesn’t matter – Uncertain

Invest Immediately – Job
Opinion doesn’t matter – Job

Invest Immediately – Commerce
Opinion doesn’t matter – Commerce

Invest Immediately – Take calculated risks
Opinion doesn’t matter – Would not risk

Invest Immediately – Sort of, in high profile cases
Opinion doesn’t matter – No, not at all

Invest Immediately – 7 to 14%
Opinion doesn’t matter – 14 to 21%
67
Analysis:
More than half the people surveyed (58) said that they would do their own research
before investing in a recommended stock showing a strong aptitude for self-research
and an ability to not be swayed easily.
Once again, the next best option was that chosen by 26 people who would want to talk
to others before investing.
There were 6 people who would trust others opinion blindly, while those who chose
the other two options was negligible.
Chart 17: Impact of Other’s Opinions
68
Summary:
The people most likely to get easily influenced by their friends’ perceptions or
recommendations about stock or company movements were those in the age group of
45 to 55 years of age. They had below average market return expectations of 7 to 14%
and believed that markets were sort of regulated, but mostly only in high profile
cases.
Those who had the most independent outlook were in the age group 55 to 65 years,
probably confident about their own systems since they would have practiced them for
many years. Their seniority probably lent them that faith in their own abilities and
mistrust in the abilities of others.
They had high market expectations of 14 to 21% and believed that markets were no at
all regulated and no protection was lent to shareholders or investors.
Other factors such as educational backgrounds, income brackets, professions, seemed

to have little or no impact on their behavior to friend recommendations showing that
this factor was even more personal that we had earlier assumed to believe and varied
because of individual personality traits and not generalized factors.
69
4. If a friend / relative lost lot of money in a particular stock a few years
ago, how does it affect your opinion of the stock today?


No Effect – 15 to 25 lacs

Would Speak to Others – Job


No Effect – Take Calculated Risks
Would Speak to Others – Would Not Risk

No Effect – Yes, in all cases
Would Speak to Others – Yes, in all cases

70
Analysis:
Close to half the people surveyed (52) said that knowing about a friend’s loss in the
same stock would have ‘some effect’ on their behavior while 30 people said that it
would have absolutely no effect on them.
An equal number of people (9 in each case) said that it would have either a substantial
effect or they would go as far as to even advice their friends to not invest in the stock
showing that fear-mentality prevailed high amongst them.
Only 7 people admitted to saying that it would have ‘full effect’ and they would not
ever invest in that stock.
Chart 18: Impact of Other’s Losses
71
Summary:
Those people who were between the ages of 45 and 55 years old, and were self-
employed, earning an average of 15 to 25 lacs per annum were the ones who were
most likely to not face any effect by knowing about a friend / relative’s losses in a
particular stock or company.
They had below average market return expectations of 7 to 14% and believed in
taking calculated risks occasionally which is possibly why they would be willing to
risk on a stock a second time to make high returns.
Those who would want to speak to others and not make any decision independently
were in the age group of 55 to 65 years of age and were high net worth individuals
earning above 25 lacs a year. They had no appetite for risk and this can be seen even
in their choice of having a job over being self-employed. They also had higher market
return expectations of 14 to 21% per annum.
Educational background and market regulation perception once again seemed to make
no significant different to the investor perception.
The most important factors for this question were their risk appetite and market return
expectations.
72
5. Generally do people in India invest based on

Emotions – Ages 55 to 65
Economics - Ages 45 to 55

Emotions – 15 to 25 lacs
Economics - 5 to 15 lacs

Emotions – Self-employed
Economics - Housewife / househusbands

Emotions – Commerce
Economics - Commerce

Emotions – Would Not Risk At All
Economics - Would Not Risk At All

Emotions – Yes, in all cases
Economics - No, everyone fends for themselves

Emotions – 14 to 21%
Economics - 7 to 14%
73
Analysis:
Close to half the people surveyed (48) said that markets functioned more on emotions
than economics showing that behavioral science is truly one of the most underrated,
yet important sciences to study to understand investor behavior.
24 people said markets worked only on economics whereas 23 people said that it was
definitely more economics than emotions.
A small margin of 12 people tended to think that markets worked only on emotions
and economics had no role to play in it.
Chart 19: Emotions VS Economics
74
Summary:
The people who believed that the market ran on emotions were seniors in the age
group of 55 to 65 years of age earning a substantial amount of 15 to 25 lacs per
annum.
They were self-employed people who had high market return expectations and
expected between 14 to 21% returns per year. They also showed high faith in the
regulation and protection capacities by trusting the institutions in charge to protect
them in all cases.
Those who believed in economics were 45 to 55 years of age and usually housewives
or househusbands with an annual income of between 5 to 15 lacs a year. They tended
to have lower market expectations of 7 to 14% and believed that there was no market
regular or sufficient investor protection.
Factors such as educational background and relationship with risk didn’t seem to have
any significant impact on the perception.
The most important determinants seemed to be the perception and confidence in the
market regulators.
75
Individual Investor Profile Group Comparison:
Often even within the same profile groups such as age there can be differences
among individuals due to individualistic tendencies. These 3 tables aim to
understand why by diving people according to the same age group.
1. Table 1: Student Comparison:
Criteria Student 1 Student 2

Name Ruchita Sonawane Kajal Sanghvi
15-25 15-25
Age Group
Student Student
Profession
Pocket money Pocket money
Income Level (student) (student)
Educational Commerce Science

Background
Someone invests on Someone invests on
Do you invest in the
my behalf my behalf
stock markets?
Long term - have a
Not sure
Type of investment fixed portfolio
Are stock markets

No No
your primary source of
income?
A Combination of
A Combination of all
Where do you invest? all
Capital
Capital Appreciation
What is the primary Appreciation -
- Increase in value of
purpose of Increase in value of
money
investment? money
I would not risk

money - would I take calculated risks
Relationship with risk choose safety over occasionally
higher returns
Sometimes - But the

Sometimes - But the
market can, and has,
Do you consider stock made the best
made the best
markets safe? investors lose a lot of
investors lose a lot
money
of money
76
Sometimes - But the
Do you think the Sort of - maybe in
markets are well high profile cases, but
made the best
regulated and are not much for common
investors lose a lot
investor interests investors
of money
protected?
What are the average
returns you would 7-14% pa Below 7% pa
expect from the
markets?
If you get a negative
WhatsApp forward
about a company, what Would speak to Would speak to
effect does that have others before others before
on your opinion of the deciding a course of deciding a course of
stock, assuming you action action
have invested in it?
If the promoter of the

Substantial Effect - Substantial Effect -
stock is known to be a
Has the power to Has the power to
person of integrity,
completely alter my completely alter my
how would that affect
opinion about the opinion about the
your decision to invest
stock stock
or not invest in the
stock?
If a trusted close friend Substantial Effect -
/ relative asks you to Has the power to
Do my own research
invest in a particular completely alter my
before investing
stock because he/she is opinion about the
convinced it will rise, stock
do you:
If a friend / relative
lost lot of money in a Some effect - would Some effect - would
particular stock a few be hesitant about be hesitant about
years ago, how does it investing investing
affect your opinion of
the stock today?
More Emotions than More Economics than
Generally do people in
Economics Emotions
India invest based on
Would you want your
children to invest in Yes, for sure. Yes, for sure.
the markets when they
grow up?
If the government
could do one thing to Make markets more Let investors invest
improve your opinion transparent and only according to
about the stock better regulated their income levels
markets what would it
be?
77
Analysis:
This comparison shows the differences in the approaches of a Commerce student and
a Science student and their perceptions of investing.
While predictably, the commerce student knows more about where her money is
invested, what was surprising was that she chose to never risk money as compared to
her peer who would take calculated risks occasionally.
The science student also expected lesser returns from the market and believed that
investors should be able to invest only based on their income levels showcasing her
hesitancy about how the common man would be able to handle such a vast and
complicated machinery as the markets.
The commerce based student gave friends / relatives more power to guide her opinion
about the stock, whereas the science based girl, perhaps keeping up with her scientific
nature of enquiry, would choose to do her own research before taking a decision.
Another surprising factor was that while the commerce student believed that markets
were governed predominantly by emotions, it was the science student who believed
that economics had a greater part to play in it, showing that it is not necessary that
studying economics will guide your belief on the power of economics in the real
world.
78
2. Table 2: Adult Comparison:
Criteria Person 1 Person 2

Prashant Bhadresha Ashumi Shah
Name
35-45 35-45
Age Group
Housewife /
Job
Profession househusband
Above 25 lacs pa Below 5 lacs pa

Income Level
Commerce
Educational Arts
Background
Yes
Do you invest in the Yes
stock markets?
Combination of Combination of short
Type of investment short and long terms and long terms
Are stock markets

No No
income?
A Combination of
A Combination of all
Where do you invest? all
Capital
What is the primary Appreciation -
Not sure
purpose of Increase in value of
investment? money
I would not risk

I take calculated money - would
Relationship with risk
risks occasionally choose safety over
higher returns
Sometimes - But the
Yes - if you are
smart there is
Do you consider stock made the best
nothing to worry
markets safe? investors lose a lot of
about
money
Do you think the Sort of - maybe in Sort of - maybe in

markets are well high profile cases, high profile cases, but
regulated and are but not much for not much for common
investor interests common investors investors
protected?
79
returns you would 7-14% pa 7-14% pa
expect from the
markets?
WhatsApp forward
about a company, what
effect does that have No effect - forwards No effect - forwards
on your opinion of the cannot be trusted cannot be trusted
stock, assuming you

No Effect - Many Would speak to
factors are more others before
important than deciding on a course
promoters of action
stock?
If a trusted close friend

/ relative asks you to
Would want to talk Would want to talk to
invest in a particular
to more people more people before
stock because he/she is
before investing investing
convinced it will rise,
do you:
lost lot of money in a Some effect - would Some effect - would
particular stock a few be hesitant about be hesitant about
years ago, how does it investing investing
the stock today?
Only Emotions Only Economics
(based on opinions (growth prospects of
Generally do people in of friends, blindly the stock, market
India invest based on following popular conditions, expected
trend etc.) dividend etc.)
Would you want your Maybe, but only

children to invest in Yes, for sure. through mutual funds
the markets when they and not directly
grow up?
If the government
could do one thing to Increase investor Make markets more
improve your opinion education among the transparent and better
about the stock common man regulated
markets what would it
be?
80
Analysis:
This table compared two adults between the age group 35-45 years but who are very
different from each other. One is a working male with a commerce background who
earns above 25 lacs a year, the other is a housewife from an arts background who
earns below 5 lacs per annum.
Predictably, the male invests to gain capital appreciation whereas the female isn’t sure
about her purpose of investment. The commerce background also makes the male
confident enough to say that stock markets are always safe if you know how to play
them, whereas the woman has her reservations about market safety.
Surprisingly most of their other view points on theories of investing match with each
other differing only when it comes to the promoter with the male negating their effect
and the female preferring to talk to others before choosing her plan of action.
Once again, the biggest surprise lies in the fact that the investing, commerce male
thinks markets run only on emotions and the arts based female thinks that economics
is the sole driving force of markets showing that knowing information doesn’t
necessarily make one believe in the usefulness of believing that information.
81
3. Table 3: Senior Comparison:
Criteria Person 1 Person 2

Prakash malhotra Sanjeev Mehra
Name
55-65 55-65
Age Group
Self-Employed Job
Profession
Above 25 lacs pa 15-25 lacs pa
Income Level
Science
Educational Commerce
Background
Yes
Do you invest in the No
stock markets?
Combination of
Do not invest at all
Type of investment short and long terms
Are stock markets

No No
income?
Mutual Funds A Combination of all
Where do you invest?
What is the primary Earning Dividend /
Not sure
purpose of Interest
investment?
I would not risk
I take calculated money - would
Relationship with risk
risks occasionally choose safety over
higher returns
Sometimes - But the
market can, and has, No - it is basically a
Do you consider stock made the best form of legalised
markets safe? investors lose a lot gambling
of money
Do you think the

markets are well No - Everyone has to
Yes, in all cases
regulated and are fend for themselves
investor interests
protected?
returns you would 21-28% pa Below 7% pa
expect from the
markets?
82
WhatsApp forward
Would speak to Would speak to
about a company, what
others before others before
effect does that have
deciding a course of deciding a course of
on your opinion of the
action action
stock, assuming you

Some Effect - It Would speak to
would help me look others before
at the stock more deciding on a course
favorably of action
stock?
If a trusted close friend

People's opinion
/ relative asks you to
doesn't matter, I
invest in a particular Do my own research
would invest based
stock because he/she is before investing
only on fundamentals
convinced it will rise,
of the stock
do you:
Would advice even
lost lot of money in a Some effect - would
my friends and
particular stock a few be hesitant about
relatives not to invest
years ago, how does it investing
in that stock
the stock today?
More Emotions than
More Emotions than
Generally do people in Economics
Economics
India invest based on
Would you want your

children to invest in No, too risky. Better
Yes, for sure.
the markets when they be safe than sorry
grow up?
If the government Only highly qualified

could do one thing to Increase investor people should be
improve your opinion education among the allowed to invest,
about the stock common man block access to the
markets what would it common man
be?
83
Analysis:
The above table compares two senior men, one who is self-employed from a science
background earning above 25 lacs a year, and the other who is working a commerce
based job earning 15 to 25 lacs a year. Both of them portray wildly different
ideologies.
The science-based man invests in stock markets for earning interest/dividend and
believes that markets are fairly safe. On the other hand, the commerce male does not
invest in stock markets and goes as far as to say that it is basically a form of legalized
gambling.
Their market expectations are also poles apart with the scientific man expecting
returns of 21 to 28% per year and the commerce man expecting below 7%. This could
also stem from their belief that in the case of the former, he believes that investors are
always protected and the latter believes that they never are and have to fend for
themselves.
Predictably, the commerce male would talk to others before deciding on any course of
action and even stop them from investing if he is not comfortable with a particular
thing while the science male’s response is more moderate and seeks more information
at most stages.
The science-based male would also want his children to invest, predictable since he
seems confident about the markets, and the commerce based male would not only
stop his children from investing but also want the government to block access to the
common man from accessing the markets.
84
Conclusion:
This research paper bases its conclusions after the analysis of data collected by 107
people across different backgrounds, financial levels, age groups and thinking
patterns. In cases where the more than half the people have admitted to a factor
influencing them (to whatever degree that influence may be), the study has
established a positive correlation between the factors and vice versa.
The main findings of the project were:
1. Around 70% of the people surveyed said that WhatsApp forwards would
either have no effect on their perception of price fluctuations in the stock or
that they would speak to others before deciding on a course of action
indicating that WhatsApp alone wasn’t enough to influence them.
Thus, H.11 is true in this case that unofficial news does not affect people’s
perception of a stock.
2. 50.5% of the people surveyed said that knowing if the promoter was a man of
integrity could have some effect or substantial effect on their perception of
price fluctuations in the stock.
Thus, H0.2 is true in this case that people’s personal opinions of a promoter
does affect their perception of a stock.
3. More than half the people surveyed (54.2%) said that a friend / relative’s
opinion wouldn’t be enough for them to invest in a particular stock or have
any effect on their perception of price fluctuations of that stock.
Thus, H1.3 is true in this case that opinions of friends / relatives / colleagues
does not have significant impact on own perception.
85
4. A large number of people, almost 72%, said that knowing about a friend /
relative’s loss in a particular stock would moderately or highly affect their
perception of price fluctuations in the stock and deter them from investing.
Thus, H0.4 is true in this case that someone else’s loss on a stock does alter
one’s personal view of the stock.
5. Majority of the people (56.1%) who were part of this survey believed that the
market ran only on emotions or at least on more emotions than economics.
Thus, H0.5 is true in this case that people perceive stock price fluctuations to
be an outcome of more emotions than economics.
86
Suggestions:
1. There is a dire need for investor education among the common man since most
people are unaware of how the markets function and believe it to be an
outcome of emotions instead of economics.
2. Investors should also be made aware of the schemes and protections offered
by SEBI and other regulatory bodies because as of now a lot of people believe
that investors are alone in dealing with scams.
3. There should be easier access provided to the common man to understand the
financials of stock prices and why they fluctuate so that they understand the
previous loss in a stock does not mean future losses in that stock too.
4. Special, dedicated news channels that convey timely information about listed
companies in a simple manner should counter misinformation by unofficial
news sources such as WhatsApp messages.
5. The role of the promoter with regard to stocks should be clearly outlined so
that people know how much of a correlation exists between the two and where
stock prices take off independently.
Until the common man shifts their perception of stock markets to view them as an
economic tool of growth and not an emotional, legalized form of gambling, the
progress of stock markets in the country will be slow and staggering.
Most people are afraid to invest, those who do invest don’t believe in the safety of
their money or in the principles of economics. There seems to be no advantage of
having studied commerce over other streams to alter one’s perception of how the
economy functions, and very few people tend to trust the institutions that are
established primarily to protect them.
A systematic information campaign starting at the grass root level and reaching
students, adults and seniors alike across the divisive lines of education or income
87
levels is required to create a shift regarding people’s perceptions of price fluctuations
in the stock markets.
Once people start to trust the system, the regulatory institutions, and their own
wisdom as compared to relying on unofficial new channels, the words and
experiences of friends / relatives, and the image of the promoter, will they start to
invest wisely and methodically, and the stock markets will see less erratic movements
in prices, and a more economics based approach to the economy.
88
Appendix: Questionnaire
Part 1 - General Questions
1. Name
2. Age Group
o 15-25
o 25-35
o 35-45
o 45-55
o 55-65
3. Profession
o Student
o Self-Employed
o Job
o Retired
o Housewife / househusband
4. Income Level
o Pocket money (student)
o Below 5 lacs pa
o 5-15 lacs pa
o 15-25 lacs pa
o Above 25 lacs pa
5. Educational Background
o Science
o Commerce
o Arts
o Combination
89
Part 2A - Research Questions - Methodology of Investing
6. Do you invest in the stock markets?

o Yes
o No
o Someone invests on my behalf
7. Type of investment
o Short Term - trade frequently
o Long term - have a fixed portfolio
o Combination of short and long terms
o Not sure
o Do not invest at all
8. Are stock markets your primary source of income?

o Yes
o No
9. Where do you invest?

o Equity Stocks
o Debentures
o Mutual Funds
o Bank Fixed Deposits
o A Combination of all
10. What is the primary purpose of investment?

o Capital Appreciation – Increase in value of money
o Earning Dividend / Interest
o Not sure
Part 2B - Research Questions - Theories of Investment
11. Relationship with risk

o I love taking risks if there are chances of high returns
o I take calculated risks occasionally
90
o I would not risk money – would choose safety over higher returns
12. Do you consider stock markets safe?

o Yes - if you are smart there is nothing to worry about
o Sometimes - But the market can, and has, made the best investors lose
a lot of money
o No - it is basically a form of legalised gambling
13. Do you think the markets are well regulated and are investor interests
protected?
o Yes, in all cases
o Sort of - maybe in high profile cases, but not much for common
investors
o No - Everyone has to fend for themselves
14. What are the average returns you would expect from the markets?
o Below 7% pa
o 7-14% pa
o 14-21% pa
o 21-28% pa
o Above 28% pa
15. If you get a negative WhatsApp forward about a company, what effect does
that have on your opinion of the stock, assuming you have invested in it?
o No effect - forwards cannot be trusted
o Some effect - would pass on that message to others
o Substantial effect – would immediately research more about it on my
own
o Full Effect - Would withdraw my money immediately
o Would speak to others before deciding a course of action
16. If the promoter of the stock is known to be a person of integrity, how would
that affect your decision to invest or not invest in the stock?
o No Effect - Many factors are more important than promoters
o Some Effect - It would help me look at the stock more favorably
o Substantial Effect - Has the power to completely alter my perception
91
o Full Effect- if the promoter is good, the stock has to succeed
o Would speak to others before deciding on a course of action
17. If a trusted close friend / relative asks you to invest in a particular stock
because he/she is convinced it will rise, do you:
o Invest immediately since I trust them
o Would want to talk to more people before investing
o Do my own research before investing
o Would wait for official news to come out before investing
o People's opinion doesn't matter, I would invest based only on
fundamentals of the stock
18. If a friend / relative lost lot of money in a particular stock a few years ago,
how does it affect your opinion of the stock today?
o No effect - it was a long time ago, never know whose fault it was
o Some effect - would be hesitant about investing
o Substantial effect - would have to be giving me remarkable returns to
even consider
o Full effect - would not invest in a stock that caused such great loss
o Would advice even my friends and relatives not to invest in it
19. Generally do people in India invest based on

o Only Economics (growth prospects of the stock, market conditions,
expected dividend etc.)
o Only Emotions (based on opinions of friends, blindly following
popular trend etc.)
o More Economics than Emotions
o More Emotions than Economics
20. Would you want your children to invest in the markets when they grow up?
o Yes, for sure.
o Maybe, but only through mutual funds and not directly
o I will invest for them, would not want them investing on their own
o No, too risky. Better be safe than sorry
92
21. If the government could do one thing to improve your opinion about the
stock markets what would it be?
o Increase investor education among the common man
o Make markets more transparent and better regulated
o Make markets simple and more accessible
o Let investors invest only according to their income levels
o Only highly qualified people should be allowed to invest, block access
to the common man
93
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4
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95

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UNIVERSITY OF MUMBAI

“STUDY ON VARIOUS FACTORS THAT AFFECT PEOPLE’S

PERCEPTION OF PRICE FLUCTUATIONS IN THE STOCK MARKETS”

T.Y.B.F.M (SEMESTER VI)

ACADEMIC YEAR: 2019-2020

THIRD YEAR BACHELOR OF FINANCIAL MARKETS

PROF. SHWETA SINGH

H.R. COLLEGE OF COMMERCE AND ECONOMICS VIDYASAGAR

PRINCIPAL K.M. KUNDNANI CHOWK 123, D.W. ROAD, CHURCHGATE,

MUMBAI – 400 020.

“STUDY ON VARIOUS FACTORS THAT AFFECT PEOPLE’S

PERCEPTION OF PRICE FLUCTUATIONS IN THE STOCK MARKETS”

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF

DEGREE THIRD YEAR BACHELOR OF FINANCIAL MARKETS

T.Y.B.F.M (SEMESTER VI)

H.R. COLLEGE OF COMMERCE AND ECONOMICS VIDYASAGAR

PRINCIPAL K.M. KUNDNANI CHOWK 123, D.W. ROAD, CHURCHGATE,

MUMBAI – 400 020.

VIDYASAGAR PRINCIPAL K.M. KUNDNANI CHOWK, 123, DINSHAW VACHA

Economics studying in T.Y.B.F.M (Semester VI), has successfully completed her

project report on Study On Various Factors That Affect People’s Perception Of

information submitted is true and original to the best of the knowledge.

(Signature of Project Guide) (Signature of Principal)

(Signature of Internal Examiner) (Signature of External Examiner)

I acknowledge the value assistance provided by H.R. College of Commerce &

Economics, for three-year degree course in B.FM.

support is deeply acknowledged.

project report on “Study On Various Factors That Affect People’s Perception Of

Price Fluctuations In The Stock Markets” in the academic year 2018-2019.

The information submitted is genuine and practical to the best of my knowledge.

Date: March 2020

Place: H.R. College, Mumbai

NAME: Tanushka Vaid (Roll No. 70)

Serial Number Chapter Title Page

Serial Number Table Title Page

Serial Number Chart Title Page

Selection and Relevance of Problem:

i. Stock: A stock (also known as "shares" or "equity") is a type of security that

iv. Promoter: A stock promoter is an individual or organization that helps raise

v. Investing: Investing is the act of allocating funds to an asset or

vi. Trading: Trading implies active participation in the financial markets as

viii. Return on Investment: Return on Investment (ROI) is a performance measure

x. Perception: The perceived value of a stock is the customers' evaluation of the

1. To determine the impact of unofficial news on people’s perception of a stock

2. To study the correlation between people’s personal perception of the promoter

3. To understand the degree to which opinions of friends / relatives / colleagues

5. To explore the degree to which people perceive stock price fluctuations to be

1. H1.1- Unofficial news does not affect people’s perception of a stock

H0.1- Unofficial news does affect people’s perception of a stock

3. H1.3 - Opinions of friends / relatives / colleagues does not have significant

H0.3 - Opinions of friends / relatives / colleagues has significant impacts on

5. H1.5 - People perceive stock price fluctuations to be an outcome of more

H0.5 - People perceive stock price fluctuations to be an outcome of more

Majority of the people were from a commerce background (69.2%) followed by

• Moreover, compared to the millions of investors on the two exchanges, this

A lot of the country is greatly mobilised by emotions and passions as compared to

Some Advantages of using Primary data:

• The investigator collects data specific to the problem under study.