Article Paper on Equity1

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INTRODUCTION:

Equity market is the market in which shares are

issued and traded, either through exchanges or

over the counter markets. The market can be split

into two main sectors, the primary market andsecondary market. The primary market is where

new issues are first offered. Any subsequent

trading takes place in the secondary market. In

India out of a population of over 1 billion only 18

million people have invested in equity market and

out of this 80% investors come from 10 major cities

in India (Money Today, April 2011). A lot of factors

like age, occupation, psychological factors like

motivation, perception, learning, beliefs andattitudes play their roles in the minds of the

investors. This study is an attempt to find what

plays an important role in the minds of the investors

before deciding on an investment.

REVIEW OF LITERATURE

Varadharajan.P and Vikkraman.P (2011) in their

study has stated that an investor decides on an

investment after getting opinion from family,

friends and colleagues, Broker’s recommendation

and also other professional advice. The investor

also takes into consideration the market situations

like financial results of the companies, bonus issue,

Price Earnings Ratio and the reputation of the

company.

Devi. S and Renuga Bharathi. N (2008) found that

the following factors namely advertisement, risk

factor, investor grievances, investment pattern,

change in life style, stock broker service, investment

knowledge, investment information, personal

savings, size of investment, economic condition

and decreasing level of sensex influences theperception of investors on investment.

Murty.T.N and Sastry.P.V.S.H (2013) has stated in

their research that investors invest in the stock

market with the sole aim of return optimization.

Variations in the returns from the expectations of

the investors lead for the risk and the subjective

analysis of various attributes helps for the

MADRAS UNIVERSITY JOURNAL OF BUSINESS AND FINANCERefereed, Peer-reviewed and Bi-annual Journal from the Department of Commerce

ISSN: 2320 - 5857

INVESTOR’S PERCEPTION IN EQUITY MARKET INVESTMENTS IN

INDIA WITH SPECIAL REFERENCE TO CHENNAI

Dr. B. VIJAYAKUMAR *

Abstract

This study is an attempt to find what plays an important role in the minds of the investors before deciding on

investment. After collecting questionnaires from 200 respondents in the Chennai city it was found that the nine

factors namely security, risk tolerance, lucrative returns, investment duration, periodic returns, share

performance, long-term investment , futuristic returns and investment dynamics influence the investors’ perception at various level and ultimately leads them to satisfaction.

KEY WORDS: Investor, Perception, Risk, Returns, Satisfaction

Vol. 3 No. 2 July 2015 Pp. 66-78

* Assistant Professor of Commerce, D.G. Vaishnav College, Arumbakkam, Chennai-106

Global Impact factor: 0.243 http://journal.unom.ac.in

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minimization or the avoidance of the risk.

Peter J Buckley, L Jeremy Clegg, Adam R Cross, Xin

Liu, Hinrich Voss and Ping Zheng (2007)

investigated the determinants of Chinese OutwardDirect Investment (ODI) and the extent to which

three special explanations namely capital market

imperfections, special ownership advantages and

institutional factors need to be nested within the

general theory of the multinational firm. They

found that Chinese ODI to be associated with high

levels of political risk, cultural proximity to host

countries throughout and with host market size

and geographic proximity and host natural

resources endowment.

Messod D Beneish and Teri Lombardi Yohn (2008)

has analyzed whether the adoption of IFRS has an

effect on the tendency of investors to under-invest

in foreign equities. They predicted that the effect of

any reduction in information processing costs from

the adoption of IFRS is likely to be small relative to

the effects of other determinants of home bias such

as the strength of investor protection mechanismsin foreign countries, behavioural biases toward

familiar equities and informational advantages

related to geographical proximity. They conclude

that the quality of information that investors have

or perceive they have decreases with distance and

IFRS adoption is unlikely to affect home bias.

Gagan Kukreja(2012) has found in his research that

age, educational qualification, tax advantages,

liquidity and investment attributes are mediatingfactor for investors’ perception. Investment

influences and investment benefits are having high

relevance.

Gunjan Tripathi(2014) has found in his research

that education, profession and gender do not affect

the derivative investing behaviour. However

income is found to have a significant role on

derivatives. He also added that investors are using

these securities for different purposes namely risk

management, profit enhancement, speculation and

arbitrage.

Ravichandran.K(2008) in his research has statedthat younger generation investors are willing to

invest in capital market instruments and that too

very highly in derivatives segment. Even though

the knowledge to the investors in the derivative

segment is not adequate, they tend to take decisions

with the help of brokers or through their friends and

were trying to invest in the market. He concludes

that most of the investors are of age 31-40 and are

mostly entrepreneurs and working executives. He

also says that friends and relatives followed by

brokers are the most influential persons to pull the

investors into the capital market.

Gauri Prabhu and Vechalekar.N.M (2014) in their

research has found out that various factors affecting

perception of investors regarding investment in

mutual funds are Importance of Liquidity,

Importance of Higher Return, Importance of Low

risk and Company reputation. They say that

mutual fund investment is less risky than directly

investing in stocks and is therefore a safer option for

risk averse investors. Monthly Income Plan funds

offer monthly returns and invest mainly in debt-

oriented instruments with little exposure to equity.

Kathi Brown. S (2004) conducted a survey among 50

to 70 year old investors in order to examine

perceptions of selected securities industry

practices, the stock market and financial servicesprofessionals. The survey illustrated that most

investors feel that the cost-related issues of price per

share and fees are more important in stock

transactions than are other issues such as speed of

transaction. Findings also reveal widespread

concerns among investors related to dishonesty in

the securities industry, lack of ethics, lack of

accountability and lack of consumer protection

suggested that much remains to be done to restore

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INVESTOR’S PERCEPTION IN EQUITY MARKET INVESTMENTS ININDIA WITH SPECIAL REFERENCE TO CHENNAI


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investor confidence.

Ruta Khaparde and Anjali Bhute (2014) in their

research suggested that the perception of investors

differs around on the basis of different factors likeage, income, experience of investing, investment

objectives and individual social needs. They also

suggest that stocks are the most wonderful category

of financial instruments and one of the greatest

tools ever invented for building financial wealth.

Kousalya.P.R and Gurusamy.P (2012) in their

research has concluded that investors make self-

decision regarding their investment. Investments

are made for a period of less than three years andthere is a significant relationship between age and

awareness.

Geetha.S.N and Vimala.K (2014) has stated that at

national level, household investment provides the

main source of investment financing both for

Government and the corporate sector. They

conclude that demographic variable influence the

investment decision and how information

technology has also deeply influenced the

operation of financial markets.

Neel Kamal Purohit (2013) in his research has found

out that income has significant impact on frequency

of trading in stock market, selection of mode of

trading and selection of market segments. Age and

income has significant impact on taking exposure.

S u khw i nde r K a u r , Ba tra .G .S a nd Bi m a l

Anjum(2014) has suggested that investors should

consider long historical data, size and age of the

fund, fund charges and some measure to analyse

the funds for investments in mutual funds. It

revealed that investor consider mutual funds as

flexible investment option as mutual fund

companies efficiently manage assets and they think

investment in stock market is risky and complete.

Rajeev Jain (2012) in his research explored some of

the unanswered important questions about stock

markets that can be examined and investigated by

an emerging field behavioural finance. It also

explained the factors responsible for the unusual

investments in the stock market which could not be

fully explained by the theories of traditionalfinance. The study examined that three important

atti tudes displayed by investors namely

expectations those investors have about the future

performance of the market in India, confidence that

investors have regarding their investments and

herd instincts so that investors had to herd together.

Faisal Alanezi, Mishari Alfraih and Hesham

Almujamed (2014) in their research found that the

most important sources of information to the

Kuwaiti multi-investors concerned general

corporate information was information about major

types of product and for financial information was

operating profit. In addition the most important

item in non-financial information was new

contracts won by the company. Furthermore the

most important item in corporate governance

information was corporate strategies, in corporate

social information was improvement in customerservices and in type of valuation methods was

fundamental analysis. However with the exception

of some corporate information items no significant

differences were found between participant’s

perceptions.

Manasa Vipparthi and Ashwin Margam (2012)

revealed that the investors’ perception is dependent

on the demographic profile and assesses that the

investors age, marital status and occupation has

direct impact on the investor’s choice of investment.

The study further revealed that female segment are

not fully tapped and even there is low target on

higher income people. It reveals that Liquidity,

Flexibility, Tax savings, Service Quality and

Transparency are the factors which have a higher

impact on perception of investors.

Anshuja Tiwari and Babita Yadav (2013) in their

research has stated that private insurance players

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with their aggressive marketing strategy, advanced

technology, foreign expertise and better customer

services makes this industry attractive for every

social segment. In private life insurance service

providers even aware and educated people hesitateto invest because of having less faith due to

evidence of many insurance frauds and misleading

information given at the time of policy selling.

Shailendra Kumar Chaturvedi, Aravind Kumar

Singh and Karanveer Singh (2014) in their research

found out that mutual fund is a tax saving

instrument and to a certain extent a return oriented

investment. It was also found that the investors

were more prone to public companies rather than

private companies.

Arvid O.I. Hoffmann, Thomas Post and Joost M.E.

Pennings (2012) in their research found out that

investor perception during 2008-09 financial crisis

fluctuate significantly with risk tolerance and risk

perceptions being less volatile than return

expectations. During the worst months of the crisis

investors’ return expectations and risk tolerancedecrease while risk perception increase. Towards

the end of the crisis, investor perceptions recover.

They also documented substantial swings in

trading and risk-taking behaviour that are driven

by changes in investors’ perceptions. Overall

individual investors continued to trade actively

and did not de-risk their investment portfolios

during the crisis.

RESEARCH GAP

While reviewing the vast literature on the subject,

the researcher found that the factors affecting the

investors’ perception are opinion from family,

friends and relatives, brokers’ recommendations,

advertisement, change in life style, investment

p a t te rn , a ge , ge nde r , i ncom e , com p a ny

background, financial performance, liquidity,

awareness, lack of ethics, lack of accountability,

flexibility, tax savings, service quality, marital

status and so on. The researcher felt that in the

present economic scenario which encourages

investors and investment there may be some more

factors influencing investors and this study is anattempt to find one.

NEED FOR THE STUDY The equity market in India is fast growing and

every day new investors are entering into the

market. This study will be of use to them as there

are several myths the investors have about the

market and this study will make investors to

systematically invest in equity market.

OBJECTIVES OF THE STUDY

After reviewing national and international

literature the researcher intended to take the

following unaddressed questions as objectives.

1. To identify the investors’ preference in equity

investment.

2. To measure the level of satisfaction with

respect to the demographic background of

investors.

3. To find the relationship between investors’

preference and satisfaction.

STATEMENT OF THE PROBLEM

The investors many times invest on the basis of

stock brokers opinion, friends and relatives opinionand also on the basis of their own experience. This

study will be useful in finding out the various other

factors which influence the investors’ perceptions.

RESEARCH METHODOLOGY

The methodology adopted in this study relates to

data collection and questionnaires. The sampling

plan used for the final study is discussed in detail

along with data collection procedures and data

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analysis procedures used in pretest, pilot and the

final study.

Pilot Study and Pre-testing

A preliminary investigation was undertaken by

contacting 50 investors in Chennai. The

proportionate random sampling method was

applied to collect the preliminary samples. The

Cronbach Alpha method and test were applied to

check the reliability of the data.

Sampling design

Convenience sampling procedure was used for

selecting the samples from the large population of

investors in the city of Chennai. After testing its

reliability, the questionnaire was administered to

250 employees. Of this 223 questionnaires were

received It was found that only the 200

respondents have filled the questionnaire

completely and 200 is the sample size of this study.

Area of the study

Chennai city has been chosen because it is one of the

major industrial hub in India and Madras stock

exchange is doing brisk business.

Scale development

The questionnaire used comprises both optional

type and statements in Likert’s five point scale

which ranges as follows: 5- Strongly agree, 4 –

Agree, 3- Neutral, 2- Disagree and 1- Strongly

disagree.

Secondary data

The secondary data are collected from journals,

magazines, publications, reports, books, dailies and

websites.

Data Analysis

After collection of responses from the equity

investors the data is systemically tabulated and

analysed using both univariate and multivariate

statistical techniques using Factor Analysis, Linear

Multiple Regression Analysis, One way Analysis of

Variance and Statistical Equation Modeling.

LIMITATIONS OF THE STUDY

1. Due to paucity of time and cost constraints,

the study is confined to Chennai city only

2. The study has been conducted based on the

responses of the selected respondents of

Chennai city. Hence the inferences, findings

of the analysis need not hold good for another

city or the country at large.

3. The study is limited to 200 respondents in

Chennai city.

4. The period of study is confined between

October 2014 to January 2015.

ANALYSIS AND DISCUSSION

FACTORS OF INVESTORS PERCEPTION

After reviewing national and international

literature the researcher identified 32 variables

pertaining to investors’ perception towards equity

market investments. The 32 variables are reduced

into predominant factors by applying Factor

Analysis by Principle Component method. The

results are clearly presented below.

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Kaiser-Meyer-Olkin Measure of Sampling

Adequacy.

.767

Bartlett's Test of

SphericityApprox. Chi-Square 3163.301

df 496

Sig. .000

KMO AND BARTLETT'S TEST

TABLE 1

From the above table it is found that KMO measure

of sampling adequacy is 0.767, Bartlett’s test ofsphericity with approximate chi-square value

3163.301 are statistically significant at 5% level.

This shows that all the 32 variables are normally

distributed and suitable for data reduction. Thenumber of factors derived are presented in the

following total variance table.

TOTAL VARIANCE EXPLAINED

TABLE 2

Componen

t

Initial Eigenvalues Extraction Sums of Squared Loadings

Total

% of

Variance

Cumulative

%

Total

% of

Variance

Cumulative

%

1

4.351

13.597

13.597

4.351

13.597

13.597

2

2.326

7.270

20.867

2.326

7.270

20.867

3

2.077

6.490

27.356

2.077

6.490

27.356

4

1.450

4.531

31.887

1.450

4.531

31.887

5

1.353

4.229

36.116

1.353

4.229

36.116

6

1.293

4.039

40.156

1.293

4.039

40.156

7

1.259

3.934

44.090

1.259

3.934

44.090

8

1.147

3.585

47.676

1.147

3.585

47.676

9

1.128

3.526

51.202

1.128

3.526

51.202

10 1.050 3.280 54.481

1.050

3.280

54.481

11 .998 3.120 57.601

12 .930 2.907 60.509

13 .911 2.846 63.355

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14

.880

2.751

66.105

15

.837

2.616

68.721

16

.783

2.448

71.170

17 .767 2.397 73.566

18

.756

2.363

75.929

19

.718

2.243

78.173

20 .676 2.111 80.284

21 .671 2.098 82.382

22 .609 1.904 84.286

23 .606 1.895 86.181

24 .592 1.851 88.033

25 .563 1.758 89.791

26

.532

1.661

91.452

27

.498

1.557

93.009

28

.486

1.519

94.528

29

.474

1.482

96.010

30

.461

1.441

97.451

31

.422

1.318

98.769

32

.394

1.231

100.000

Extraction Method: Principal Component Analysis.

From the above table it is found that the 32 variables

are reduced into 10 predominant factors with

cumulative variance 54.581. The ten factors are

loaded with perceptional variables of investors.

These factors are listed below.

1. Security

2. Risk tolerance

3. Lucrative returns

4. Investment duration

5. Periodic returns

6. Share performance

7. Long-term investment

8. Futuristic

9. Investment dynamics

10. Satisfaction

After deriving these factors the researcher

intended to relate these 10 factors with the age of the

investors, income and percentage of investment.

Therefore a survey analysis of variance is applied

by considering 10 factors of investment perception

as dependent variables and investors personal and

investment details as the independent variable.

The results are clearly revealed in the following

ANOVA table.

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ANOVA

TABLE 3

FactorsSum of

Squaresdf

Mean

SquareF Sig.

Security

Between

Groups

2.077

5

.415

.899

.482

Within Groups

277.442

600

.462

Total

279.519

605

Risk tolerance

BetweenGroups

4.794

5

.959

1.346

.243

Within Groups

427.401

600

.712

Total

432.195

605

Lucrative returns

Between

Groups

11.838

5

2.368

2.657

.022

Within Groups

534.722

600

.891

Total

546.559

605

Investment duration

Between

Groups 15.213

5

3.043

5.373

.000

Within Groups 339.753 600 .566

Total 354.967 605

Periodic returns

Between

Groups7.678 5 1.536 1.744 .123


Total

536.052

605

Share performance

BetweenGroups

3.972

5

.794

1.463

.200

Within Groups

325.754

600

.543

Total

329.726

605

Long-term

investment

Between

Groups

8.130

5

1.626

1.819

.107

Within Groups

536.385

600

.894

Total 544.515 605

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Futuristic

Between

Groups

14.727

5

2.945

4.237

.001


Total 431.860 605

The research revealed age and income do not have

their influence on investors’ perception whereas

percentages of investment are very vital in deciding

their perception. The researcher considered four

segments in the investment options namely Less

than 10%, 11 to 20%, 21 to 30% and Above 30%. The

table revealed that lucrative returns (f=2.657,

p=0.22), Investment duration (f=5.373, p=0.20),

Futuristic (f=4.237, p=0.001) and Investment

dynamics (f=6.865, p=0.20) are statistically

significant at 5% level. The mean comparison

indicates the investors with above 30% of

investment strongly agree for above factors.

MODEL SUMMARY

TABLE 4

Model R R Square Adjusted R

Square Std. Error of the Estimate

1 .492(a) .242 .230 .69434

After completing the analytical relationshipbetween investors’ perception and their investment

percentage it is very important to find the

relationship between investors’ perception and

their level of satisfaction. Therefore the researcher

applied linear multiple regression analysis by

considering 10 perception factors as independent

variables and satisfaction as their dependent

variables. The results of regression analysis are

presented above revealed that the investors

perception (r2=0.242) create 24.2% variance over

the investment satisfaction of investors in equity

markets. The following ANOVA table indicates the

regression fit relating perception and satisfaction.

ANOVA (b)

TABLE 5

Model Sum of Squares df Mean

Square F Sig.

1 Regression 91.754 10 9.175 19.032 .000(a)

Residual 286.853 595 .482

Total 378.607 605

Satisfaction

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From the above table it is found that f=19.032,

p=0.000 are statistically significant at 5% level. It

implies perception and satisfaction are well

regressed. The perception of investors in equity

market influences their satisfaction level. The

individual influences of perceptual variables are

shown below.

COEFFICIENTS (A)

TABLE 6

Model

Unstandardized

Coefficients Standardized

Coefficients t

Sig.

B

Std. Error

Beta

B

Std. Error

1 Security 1.444

.237

6.082

.000

2 Risk tolerance .154 .046 .132 3.366 .001

3 Lucrative returns -.025 .037 -.027 -.681 .496

4 Investment duration -.001 .032 -.001 -.023 .982

5 Periodic returns .308 .041 .298 7.427 .000

6 Share performance .060 .032 .071 1.850 .065

7

Long-term

investment .055

.042

.051

1.301

.194

8 Futuristic -.070 .032 -.083 -2.158 .031

9

Investment

dynamics

.171

.036

.182

4.792

.000

10

Satisfaction

-.043

.032

-.053

-1.336

.182

.041

.034

.046

1.187

.236

Dependent variable satisfaction

From the above table it is found that security

(Beta=0.132, t=3.366, p=0.001), Investment duration

(Beta=0.298, t=7.427, p=0.000), Long-term

investment (Beta=-0.083, t=-2.158, p=0.031) and

Futuristic (Beta=0.182, t=4.792, p=0.000) are

statistically significant at 5% level. It implies that

the safety in the equity investment is very

important for the investors to acquire the highest

satisfaction. The investment duration is very vital

for the investors to compare their returns and

calculating the inverse proportionality between

time and the return satisfaction. The futuristic

goals of equity investors are very important for

estimating their level of satisfaction.

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STRUCTURAL EQUATION MODEL

The structural equation model as applied to

establish the relationship between investors’preference and satisfaction in equity market

investments. The structural equation model using

Liorel’s software clearly revealed the existence of

significant co-variances among the investors’

preference. The diagram indicates the high

variable leadings with significant co-variances.

The influence of investors’ preference on the

satisfaction factor indicates the security preference

of equity investors play a very major role in

obtaining the satisfaction followed by futuristicreturns and long term investments. The

modification indices C-minimum 30.609, Chi-

square value 1377.418 is statistically significant at

5% level. Besides that the root mean square error of

approximation is 0.244 which is less than the

benchmark 0.8. The P close value 0.255 is also

within the benchmark. Therefore this proves the

model fit relating preference of equity investors and

their satisfaction.

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Trading, Global Journal of Finance and

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ISSN 0975-6477

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Dr. B. Vijayakumar

Documents

Article Paper on Equity1