Lack of RETAIL INVESTORS PARTICIPATION IN INDIAN STOCK MARKET

Lack of RETAIL INVESTORS PARTICIPATION IN INDIAN STOCK MARKET[Type the document subtitle]A REPORT BY KIRAN.VCHANDRAKANT PAWAR (2ND SEMESTER MBA)

ACKNOWLEDGEMENTSWe have taken our sincere efforts in creating this report. However, we would like to extend our sincere thanks to AIMS institute and faculty members in encouraging & assisting us in creating the report which enabled us to learn more about the research area.We would like to dedicate this report to all the potential investors who lack awareness on the importance of investing in a stock market to gain better return on their investments.

KIRAN.VCHANDRAKANT PAWAR

ABSTRACTINTRODUCTION:-India is the 3rd fastest growing economy in the world. The capital market is one of the leading indicators which predict the Indias growth story. Indias benchmark BSE SENSEX recorded a 31% jump in 2014. There is optimism in the financial world with expectations soaring high from not only the industries, companies and institutions but also from investors. But who is driving the market?. YES! Its the foreign institutional investors. Even though Retail investor participation has hit an all-time high with net equity inflows of 43695 crores in the year 2014 vs the previous highs of 40782 crores, they contribute very little to the stock market. In spite of the high turnout by the retail investors, According to Mr. Ashish Kumar Chauhan, Managing Director and CEO at Bombay Stock Exchange (BSE), only 2% of Indians invest in equities. This figure is very low compared to China & U.S.A @ 10% & 18% respectively. Since, the 1990s equities have provided average returns of 18%. Hence, retail investors are also important and they are also able to play a critical role in the growth of the stock market.THE OBJECTIVE OF THE RESEARCH:- To understand the reasons for the lack of retail participation in Indian stock market. To understand & analyse the investors perspective on choosing equites as an investment option. & also to analyse the challenges faced by investors in making an informed investment decision.

THE RESEARCH PROCESS:-Our research is based on primary & secondary data following an explorative research methodology. The data contains a sample size of 100 people from the city of Bangalore and also a brief information on their characteristics. The demographic factors considered to determine to what extent it affects the decision making of investors.LIMITATIONS OF THE STUDYOur study is based on a limited sample size and is based on convenient sampling method. Hence, this may not represent the whole population (city of Bangalore) perfectly. The data analysis is purely based on the experience & knowledge of the respondents. If the respondents have responded to the questionnaires without interest or adequate knowledge, this study may have few constraints to interpret the result.

IntroductionIndia is the 3rd fastest growing economy in the world. The capital market is one of the leading indicator which predicts the Indias growth story. Indias benchmark BSE SENSEX recorded a 31% jump in 2014. There is optimism in the financial world with expectations soaring high from not only the industries, companies and institutions but also from investors. But who is driving the market? YES! Its the foreign institutional investors. Even though Retail investor participation has hit an all time high with net equity inflows of 43695 crores in the year 2014 vs the previous highs of 40782 crores, they contribute very little to the stock market. In spite of the high turnout by the retail investors, According to Mr. Ashish Kumar Chauhan, Managing Director and CEO at Bombay Stock Exchange (BSE), only 2% of Indians invest in equities. This figure is very low compared to China & U.S.A @ 10% & 18% respectively. Since, the 1990s equities have provided average returns of 18%.There is a need for channelizing household savings into equities which finances major businesses in India. More than half (55%) of the total NSE turnover comes from Mumbai alone. The other 4 major cities Delhi, Kolkata, Ahmedabad, Chennai contribution is about 24% to NSE turnover. This shows that rest of the cities & its people are yet to explore the equity as an investment and be a part of the Indian growth story.

Objectives of the studyTo understand the reasons for the lack of retail participation in indian stock market. To understand & analyse the investors perspective on choosing equites & derivatives as an investment option & also to analyse the challenges faced by investors in making an informed investment decision.Research methodologyOur research is based on primary & secondary data following an explorative research methodology. The data contains a sample size of 100 people from the city of Bangalore and also a brief information on their characteristics. The demographic factors considered to determine to what extent it affects the decision making of investors.SELECTION OF SAMPLES:-The data required for the study was collected from selected samples from the city of Bangalore. The target samples were non-investors in the stock market above the age of 18 years. The selection of the samples was based on simple random sampling which includes relatives, friends & others.Collection of the data:-The data collection was both through primary & secondary sources. Primary data was collected by informal interview process with questionnaires.Secondary data was collected from journals, articles, official website like SEBI, NSE, BSE and internet sources.

Data analysis and interpretationThe target samples were informally interviewed with a set of predetermined questionnaires. The whole sample units are non-investors and investors in the past who experienced losses and exited the stock market. Classification based on age:-Age groupNo of respondents

18-2734

28-3758

38-478

TOTAL100

Classification based on Occupation:-OccupationNo of respondents

Salaried81

Professional3

Business16

TOTAL100

Classification based on gender:-GenderNo of respondents

Male68

Female32

TOTAL100

Questionnaires1) The reasons for non-participation in the Indian stock market (directly or indirectly):-Fear of losing money/bad experiences in past21

Lack of knowledge42

Lack of good investment advisors.4

Lack of awareness27

Lack of stability in returns6

Others0

TOTAL100

2) Factors influencing the decision-making in considering a normal investment (on priority basis):-The liquidity of investment2

The objective of investment6

The risk attached to the investment36

The time frame for investment14

The return on investment42

TOTAL100

3) Consideration of different investment avenues available in the market:-Investment avenuesNo of respondents

Gold19

Property23

Bank Fds34

Insurance24

TOTAL100

4) Changes required to be made for making Indian stock market more participative:-Create awareness on the financial products available48

Stability in the market9

Need for good investment advisors26

Ease of investing14

Others3

TOTAL100

5) Knowledge on important financial terms used in the stock market:- Market capitalization6/100

Limit order, stop loss order, market order8/100

Blue chip companies8/100

Stock split12/100

R.o.e, d/e ratio, p/e ratio , eps3/100

Findings of the research:- The sample as a majority (81) consists of salaried class people. More than half of the non-investors (69%) are reluctant to enter the stock markets due to their complexity in understanding and lack of awareness and knowledge. 42% of the respondents consider the return on investment as the most important factor in choosing a normal investment, followed by the risk associated with the investment (36%). However, the most important aspect is the objective of investment is neglected by majority. 36% of the respondents considered bank FDs as the most preferred investment followed by insurance & property at 24% and 23% respectively. When asked about the changes required to be made for the stock market to be more participative, majority of the respondents (48%) asked for creating an awareness and knowledge on various financial products available in the stock market, followed by need for good investment advisors who can facilitate the investors in investing & decision- making. When asked about the knowledge on the basic terminologies required to be known in the stock market investment, The respondents were very poor in terminologies which clearly shows that the financial literacy is minimal among the non- investors.

SUGGESTIONS & RECOMMENDATIONS- There is a need for making investors to participate in the market action. In order to make them more participative the following 3 aspects are very important:-AWARENESS: The lack of awareness of stock market is very high in India. Even the educated masses have little information on the equity oriented products which are available in the market. The perspective of the people about the stock market has to be changed. It is often looked upon as a very risky investment, speculative & beyond the reach of understanding. The regulatory bodies like SEBI, stock exchanges, financial institutions and brokerage firms need to take initiatives in imparting financial literacy into the people through organising investor awareness programmes, trade fairs etc. KNOWLEDGE:Its not only that people are aware of the various financial instruments but it is also important that theyve the knowledge on the features, risk attached and also how these equity products will match their investment objectives. Sending newsletters on reports on companies, share valuations, strategic methods for investments etc., by the brokerage firms. Educating the masses by organizing TV shows, conducting workshops etc Introducing real-time mock stock trading apps, websites etc., which increases the practical experience and also knowledge on application of the theoretical learning.

REGULATION:The government and the regulatory bodies should take extra care in protecting the interests of the investors in order to boost their participation and confidence. According to the reports by Motilal Oswal securities, insider trading occurs very often and small scams which go unnoticed. In order to avoid this Regulatory bodies should have periodic audits on the companies and stringent action should be taken against those who play with the trust of the people. There are some brokers who ignore small investors and focus more on large investors. This has to be curbed by the regulators and establish equality among investors. The procedures are very cumbersome to open a demat account & power of attorney (POA) gives authority to brokers for operating client accounts are often mis-used. There are cases where the brokers are guided by the IPO companies to give recommendations for clients to invest in their companies.

CONCLUSIONSIn India, participation of retail investors in stock market is comparatively low. India has one of the highest savings rates in the world. But only a small percentage of household savings in India is invested in the stock market. The primary destinations of savings across household categories in India are banks, post offices, insurance products, and metals. Investment experts and capital market researchers have tried to find out the major reasons for Indian household investors not choosing the stock market as the primary investment destination. It has been observed that the reasons are many. The Regulators like SEBI, The exchanges like NSE, BSE have been constantly working towards safety of investors and improvise the awareness of markets. Yet, most retail investors find the stock market activities too complex and difficult to comprehend. This is mainly because of the lack of practical exposure to the stock market working and dynamics. The lengthy procedures in opening a Demat account, lack of awareness & knowledge on the working, products, alternative investment in the stock market has been a demotivating factor. The frequent occurrence of scams and frauds is also cited to be an important reason why ordinary household investors try to avoid the stock market route. The results from our survey of retail investors reveal that the lack of knowledge & awareness is the primary reason why the respondents try to avoid stock market investing. Other reasons that are cited include fear of losing money, bad experiences in the past and absence of stable returns.REFERENCES:- moneylife.com, moneycontrol.com, SEBI.gov.in, bseindia.in, nseindia.com, motilaloswalsecurities.com, global journal for research analysis, valueresearchonline.com, economictimes.indiatimes.com,Livemint.com, theglobalresearchjournals.com