Lack of RETAIL

INVESTORS
PARTICIPATION IN
INDIAN STOCK
MARKET
[Type the document subtitle]

A REPORT BY
KIRAN.V
CHANDRAKANT PAWAR
(2ND SEMESTER MBA)

ACKNOWLEDGEMENTS
We 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.V
CHANDRAKANT PAWAR

ABSTRACT
INTRODUCTION:-

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 STUDY
Our 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.

Introduction
India 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 study

To 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 methodology
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.
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 interpretation

The 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 group
18-27
28-37
38-47
TOTAL

No of respondents
34
58
8
100

Classification based on Occupation:Occupation

Salaried
Professional
Business
TOTAL

No of respondents
81
3
16
100

Classification based on gender:Gender

Male
Female
TOTAL

No of respondents
68
32
100

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

21

in past
Lack of knowledge
Lack of good investment advisors.
Lack of awareness
Lack of stability in returns
Others
TOTAL

42
4
27
6
0
100

2) Factors influencing the decision-making in considering a normal

investment (on priority basis):The liquidity of investment
The objective of investment
The risk attached to the investment
The time frame for investment

2
6
36
14

The return on investment

42

TOTAL

100

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

Gold
Property
Bank Fds
Insurance
TOTAL

No of respondents
19
23
34
24
100

4) Changes required to be made for making Indian stock market more

participative:Create awareness on the financial
products available
Stability in the market

48
9

Need for good investment advisors

Ease of investing
Others
TOTAL

26
14
3
100

5) Knowledge on important financial terms used in the stock market:Market capitalization

Limit order, stop loss order, market
order
Blue chip companies
Stock split
R.o.e, d/e ratio, p/e ratio , eps

6/100
8/100
8/100
12/100
3/100

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.

CONCLUSIONS
In 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