FUTURE OF INVESTING IN INDIA

GLOSSARY
Margin of Safety: Value Investors believe that while buying shares they should only invest

when the market price is significantly below the fundamental value, hence providing a

margin of safety. Such a margin of safety increases profit potential and limits downside risk.

Bottom Fishing: Investing in assets that have experienced a decline, due to intrinsic or

extrinsic factors, and are considered undervalued

Capital Gains: Profit earned when shares are sold to another shareholder for a higher price

Long Term: equal to or greater than 1 year

Risk Appetite: Ability to take risks

Financial Education: Knowledge of the financial markets

Stock Market Participation: Participation in the equity market (buying stocks of

companies)

Retail Investor: Individual investors that have a small fund

HNIs: High Net Worth Individuals

Objective: -

To find the Future of Investing in India.

Methodology: -

Frequency tables, descriptive statistics and chi-square test analysis

Sample: -

With the method of convenience sampling, data is collected from 103 members of India’s

working population aged 20-65 years. The variables on which data is obtained are the

following:

 Age – Numeric, Scale [in years]

 Years of Investing – Numeric, Scale [in years]

 Financial Education – Numeric, Scale [in years]

 Risk Appetite – Numeric, Ordinal [Low – 1, Medium – 2, High – 3]

 Stock Market Participation – Numeric, Nominal [Yes – 1, No – 2]

 Income –Numeric, Ordinal [in Lakhs:0 to 5 –1, 5 to 10 –2, 10 to 15 –3, above 15 – 4]

Results: -

The data collected from 103 study participants have been analyzed.

Descriptive statistics followed by the frequency distribution and descriptive analysis of Age,

Years of Investing, Financial Education, Risk Appetite, Stock Market Participation and

Wealth are presented below:

Note: Please refer to this table for the descriptive analysis of the variables that follows.

 The majority of the age group belongs to the young age people (20-27) and they

constitute 80% of the sample size.

 The average age of the 103 respondents is 26 with a standard deviation of 7.90 which

is comparatively low. Since the standard deviation is less than one-third of the mean,

our data on age is consistent.

 The possible skewness co-efficient of 2.73 indicates positive skewness here which

implies the majority of the respondents are of an age less than the average (26).

 The Kurtosis coefficient 7.733 > 3 indicates the frequency curve is steeper than

Normal. It indicates the non-normality of the variable.

 The average is 3.76 with a standard deviation of 5.52 which is comparatively high.

Since the standard deviation is more than the mean, our data is inconsistent.

 The possible skewness co-efficient of 3.178 indicates positive skewness here which

implies the majority of the respondents have been investing for less than the average

i.e., less than 3.76 years.

 The Kurtosis coefficient 11.031 > 3 indicates the frequency curve is steeper than

Normal. It indicates the non-normality of the variable.

 The average years of financial education of the 103 respondents is 4.953 (5 approx.)

with a standard deviation of 4.527 which is comparatively high. Since the standard

deviation is not less than one-third of the mean, our data is inconsistent.

 The possible skewness co-efficient of 2.156 indicates positive skewness here which

implies the majority of the respondents have received financial education of less than

the average (5 years).

 The Kurtosis coefficient 8.722 > 3 indicates the frequency curve is steeper than

Normal. It indicates the non-normality of the variable.

 The average risk appetite is 2 (medium) with a standard deviation of 0.65 which is

comparatively low. Since the standard deviation is less than one-third of the mean,

our data is consistent.

 The possible skewness co-efficient of 0.358 indicates (low) positive skewness here

which implies the majority of the respondents have a risk appetite that is slightly

lesser than the average (2-medium).

 The Kurtosis coefficient -0.734 < 3 indicates the non-normality of the variable.
 The average income code is 1.883 i.e., approx. 2 (5-10 Lakhs) with a standard

deviation of 1.06918 which is comparatively high. Therefore, our data is inconsistent.

 The possible skewness co-efficient of 0.875 indicates positive skewness here which

implies the majority of the respondents have an income that is slightly lesser than the

average (5-10 Lakhs).

 The Kurtosis coefficient -0.589 < 3 indicates the frequency curve is flatter than

Normal. It indicates the non-normality of the variable.

 The average code is 1.3 i.e., approx. 1 (Yes) with a standard deviation of 0.482 which

is approximately equal to one-third of the mean. Therefore, on average, the

respondents participate in the stock market and our data is consistent.

  The possible skewness co-efficient of 0.596 indicates positive skewness here which

implies the majority of the respondents participate slightly lesser than the average

 The Kurtosis coefficient -1.678 < 3 indicates the frequency curve is flatter than

Normal. It indicates the non-normality of the variable.

SUMMARY of Variables

 Age – consistent, non-normal and numeric

 Years of Investing – inconsistent, non-normal and numeric

 Financial Education – inconsistent, non-normal and numeric

 Stock Market Participation – consistent, non-normal and nominal

 Risk Appetite – consistent, non-normal and ordinal

 Income – inconsistent, non-normal and ordinal

Next Steps in Analysis

Given that Stock Market Participation, Risk Appetite and Income are non-normal and

categorical variables we’ll proceed to conduct a test of association to test whether a

relationship between Stock Market Participation and the latter two exists or not.

1. Test of Association between Risk Appetite and Stock Market Participation

2. Test of Association between Income and Stock Market Participation

3. Test of Association between Financial Education and Stock Market Participation

4. Test of Association between Years of Investing and Stock Market Participation

5. Identify the factors that are significantly associated with stock market participation

6. Suggest the future of investing in India depending on the significant factors

Chi-square Test – Test of Association

1. To find if risk appetite is an influential factor on stock market participation

Chi-square test of independence of attributes is carried out to find if risk appetite is

significantly associated with stock market participation

H0: stock market participation is not significantly associated with risk appetite

H1: stock market participation is significantly associated with risk appetite

Chi-square test statistic = 0.705 with significant value = 0.703 > 0.05. Therefore, accept the

null hypothesis. The data suggests that risk appetite is not significantly associated with stock

market participation.

2. To find if income is an influential factor on stock market participation

Chi-square test of independence of attributes is carried out to find if income is significantly

associated with stock market participation

H0: stock market participation is not significantly associated with income

H1: stock market participation is significantly associated with income

Chi-square test statistic = 26.086 with significant value = 0.001 < 0.05. Therefore, reject the

null hypothesis. The data suggests that income is significantly associated with stock market

participation.

3. To find if financial education is an influential factor on stock market

participation

Chi-square test of independence of attributes is carried out to find if financial education is

significantly associated with stock market participation

H0: stock market participation is not significantly associated with financial education

H1: stock market participation is significantly associated with financial education

Chi-square test statistic = 28.315 with significant value = 0.041 < 0.05. Therefore, reject the

null hypothesis. The data suggests that financial education is significantly associated with

stock market participation.

4. To find if Years of Investing is an influential factor on stock market

participation

Chi-square test of independence of attributes is carried out to find if Years of Investing is

significantly associated with stock market participation

H0: stock market participation is not significantly associated with Years of Investing

H1: stock market participation is significantly associated with Years of Investing

Chi-square test statistic = 45.325 with significant value = 0.001 < 0.05. Therefore, reject the

null hypothesis. The data suggests that years of investing is significantly associated with

stock market participation.

RESULTS

 Income, Financial Education and Years of Investing are significantly associated with

Stock Market Participation

  Risk Appetite is not significantly associated with Stock Market Participation

 Other things remaining equal, an improvement in income, financial education and

investment experience can be followed by increased stock market participation

 As a nation grows richer and more financially educated, ceteris paribus, it can witness

an increase in channelization of funds towards the equity market.

LIMITATIONS

 Lack of data points – Less data points restricted research, more responses and data

entries would have further refined the research

 More responses would have further helped in getting a consistent and normal

distribution

 Lack of a regression model due to lack of relevant numeric variables

 The aforementioned factors that determine stock market participation are not

exhaustive. More variables can be identified and statistically tested for impacting the

same.

CONCLUSION

In the age of internet; information and knowledge are just a click away. An Investor today

is well-informed because he/she has good market access. In our study, it was found that

the majority of the participants have self-access to the market and that they self-monitor

the market.
To fight inflation, investors put their funds in real estate, gold, the stock market, etc. The

Stock Market is an important part of various investors’ portfolios. This is further

supported by rising IPO subscriptions that we see in the market today. The majority of

our study respondents followed and invested in IPOs and rightly so.
An IPO gives a retail investor an opportunity to participate in the early growth stages of a

company that has strong fundamentals and potential. As the newly listed company sees

good rates of growth, so does the money invested in it. However, retail investors do not

participate in early-stage funding rounds of companies as these are accessible to HNIs

and other big investors (Venture Capital Funds, Private Equity Funds, etc.). Given the

boom of start-ups and increasing retail participation in the equity market, designing a pool

of funds that collects small funds from a large number of retail investors and invests in

the early stages of companies (after thorough risk analysis) could be the future of

investing in India.

As stated earlier, Income, Financial Education and Years of Investing are significantly

associated with Stock Market Participation. Other things remaining equal, an

improvement in income, financial education and investment experience can be followed

by increased stock market participation. As a nation grows richer and more financially

educated & experienced, ceteris paribus, it can witness an increase in channelization of

funds towards the equity market.