International Journal for Management Research Vol.1.No.2, July 2011, pp.

22-39

Analysis of Retail Investors Behaviour in Belgaum District, Karnataka State.

Dr. Arifur Rehman Shaikh, Dr. Anil B. Kalkundarikar

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ABSTRACT:
Since the economic liberalization there is an increase in number of investment avenues available for retail investors, depending upon their risk appetite they can chose between bank deposits, government / private bonds, shares and stocks, exchange traded funds (ETF), mutual funds, insurance, derivatives, gold, silver, currencies, real estate, etc. Most of the retail investors primary objective of investment is to earn regular income and expected rate of return differs from individual to individual based on their level of market knowledge and risk taking ability. The present paper assesses the behavior of retail investors in Belgaum district of Karnataka state and it reveals that knowledge level significantly leverages the returns on the investments and there is a negative correlation between the occupation of retail investor and the level of risk. This has been identified on the basis of cross analysis by applying Correlation analysis.

KEYWORDS: Retail Investors, expected rate of return, level of risk, knowledge level,
Occupation. BIOGRAPHICAL NOTE: Dr. Arifur Rehman Shaikh is currently working as Asst. Professor in KLS- Institute of Management Education and Research, Belgaum.He can be reached at arif_h_shaikh@yahoo.co.in
Dr. Anil B. Kalkundarikar is currently working as Professor in the MBA Department at Rani Chennama University, Belgaum. ______________________________________________________________________________

Introduction
The economic development of any country depends upon the existence of a well-developed financial system. It is the financial system which supplies the necessary financial inputs for the production of goods and services that in turn promote the well being and standard of living of the people of a country. The major assets traded on the financial system are money and monetary

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assets. The responsibility of the financial system is to mobilize savings in the form of money and monetary assets and invest them in productive ventures. A successful investor is not the one who makes huge profits but one who studies the market, understands his risk taking ability, sets the clear cut investment objectives, determines the expected rate of return and also decides the time and period of investment.

Review of Literature:
L.C.Gupta (1991) argues that designing portfolio for a client is much more than merely picking up securities for investment. The portfolio manager needs to understand the psyche of his client while designing his portfolio. According to Gupta, investors in India regard equity, debentures and company deposits as being in more or less the same risk category and consider including all mutual funds, including all equity funds, almost as safe as bank deposits.

K.S. Chalapati Rao, M.R. Murthy and K.V.K Ranganathan (1999) in their research article Some aspects of the Indian Stock Market in the post liberalization period evaluates that as a part of the process of economic liberalization, the stock market has been assign an important place in financing the Indian corporate sector. Besides enabling mobilizing resources for investment, directly from the investors, providing liquidity for the investors and monitoring and disciplining company management are the principal functions of the stock market. This paper examines the development in the Indian stock markets during the nineties in terms of these three roles.

Kevin James (2000), in his research article The Price of Retail Investing in the UK evaluates the financial wealth services provided by investment funds in UK, the study identifies that the retail investors largely delegate the management of their wealth to investment funds. These funds in turn charge retail investors for the portfolio and risk management services they provide, sparing retail investors the burdensome task of performing these various services themselves. So in order to choose a sensible fund (a fund that meets his or her requirements), a retail investor must be able to ascertain the services provided and the price charged by each of the funds he or she may consider.

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Dr. K Santi Swarup (2003) in her research article Measures for improving common investor confidence in Indian primary market a survey, concentrates on the decisions taken by the investors while investing in primary markets, the study indicates that the sample investors give importance to their own analysis as compared to brokers advice. They also consider market price as a better indicator than analyst recommendations. The study also identifies factors that are affecting primary market situation in India. Issue price, information availability, market price after listing and liquidity emerge as important factors. This study suggests that investors need to be assured of some return and current level of risk associated with investment in the market is very high. They have had bad experience in terms of lower market price after listing and high issue price. Accordingly number of measures in terms of regulatory, policy level and market oriented were suggested to improve the investor confidence in equity primary markets. However, this paper does not highlight the measures for improving investor confidence in secondary market.

C. S. Shylajan and Sushama Marathe (2006) in their research article A study of attitudes and trading behaviour of stock market investors, identify the major factors responsible for determining the attitudes and trading behavior of stock market investors. Based on their shared investing attitude and behaviour, the stock market investors are classified into two categories i.e. aggressive investors and non aggressive investors.

John Graham and Alok Kumar (2006) in their study Do dividend clienteles exist? evidence on dividend preferences of retail investors evaluates portfolio holdings of retail investors of older and low income category, this study suggests that these investors prefer dividend paying stocks, the study also highlights the trading behaviour of retail investors and indicates that the investor trades around dividend events are consistent with clientele behaviour. Further, it also points out that old and low income investor exhibits abnormal buying behaviour following dividend announcements. .Objectives

of the Study:

1) To understand the awareness among retail investors about various investment alternatives available. 2) To identify the objectives of investments of retail investors.
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3) To assess the time horizon of investment of retail investors. 4) To identify the expected rate of return on investment 5) To verify the correlation between the knowledge level and with the level of return expected by the retail investors. 6) To verify the correlation between the occupation of the respondent and level of risk. Hypothesis of the Study: For the purpose of analyzing the set objectives, this study has adopted the following hypothesis H0 - There is no correlation between the level of investment knowledge and the expected rate of returns of retail investors. H1 - There is a correlation between the level of investment knowledge and the expected rate of returns of retail investors.

H0- There is no correlation between the occupation and the level of risk assumed by the retail investor. H1- There is a correlation between the occupation and the level of risk assumed by the retail investor.

RESEARCH METHODOLOGY:
This study is based entirely on primary data collected through a well designed and structured questionnaire. The data was collected from investors spread over Belgaum district of Karnataka State. Questionnaires were distributed and collected during the period from January 2008 to July 2009 by using random sampling technique. The total population (universe) of retail investors is 3500 for the purpose of the study, 20% population is taken as sample i.e. 700 retail investors. The data so collected with the help of primary sources are analyzed by using Statistical Package for Social Science (SPSS).

AREA AND PERIOD OF THE STUDY:

The study is conducted to understand the Retail Investors Behaviour in Belgaum. district of Karnataka state and the study covers a period from January 2008 to July2009.

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LIMITATIONS OF THE STUDY:

The study does not cover the entire population of the retail investors in Belgaum district due to the limitation of time and resources. The results of the analysis are based on the data about the sample population of retail investors in Belgaum district only, the results need to be generalized with caution and may not be entirely valid for population of other districts or regions.

Data Analysis:
Table 1: Awareness among respondents about various investment instruments
INVESTMENT INSTRUMENTS Shares Stock / Index Futures Stock / Index Options ETF SIP / ULIP Real Estate Commodities
Source Primary Data from Survey

NO. OF RESPONDENTS 700 353 217 186 183 174 150

Study indicates that out of 700 respondents 353 of them are aware of stock / index future, 217 are aware of stock / options, 186 respondents are aware of exchange traded funds [ETF], 183 are aware of systematic investment plan [SIP] and unit linked insurance plan [ULIP], 174 of them are aware of investment in real estates, whereas 150 of the respondents are aware of commodities trading.

Graph 1: Awareness among respondents about various investment instruments

800 700 700 600 500 400 300 200 100 0 Shares 353 217

186

183

174

150

Stock / Index Stock / Index Futures Options

ETF

SIP / ULIP

Real Estate

Commodities

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Table 2: Qualification of respondents / retail investors Qualification Non Matriculate Matriculate 10 + 2 Graduate PG Other Total
Source Primary research data

Frequency 8 13 56 463 143 17 700

Percent 1.14 1.86 8 66.14 20.43 2.43 100

Cumulative Percent 1.14 3 11 77.14 97.57 100

Educational profile of the respondents indicates that 66.14percent are Graduates, 20.43percent are Post Graduate, 8percent with 10 + 2 qualification, around 3percent had school level education and 2.43percent possess other qualifications like Diploma etc.

Graph 2: Qualification of respondents / retail investors

Qualification Frequency
17 8 13 143 56

463

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Table 3: TIME HORIZON OF INVESTMENT

Years 01 13 35 5 and above Total Frequency 143 207 284 66 700 Percent 20.4 29.6 40.6 9.4 100.0 Valid Percent 20.4 29.6 40.6 9.4 100.0 Cumulative Percent 20.4 50.0 90.6 100.0

Source - Primary Data from Survey

The study indicates that 40.57percent of the respondents have a holding period of investments in stock markets for a time horizon of 3 to 5 years, 29.57percent for a period of 1 to 3 years, 20.43percent for less than 1 year and 9.43percent for more than 5 years.

Graph 3: TIME HORIZON OF INVESTMENT

5 & above 0-1

3-5 1-3

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Table 4: Level of Investment knowledge

Level of Knowledge Little Some Moderate Good Extensive Total

Frequency 155 252 166 85 42 700

Percent 22.1 36.0 23.7 12.1 6.0 100.0

Valid Percent 22.1 36.0 23.7 12.1 6.0 100.0

Cumulative Percent 22.1 58.1 81.9 94.0 100.0

Source - Primary Data from Survey

Survey highlights that 22.14percent of the retail investors have very little knowledge of the market 36percent have some knowledge, 23.71percent have moderate level of market knowledge 12.14percent have good and only 6percent have extensive market knowledge.

Graph 4: Level of Investment knowledge

Extensive Good Little

Moderate

Some

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Table 5: EXPECTED RATE OF RETURN ON INVESTMENTS

Expected Rate of Return 8 -12 12 16 16 20 20 and above Total Frequency 89 202 159 250 700 Percent 12.7 28.9 22.7 35.7 100.0 Valid Percent 12.7 28.9 22.7 35.7 100.0 Cumulative Percent 12.7 41.6 64.3 100.0

Source - Primary Data from Survey

The survey indicates that 35.27 percent of respondent expects 20percent and above returns on their investments, 29percent of respondents expects 12percent to 16percent, 22.86percent of retail investors expects 16 to 20 percent of returns and 12.57 percent of respondents expects nominal returns i.e. 8 percent to 12 percent on their investment from their investments in market.

Graph 5: EXPECTED RATE OF RETURN ON INVESTMENTS

8 -12

20 & above

12 - 16

16 - 20

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Table 6 Investment objectives of retail investors Particulars Earn regular Income Achieve investment goal Safety of capital Earn capital gain Wealth for retirement Other Multiple objective Total
Source - primary data from survey

Percent 41.29 18 15.86 12.85 5.43 0.71 5.86 100

Graph 6 - Investment objectives of retail investors

1% 5% 6%

13% 41%

16%

18%

Earn regular Income Earn capital gain M ultiple objective

Achive investment goal Wealth for retirement

Safety of capital Other

Most of the retail investors primary objective of investment is to earn regular income which accounts for 41.29 percent, 18 percent invest to achieve particular investment goals, 15.86 percent invest to assure safety of capital, 12.86 percent of respondents primary objectives of investment is to earn capital gains, 5.43 percent objective is to accumulate wealth for after retirement security, 0.71 percent have other objectives which are not specified and 5.86 percent of the retail investors have multiple objectives. Correlation analysis between the level of knowledge and with the expected rate of return by the retail investors

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Table 7: Frequency distribution showing cross tabulation between retail investor level of

knowledge and the expected rate of return

Little 29 18.7% 37 23.9% 23 14.8% 66 42.6% 155 100.0% LEVEL OF KNOWLEDGE Some Moderate Good 33 18 8 13.1% 10.8% 9.4% 87 46 26 34.5% 27.7% 30.6% 62 32 34 24.6% 19.3% 40.0% 70 70 17 27.8% 42.2% 20.0% 252 166 85 100.0% 100.0% 100.0% Total Extensive 1 2.4% 6 14.3% 8 19.0% 27 64.3% 42 100.0% 89 12.7% 202 28.9% 159 22.7% 250 35.7% 700 100.0%

8 -12 12 - 16 RETURN 16 - 20 20 and above Total

Table 7 (a) Correlation analysis between the level of knowledge and the expected rate of return by the retail investors
EXPECTED RETURN EXPECTED RETURN Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N 1 . 700 .096 .011 700 KNOWLEDGE .096 .011 700 1 . 700

KNOWLEDGE

* Correlation is significant at the 0.05 level (2-tailed).

ANALYSIS AND INTERPRETATION

The research also makes a pertinent revelation that the knowledge level significantly leverages the returns on the investments. From the calculated correlation analysis data it can be observed that 0.096 point change in knowledge boosts investors return expectation by 1 point. Investors having extensive knowledge has the return expectation of multifold when compared to other knowledge categories. The primary rational behind this phenomenon is that small investors put small investments in long range investments with rational expectation on the other hand the

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investors with extensive knowledge use their awareness to read the market trend and swap their investments to achieve optimum returns.

Graph 7: Level of Investment Knowledge and the expected rate of return.

70

60

50

40

KNOWLEDGE
Little Some

30

20 M oderate

Percent

10 0 8 -12 12 - 16 16 - 20 20 & above

Good Extensive

RETURN

Table 8: Respondents / retail investor occupation Occupation Service Professional Student House Wife Agriculture Business Other Total
Source - Primary Data from Survey

Frequency 135 83 44 58 24 330 26 700

Percent 19.29 11.86 6.29 8.29 3.43 47.14 3.70 100.00

Cumulative percent 19.29 31.15 37.44 45.73 49.16 96.3 100

Information pertaining to occupational categories reveals that most of the respondents i.e. 47.14percent belong to Business Class, 19.29percent are in Service, and 11.86percent are Professionals like Doctors, Chartered Accountants etc. 8.29percent of the respondents are housewives, 6.29percent are Students, 3.43percent are agriculturist and balance 3.71percent belongs to other categories of occupations.

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Graph 8: Respondents occupation

Occupation Frequency
26 135

83 330 44 24 58

Table 9: LEVEL OF RISK ASSUMED BY RETAIL INVESTORS

Level of Risk Low Moderate High Very High Total Frequency 127 446 89 38 700 Percent 18.1 63.7 12.7 5.4 100.0 Valid Percent 18.1 63.7 12.7 5.4 100.0 Cumulative Percent 18.1 81.9 94.6 100.0

Source - Primary Data from Survey

Study indicates that 18.14percent of the respondents undertake low risk, a very high portion of the respondents i.e. 63.57percent undertakes moderate risk, 12.71percent undertakes high risk and only 5.57 percent of the respondent undertakes very high risk.

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Graph 9: LEVEL OF RISK ASSUMED BY RETAIL INVESTORS

Very High High Low

Moderate

Table 10: Frequency distribution showing cross tabulation between occupation of respondents and level of risk assumed.
LEVEL OF RISK Total Moderate High Very High 87 13 1 135 19.5% 14.6% 2.6% 19.3% 30 14 28 83 6.7% 15.7% 73.7% 11.9% 20 10 44 4.5% 11.2% 6.3% 50 2 1 58 11.2% 2.2% 2.6% 8.3% 19 24 4.3% 3.4% 224 48 7 330 50.2% 53.9% 18.4% 47.1% 16 2 1 26 3.6% 2.2% 2.6% 3.7% 446 89 38 700 100.0% 100.0% 100.0% 100.0%

Service Professional Student OCCUPATION Housewife Agriculture Business Other Total

Source Primary Data from Survey

Low 34 26.8% 11 8.7% 14 11.0% 5 3.9% 5 3.9% 51 40.2% 7 5.5% 127 100.0%

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Table 10 (a) Correlation analysis between the occupation and the level of risk

assumed
RISK 1 . 700 -.053 .160 700 OCCUPATION -.053 .160 700 1 . 700

RISK

OCCUPATION

Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N

ANALYSIS AND INTERPRETATION

The correlation analysis between the occupation of investors and the level of risk taken as

indicated in Table 7 and 7 (a) shows that there is a negative correlation between these two. Except in case of professionals the level of risk taken has skewed at very high category otherwise correlation analysis shows that a 1 point change in occupation will lead to negative change of 0.053 in the level of risk taken by the investors.

Graph 10: Occupation of respondents and the level of risk

100

80

OCCUPATION
Service

60

Professional Student

40 Housewife Agriculture 20

Percent

Business 0 Low Other M oderate High Very High

RISK

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Conclusion:
The research makes a pertinent revelation that the level of investment knowledge significantly leverages the returns on the investments. From the calculated correlation analysis data it can be observed that 0.096 point change in knowledge boosts investors return expectation by 1 point. Investors having extensive investment knowledge has the return expectation of multifold when compared to other knowledge categories and the correlation analysis between the occupation of investor and the level of risk assume shows that there is a negative correlation between these two variables, analysis shows that a 1 point change in occupation will lead to negative change of 0.053 in the level of risk taken by the investors.

References:
Gupta L.C., Share Holders Survey: Geographic Distribution, Manas Publications, New Delhi, P. 86 Rao Chalapati K.S., M.R. Murthy and K.V.K Ranganathan, 1999, Some aspects of the Indian Stock Market in the post liberalization period, Journal of Indian School of Political Economy John Graham and Alok Kumar, 2006, Do Dividend Clienteles Exist? Evidence on Dividend Preferences of Retail Investors, [Online], Social Science Research Network, Available from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=482563 Kevin James, 2000, The Price of Retail investing in the UK, [Online], Social Science Research Network, Available from

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=428041 K Santi Swarup, 2003, Measures For Improving Common Investor Confidence In Indian Primary Market A Survey, [Online], National Stock Exchange India Limited, Available from http://www.nseindia.com/content/research/Paper64.pdf

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Shylajan C. S. and Marathe Sushama, 2006, A Study of Attitudes and Trading Behaviour of Stock Market Investors, The ICFAI Journal of Financial Economics, Vol. 4, No. 3, pp. 54-68

Avadhani V.A. 1995, Capital Market Management, Himalaya Publication house, Bombay. Francis, J.C., 2000, Investments Analysis and Management, Fifth Edition, McGraw Hill International Edition. Gordon E, Natarajan K, 1999, Capital Market in India, Himalaya Publishing House, Mumbai, Machiraju H.R. 1995, The Working of Stock Exchanges in India, Wiley Eastern Ltd, New Delhi. Mishra and Puri, 2009, Indian economy, 27th revised edition, Published by Himalaya Publishing house Punithavathy Pandian, 2001, Security Analysis and Portfolio Management Published by Vikas Publishing House Pvt. Ltd New Delhi www.bseindia.com www.nsdl.com www.nseindia.com www.sebi.gov.in www.capitaline.com

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