Magazine 2012
A Study of Investors Perceptions Towards
Investment In The Post Recession -era
Ms. Arti Modi
IES Managemnet College, Mumbai.
Abstract:
In the era of economic and financial turmoil today, where the investment patterns of Indian investors is at a five
year low, this paper attempts to critically evaluate the perceptions of investors towards investment patterns and
the products that today the investors expect to fulpfil their investment needs..
The Indian investors have always looked at banks generally as the onlyn source of investment. This trend is now
dispelled with so may alternative products in the pipeline. The tough competition and overall economic scenario
calls for innovative and proactive thinking by our financial planners. . Today investment frims, banks and companies
have started thinking of innovative products and services so that they can retain their existing customers and
add new customers whilst improving the countryb s investment scenario.
This research is a critical study of expectations of the investors and the innovative investment strategies that can
be thought about keeping in mind the need, aspirations, current investment patterns and demographics of our
Indian investors. Questionnaires dealing with investorb s needs, likes, demographics, investment patterns, proposed
investment options, were distributed to banking customers in the Indian metros.
The data collected through the questionnaire was analyzed through SPSS using descriptive analysis, Non-
parametric Friedmanb s Test , chi-square test and Opportunity matrix.
The results significantly reflected the Indian investorb s perception towards their investment strategies and investment
patterns that the Indian customers would expect. This paper also reflected the role that our Indian commercial
banks can play in servicing these investment pattern needs of our investors and thereby improvise the investment
scenario in the country.
Keywords: Indian investors, Investment patterns, economic downturn, Indian commercial Bank, innovative
investment scheme.
Introduction:
Like most developed and developing countries the question of b what is the right investmentb has been catching
on in India. There are various reasons for this. Investors nowadays need to satisfy their need for such investments
which not only bring about capital growth and income preservation but also are coupled with stability and risk
diversification. However not all. investments are profitable, as investor wills not always make the correct investment
decision.
Investing is not a game but a serious subject that can have a major impact on investorb s future well being.
Virtually everyone makes investments. Even if the individual does not select specific assets such as stock,
jewellery, real estate etc. investments are still made through participation in pension plan, and employee saving
programme or through purchase of life insurance or a home. Each of this investment has common characteristics
such as potential return and the risk you must bear. The future is uncertain, and you must determine how much
risk you are willing to bear since higher return is associated with accepting more risk. Toady the field of
investment is even more dynamic than it was only a decade ago. The individual investor has so many assets to
choose from, and the amount of information available to the investors is staggering and continually growing.
Today, the Indian economic scenario is not glum. Indiab s gross domestic savings as a percentage of GDP is
3
4.2% in the fiscal year 2011. (Indian economic outlook survey report 2011) The high saving rate has been one
of the key sources of investment capital in India, providing funds for capital formation. Household savings
showed overall improvements, contributing INR15, 361 billion in gross domestic savings, up from INR13,and
3
10 billion in 2008-2009. Indeed, household savings remain the largest source of savings in 2009-2010. A
significant portion of this savings is in the form of investment avenues like postal schemes, gold, fixed deposits,
provident fund, insurance etc. Net returns from such investments on post-tax basis can barely outperform
inflation.
Under this backdrop, although there is an urge of investments, recent studies have shown that there have been
many ups and downs in the investment patterns of investors. However thanks to our stringent banking policies,
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The Indian investors have always looked at our Indian banking investment products as the safest investment
option. The confidence that the Indian investors have reposed with our Indian banks coupled with the positive
policy changes that our Indian banking regulatory authorities have undertaken in the structure, working and
regulatory framework of the Indian bank have now made our Indian banks to be positively comparable on
several parameters with banks the world over.
However the tough competition and overall economic scenario calls for innovative and proactive thinking by
our Indian Banks. Today many banks have started thinking of innovative products and services so that they can
retain their existing customers and add new customers whilst improving the countryb s investment scenario.
Growth is always associated with innovative strategies. Financial strategy determines the means for the attainment
of stated objectives or targets. An integral part of financial strategy is the management of financial resources.
No financial strategy means a strategy for failure.
Financial crisis in recent times were due to lack of sound financial strategy. Growth in financial services is being
bolstered by the opportunities of demography, emerging markets and ever more innovative products and
services. Yet, organizations also face the challenges of mounting competition, more complex regulation and
ever more exacting customer expectations. Effective growth strategies are therefore likely to cut across all
operating processes and functional boundaries. The Financial Services & banking industry is changing at a fast
pace. These changes are throwing up fresh challenges like managing complex technological divergence in a
converging market. Banks strive to constantly offer more to the existing customer base. To achieve this, they
emphasize on more targeted technology investments and high-quality service. To remain competitive, financial
institutions will have to renew their commitment to investing in new technology strategically b to reduce costs,
improve efficiencies and boost revenue-generating initiatives.
This research is a critical study of innovative investment strategies that can be thought about by our Indian
Banks keeping in mind the need, aspirations, current investment patterns and demographics of our Indian
investors.
Backdrop of the Study:
There is at present the need for the formal financial system to look at increasing financial literacy and financial
counseling to focus on Indian investors needs and the role of banks in meeting their needs. This gap has been
studied in the present research including their expectations and the future perspectives. This would pave the
way for creating financial products which meets this gap.
Literature review
An analysis of the research work in the field of investorb s preferences during the economic downturn revealed
that investors are willing to invest even in an economic downturn; however their focus would then turn to the
integrity and governance practices of the fund, investment or company they are investing. Aggarwal, Klapper
and Wysocki(2005) observed that investors preferred the companies with better corporate governance. Investor
protection is poor in case of firms with controlling shareholders who have ability to expropriate assets.
According to the financial experts, ( Indian Economic outlook Survey Report 2011) the economic condition of
the country has become stable and the GDP has also improved in the last few quarters. However, the high
inflation rate has overshadowed the growth of the economy and that is the reason why many are considering
that the economic condition of India is still unstable.
A recent research survey by Japan Bank for international operation (JBIC), shows that in the next 3 years, India
will be the third most favored investment destination for Japanese investors. A Smith Barney (a CITI group
Division) study says estimated market value of foreign institutional investment in the top 200 companies in India
(including ADRs and GRDs) at current market prices is US$43 billion. This is 18% of the market capitalization of
BSE 200.
Yin-Hua and Woidtke (2005) found that when company boards are dominated by members who are affiliated to
the controlling family, investor protection will be relatively weak and it is difficult to determine the degree of
separation of management from ownership. Jack Clark Francis (1986) revealed the importance of the rate of
return in investments and reviewed the possibility of default and bankruptcy risk. He opined that in an uncertain
world, investors cannot predict exactly what rate of return an investment will yield.
Preethi Singh3(1986) disclosed the basic rules for selecting the company to invest in. She opined that
understanding and measuring return and risk is fundamental to the investment process. According to her, most
investors are b risk averseb . To have a higher return the investor has to face greater risks. She concludes that risk
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is fundamental to the process of investment. Every investor should have an understanding of thevarious pitfalls
of investments. The investor should carefully analyse the financial statements with special reference to solvency,
profitability, EPS, and efficiency of the company.
David.L.Scott and William Edward (1990) reviewed the important risks of owning common stocks and the ways
to minimize these risks. They commented that the severity of financial risk depends on how heavily a business
relies on debt. They suggested that a relatively easy way to ensure some degree of liquidity is to restrict
investment in stocks having a history of adequate trading volume. Investors concerned about business risk can
reduce it by selecting common stocks of firms that are diversified in several unrelated industries.
Donald E Fischer and Ronald J. Jordan (1994) analysed the relation between risk, investor preferences and
investor behaviour. The risk return measures on portfolios are the main determinants of an investorb s attitude
towards them. Most investors seek more return for additional risk assumed. The conservative investor requires
large increase in return for assuming small increases in risk. The more aggressive investor will accept smaller
increases in return for large increases in risk. They concluded that the psychology of the stock market is based
on how investors form judgments about uncertain future events and how they react to these judgements.
K.Sivakumar. (1994) disclosed new parameters that will help investors identify the best company to invest in.
He opined that Economic Value Added (EVA) is more powerful than other conventional tools for investment
decision making like EPS and price earnings ratio
Pattabhi Ram.V.15 (1995) emphasised the need for doing fundamental analysis and doing Equity Research
(
ER) before selecting shares for investment. He opined that the investor should look for value with a margin of
safety in relation to price. The margin of safety is the gap between price and value. Finally Philippe Jhorion and
Sarkis Joseph Khoury (1996) reviewed international factors of risks and their effect on financial markets.
Objective of the Study:
b "
To study the preference of the Indian investors on the preferable investment options in an economic
downturn.
b "
b "
To analyze the level of awareness for alternative investment avenues available in the market.
To understand the pattern of investment of Indian investors in the economic downturn.
b "
To study the possibility of innovative products an their types..
Research Methodology:
The Findings of the paper are based on a detailed analysis of data obtained by Questionnaires, highlighting
the Indian investor preference of investments in an economic downturn .
The Research Methodology comprised of three key initiatives.
a)
b)
Online Detailed Questionnaires to a cross section of Indian investors.
Extensive desk research was conducted inquiring into the changing investors preference of investment
schemes.
c)
Surveys conducted by Research Organizations inquiring into Indian investors preference of investment
schemes in an economic downturn
This is a fact finding study. Based upon stratified random sampling. Sample Size is based on 200 Indian
investors.
The research paper highlights the changing investors preference of investment schemes highlighting the investors
preference of investments during an economic downturn and the role of Indian commercial banks in servicing
the need . The responses have been converted into SPSS convertible data for Analysis.
Tools such as cross tabulation, Friedmanb s Test, chi-square test and Investors Importance and Satisfaction and
Matrix have been drawn to highlight the investors preference of investments during an economic downturn and
the role of Indian commercial banks in servicing the need
Analysis and Findings:
The Data Analysis is based on the responses received from the corresponding questionnaire circulated to
respondents who had undertaken investment strategy to meet some of their financial goals. Though the sample
pool is quite small, the discussions gauge the investment preferences of Indian customers and based upon
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these investment patterns also suggest an innovative investment product for Indian investors during the economic
downturn.
The descriptive Analysis of demographic profile using frequency modulation across the Income range, occupation,
age, qualification and gender conducted results summarized in Table 01
Table 01 b Descriptive demographic Statistics
Income Range Occupation
Age
200
0
Qualification
Gender
200
N
Valid
200
0
200
0
200
0
Missing
0
Mean
2.41
2.48
3.44
3.53
1.41
On the basis of the output it was observed that 50% of the respondents (Refer figure-1) belonged to the income
range b 20000- b 30000 per month. Majority of the respondents, close to 39% of the respondents (Refer Figure-02)
were in service and had undertaken investment strategies only for tax savings purposes or as Insurance cover
for their families. A look at the qualification demographics revealed that majority of the respondents, close to
45%, (Refer Figure-03) had atleast completed graduation and had prospects of completing their post graduation
also. It was thought-provoking to observe that 89% of the respondents were females and very strongly supported
the thought that an innovative investment product is the need in an economic downturn. It was also insightful to
observe that only 3% of the respondents invested about 50% of their income, Infact investorb s have preferred
current consumption to future financial goals. They were of the opinion that in the downturn they would prefer
liquidity of their money. The analysis also revealed that a maximum of 38% respondents invested about a
maximum of 20% of their income
Figure-01
Figure-02
Figure - 03
Figure -04
In order to assess the individualb s preference for the various literature on the basis of which they invest the
respondents were asked to rank each of the seven reasons of investing literature in ascending order of preference,
with 1 being most preferred choice of product. The non parametric- Friedman Test was conducted to examine
if there was any significant difference in the ranking given by the customers.
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Testing of hypothesis:
H0: There is no significant difference in the rankings given by respondents
H1: There is significant difference in the rankings given by respondents.
Based on the results Friedmanb s Test conducted for H0 and H1, where asymp sig<0.05, reject the null hypothesis
H0, results summarized in table 02
Table-02:Test Statistics
Table 02 - Friedman Test Statistics
N
200
41.808
5
Chi-Square
Df
Asymp. Sig.
.000
a. Friedman Test
Table-03-Rankings
Mean Rank
3.85
Matter of tradition
Reading articles or watching news
2.83
Seeing the market trends- your own study
Word of mouth
1.84
2.63
Financial consultation
1.06
Through internet or postal literature
Bank literature
3.96
1.79
Thus there is a significant difference in the rankings given by respondents. As observed in table 03, on the basis
of the outcome of the Friedman test, customers have ranked information from financial consultants and banks
literature and oneb s own study of market trends for availing information and as ready reference material to make
their investments to meet their financial goals. It was also evident that todayb s investors do not follow the
traditional investment patterns and need some innovative investment and therefore are regularly in search of
prevailing market trends and information from financial consultants and banks. Similarly they have very limited
reliance on information that is available on the internet and would prefer getting information through word of
mouth from relatives, peers and colleagues and friends to make their investment decisions rather than seeking
information from the internet.
The investors were also asked to rank their preference of investments during the economic downturn in ascending
order of preference, with 1 being most preferred choice of product. The non parametric- Friedman Test was
conducted to examine if there was any significant difference in the ranking given by the customers.
Testing of hypothesis:
H0: There is no significant difference in the rankings given by respondents
H1: There is significant difference in the rankings given by respondents.
Based on the results Friedmanb s Test conducted for H0 and H1, where asymp sig<0.05, reject the null hypothesis
H0, results summarized in table 04
Table-04:Test Statistics
Friedman Test Statistics
N
200
Chi-Square
31.506
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Df
5
Asymp. Sig.
a. Friedman Test
.000
Table-05-Rankings
Mean Rank
1.89
Short term investment in banks (<12months)
Long term investment in banks (> 12 months)
2.01
Short term investment in Non banking Financial Institutions (<12months)
2.79
Long term investment in Non banking Financial Institutions (<12months)
3.52
Debt Market
Equity markets
Insurance
2.80
3.66
2.82
Thus there is a significant difference in the rankings given by respondents. As observed in table 05, on the basis
of the outcome of the Friedman test, customers have ranked Short term investment in banks as the most
preferred investment option, followed by long term investments in banks. This shows that during the economic
downturn, investors tend to look at the bank as the safest place to put their investments. It was also thought
provoking to observe that The Equity markets and long term no-banking financial institutions were the least
preferred investment options by investors to invest their money. This also showed that the Indian Commercial
banks can consider to bring out innovative, short term investment schemes for our Indian investors during an
economic downturn. Investors were very neutral about considering insurance and debt market as an investment
option and had no particular strong favor or rebel against this investment option.
In order to access whether the preference of investment is dependent on the income of the investors during the
economic downturn the chi-square test was conducted to examine if investment preference was a function of
income.
H0: Preference of investment is independent of Income
H1: Preference of investment is dependent of Income.
At 95% level of confidence and C! = 0.05, degree of freedom=45, using chi-square test as observed in table 06
Table-06
Chi-Square Tests
Value
df
Asymp. Sig.
(2-sided)
Pearson Chi-Square
Likelihood Ratio
86.630
67.952
10.644
200
45
45
1
.001
.002
Linear-by-Linear Association
N of Valid Cases
.001
As observed in the table 06 above,
Pearson Chi-Square, p= 0.001, which is less than 0.05.
i.e p=0.001<0.05, reject H0, which shows that during an economic downturn, preference of investment options
is dependent upon the income of the investors, however it was thought provoking to observe that if the
investment options were provided by the Indian commercial banks then inspite of the income group, the
investment schemes provided by the banks will be considered as viable investment options by the investors.
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To understand the most parameters investors look for whilst investing in an economic downturn, the investors
were asked to rank the various parameters that they expect their investment should have in ascending order of
preference, with 1 being most preferred choice of product. The non parametric- Friedman Test was conducted
to examine if there was any significant difference in the ranking given by the investors. The non parametric-
Friedman Test was conducted to examine if there was any significant difference in the ranking given by the
customers.
Testing of hypothesis:
H0: There is no significant difference in the rankings given by respondents
H1: There is significant difference in the rankings given by respondents.
Based on the results Friedmanb s Test conducted for H0 and H1, where asymp sig<0.05, reject the null hypothesis
H0, results summarized in table 07.
Table-07:Test Statistics
Friedman Test Statistics
N
200
42.801
5
Chi-Square
Df
Asymp. Sig.
a. Friedman Test
.000
Table-08-Rankings
Mean Rank
Liquidity
1.66
3.77
3.09
2.52
1.80
2.06
2.72
Tax Benefits
Returns
Time frame of investments
Reputation of the investee
Risk
Convenience in investing
Thus there is a significant difference in the rankings given by respondents. As observed in table 08, on the basis
of the outcome of the Friedman test, customers have ranked liquidity and reputation of the investee as the
most important parameter that they look into an investment whilst investing in a economic downturn. It is also
interesting to observe that investors believe that once the reputation of the investee is credible in the market
automatically the risk parameter is taken care of which ranks third in order of ranking importance. The observation
was also made that returns and tax benefits were the least desirable investment characteristics for investing in
an economic downturn.
Finally, the investors were asked to rate on a five point Likerts scale, how important they consider all the
parameter that they look into an investment scheme, whilst investing in a economic downturn and also to rate
their satisfaction level of all the parameters in their present investment, with 1 being most important and 5 being
least important.
The Opportunity Matrix developed by the professors on Harvard Business School to position new products,
was drawn to reveal those factors that investors consider important in their investment and the level of satisfaction
that investors have in their present investment schemes on those parameters. The Opportunity Score was
calculated for each of the parameters. Based on Opportunity Scores, the parameters that give the highest
scores need to be considered as parameters by investees whilst launching new investment schemes for investors
during an economic downturn.
Opportunity Score (OS) = Importance (I) + (Importance b Satisfaction (S))
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Where (I-S ) > = 0, in case (I-S) <0, then I-S = 0.
The Opportunity Matrix:
Mean rating
of Importance (I) Satisfaction (S)
Parameters
Mean ratings of OS = I+(I-S)
Liquidity
3.96
3.00
2.52
3.56
3.52
3.30
2.76
3.68
3.88
3.20
3.67
2.73
2.93
3.36
4.24
3.00
2.52
3.56
4.31
3.67
2.76
Tax benefits
Returns
Time frame of investments
Reputation of investee
Risks
Convenience in investing
Thus the Opportunity Score is highest for Reputation of investee, followed by liquidity and Risks, this implies
that, since investors consider reputation of investee as the most important parameter for investing, and at the
same time consider investing in bankb s long term and short term investment schemes, the Indian commercial
banks can consider launching various short term and long term investment schemes for investors during economic
downturn. Amongst long term and short term investments, investors would prefer short term liquid investments,
with minimal level of risk.
Thus during and economic downturn, investors would consider, short term investment schemes launched by
Indian commercial banks that are highly liquid with minimal risk. Investors are not very keen on returns from
these investments and are more concerned about safety of their principal amount of investment during and
economic downturn.
Conclusion:
b "
Investors are willing to invest even in an economic downturn , however their preference of investment
schemes vary during such times.
b "
B7
Majority of the investors prefer investment advisory services from bank literature and financial consultants
however they take their own investment decision.. Therefore banks can consider launching investment
schemes.
b "
b "
Since financial markets are volatile in an economic downturn, it is difficult to assure capital protection for
investors and therefore the capital markets will not be considered as a viable option for investment by
Indian investors. Rather than investing in the capital markets, in the absence of any other viable investment
schemes, investors prefer holding on to the cash and waiting for correct opportunity to invest is a suitable
strategy.
Investment awareness could be increased if online mechanisms for buying financial instruments are
highlighted by the companies.
b "
b "
b "
Banks are considered as the safest place of investment by investors during such times.
New avenues for investments should be highlighted in bankb s portfolio with key consideration on liquidity.
The Indian banks plays an important role during such tying times to protect the Indian economy.
References:
b "
Reddy, Maheshwar., Sree, Vijaya R., (2005), Size: An Arbiter of Performance, Special Issue, Indian Banks
Association Bulletin, Indian Banks Association, (January).
b "
b "
The Analyst , Special banking Issue,(2009, October), The ICFAI University press.
Report: Revision of Index Numbers of Wholesale prices in India, Office of the Economic Advisor to the
Government of India, Ministry of Commerce and Industry, (1999), http://eaindustry.nic.in/.
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b "
NCFMb s b Derivatives Markets: Dealers Moduleb . June 2010 edition. NCFMb s b Capital Markets: Dealers
Moduleb . January 2011 edition. NCFMb s b Investment Analsis & Portfolio Management Moduleb . June
2
010 edition
b "
b "
E books: - http:// www.nseindia.com/education/content/module_ncfm.htm.
Investment Analysis & Portfolio Management - Prasanna Chandra b Tata McGraw Hill Publications 7 th
Edition.
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