Manish DubeyStudent: University Of Delhi  ABSTRACTFinance,  specifically, in corporate  terms,  the system of  internal  control regarding  the procurement  and  effective  utilization of funds  post  identification  of feasible investment opportunities  pertaining  to profitability  promotion  that adequately compensate  for  the cost  and  risk borne  by  the business  undertaking/enterprise.Capital market, in India, has  been  significantly contributing  towards  the facilitation  of moderate  and  long term  finance  provision from  the surplus  units to  the  deficit units.  A  Developing economy  like  India needs  a  growing  amount of  investor  savings to  flow  to corporate enterprises.  The  level of  equity  market participation  of  the retail  investors  has been  increasing  over the  past  few years  that  evoked the need  of  studying the  socio-economic  profile of  the  retail  investors,  factors  influencing the  investment  behaviour of  retail investors,  examining the  trading  practices of  retail  investors in equity  markets,   factors affecting  the  risk assumption  abilities  alongside the  problems  faced by  retail  investors. Historical   evidences  based upon  secondary  facts support  the  undertaken scope  of the  study.  A comprehensive  studyinvolving  macro-economic  parameters influencing  the  primary and  secondary  securities market  trends,  corporate fundamental factors, technical  indicators  and investor’s  behaviour  patterns were  carried  out to  understand  the performance  of  Indian capital  market  in recent  times.

  The research  elicits  the opinion  of  the retail  investors  on the  policy  making of  capital  market thereby  suggesting  certain measures  to the  policy makers  for  the protection and  promotion  of investors.KEYWORDS:Financialmarket, Stock Exchange, Primary and Secondary Markets, Capital markets.INTRODUCTIONTracing the origin of finance, there issubstantiation to demonstrate that it is as old as human life on earth.Originally a French word, English speaking clique used to mean it as”the moneyadministration” and in the contemporary world it is considered as pivotaleconomics’ limb. According to academicians, “finance is the procurement andefficacious exertion of funds dealing with the profits requisitely compensatingfor the associated cost and peril borne by the business houses/entities”. Finance,the science of funds management and the actual process of taking possession ofsufficient quantum of required money circumscribe the oversight creation andstudy of money, banking credit, investment options, assets and liabilities thatconstitute the financial systems. Basic conceptuality of finance comes from oneof the fundamental theories i.

e. time value of money, affecting theindividuals, businesses and government entities’ operating funding needs.Finance field is often segregated into three main sub-categories: personalfinance, corporate finance and government finance. Creation of the tangibleassets with the help of funds, performing intraday functional businessactivities and obtaining financial securities are all adherences of monetaryresources at deferent times with a presupposition of economic returns in thefuturistic course of time. Maintenance of the internal controls in the form ofrules, regulations and guidelines framed at the inception stage of theorganisation often subject to alterations basically depend upon businessesrequirement with better futuristic decisions involving quantitative analysis ofthe organisation thereby serving as a barometer of sectorial growth. Theappointment of pertinent financial advisors as a part of the finance raisingprocess to deliver the objectives and goals of the company have an access to anetwork of contacts including financial institutions, private equity investors,venture capitalists and debt financing investors. LITERATUREREVIEWInvestors’ rationality must beprioritised over and above the emotionality while arriving at the investmentdecisions by taking into consideration the thorough judgements and assessments ofthe investment options (Brabazon.

T, 2000).Investors often wait for a steep hike in the share price until it outweighs thepurchasing price to acquire some capital gain. Successful investors’ decisionsare dependent more on the crave to avoid that awful feeling associated withadmitting mistake and overcome these adverse psychological influences (Iyer B and Baskar RK, 2002). Demographicprofile structure of the investors also affects the emotional stability whiletaking into account the various elements of the investment avenues (Shanmugasundaram V and Balakrishnan V,2010). RESEARCHMETHODOLOGYThe research paper is an attempt ofexploratory research based on the secondary data sourced from journals,internet, articles, literatures, newspapers, previous research papers.

Theresearch design employed for the study is of descriptive nature. Focusing onthe determined objectives strictly, the research design was adopted to havegreater precision and in-depth analysis of the research study. Availablesecondary data was extensively used for the study.

 OBJECTIVES OFTHE STUDYü  To trace the retailinvestor’s participation in the equity capital market over the past few years.ü  To analyse thesocio-economic profile of the retail investors, investors buying behaviour and investmentor trading practices.ü  To assess thefundamental and technical factors for understanding the recent performance ofthe Indian capital market.ü  The hurdlescommonly faced by small investors in the Indian capital market prior toarriving at an investment decision.ü  To recommend forthe enhanced participation of the retail investors towards the contribution instrengthening the financial deepening process in India.ü  To highlight thesteps taken by the government to strengthen the retail investor’s capital base. FINANCIAL MARKET Financial market refers to the arrangement,where the trading of securities including the equities, bonds, currencies and derivativesoccur based upon the free play of the market forces. Some large financialmarkets including the New York stock exchange, NASDAQ, Tokyo stock exchange,London stock exchange and the forex markets trade trillions of dollars ofsecurities on an intra-day basis.

The presence of financial instabilitydifferentiates the actual and the intrinsic fair price of the securities. Theprices are heavily reliant on the information symmetry in the market andtransparency by the issuing company to ensure methodical and expropriate settingof the prices in the market. A financial market consists of two major segments:a) Money market and b) Capital Market. MONEY MARKETMoney market is a market for short-termfunds, which deals in financial assets whose period of maturity is up to oneyear. The constituents of the Indian money market are RBI (the apex monetaryauthority), commercial banks, co-operative banks and other specialisedfinancial institutions like (NBFCs) Non-Banking Financial corporations, LICs,UDIs etc.

, functioning in the Indian money market.Money Market Instruments: Call Money,Treasury bill, Commercial Paper, Certificate Of Deposit, Repurchase agreement,federal agency notes, bankers’ acceptances etc. CAPITAL MARKETCapital market is an institutionalarrangement of arraying medium and long-term funds which provides prerequisitesfor marketing and trading of securities. It constitutes all long-termborrowings from depository as well as non-depository financial institutions,borrowings from external markets and raising of capital by issuing varioussecurities such as stocks, debentures, bonds etc. It is comprised of twodifferent segments namely primary and secondary market.

The primary marketdeals with fresh securities and therefore, also known as new issue market;whereas the secondary market provides a mechanism for purchase and sale ofexisting securities and is often termed as stock market or stock exchange. PRIMARY MARKETThe arrangement which facilitates theprocurement of long-term funds by companies via making fresh issue of sharesand debentures which is usually done through private placement to financialinstitutions or by making public issue. The well-established lawful stratageminvolve a number of intermediaries such as underwriters, brokers, etc. whichform an integral part of the primary market  e.g.

Public sector undertakings (PSUs) such asONGC, GAIL, NTPC and the private sector companies like TCS, jet-airways and soon. Recently, companies like HDFC standard life ins, khadim India, Mahindralogistics, SBI life ins have issued IPOs in the market to raise fresh capital. SECONDARY MARKETStock exchanges/stock markets across theentire globe constituting the well-versed and booming financial marketsenabling the financial depth/Deepening to ensure the trading of deferentmatured security instruments facilitate the mobilising of surplus funds fromcapital holders to deficit units. In the innovative era, most developedeconomies, the growth pattern of which depends upon the supply leadingcondition exaggerate the economic growth process resulting in a fast paced financialdeepening. While in contrast, the developing or less developed economies dependingupon the demand following conditions basically follow the pattern ofstrengthening the financial markets and trading in secondary market to resultin a stabilised and promoted economic growth.

Required regulatory norms,stringent and transparent practices, information symmetry, globalisedinterconnections have all created a competent global environment. New Yorkstock exchange, NASDAQ, London stock exchange, Tokyo stock exchange are theleading stock market indices evoked the competitiveness through technologicaladvancements and easier compliance trading thereby generating more liquidityand velocity of securities dealing. BSE SENSEX, NSE (Nifty 50) in India, serveas the economic barometer and quantitative index to signify the prosperousgrowth in the external market to support the social external infrastructure. FACTORSRESPONSIBLE FOR GROWTH OF INDIAN CAPITAL MARKET·        Theadvent and growth of stock exchanges (BSE) 1875, (NSE) 1992. ·        Developmentof non-banking financial institutions (Mutual Funds, Venture Capital Funds, IndexFunds, hedge funds, Pension funds etc.) ·        Easierand faster Compliance structure and magnification in merchant banking services.

·        Potentrole of credit rating agencies (ICRA, CRISIL, CARE, Fitch India·        Strictercorporate governance norms, intensified transparency, stringent regulations,evolution of newer security instruments, feasible investment avenues,enlargement of the interest protection policies for investors. ·        Settingup of National Securities Clearing Corporation (NSCC).

    CAPITAL MARKETFUNDS VS DEPOSITORY INSTITUTIONS LOANSIntermediation in the capital marketoccurs through the interchange of spacious assemblage of instruments includingcommon and preferred equities, convertible bonds, corporate bonds,mortgage-backed securities and other asset-backed securities (home-equityloans, credit-card receivables, auto loan, student loan). Intermediation in thedepository institutions differs in three important respects. First, theinvestor does not have a claim on the elementary inheritor of the funds. Second,the price of assert does not typically oscillate in response to the shifts inmarket forces (supply and demand).

Third, the investor can not normally sellthis claim to a third party. An important difference is that with a disciplinedbanking loan, the lending is non-securitized. Another difference is thatgranting from banks and similar institutions is more heavily regulated thancapital market lending. Furthermore, banks’ primary depositors and shareholderstend to be more risk averse than capital market investors.  ROLE OF RETAILINVESTORS IN THE CAPITAL MARKETOther than the domestic and foreigninstitutional investors, the role played by the small retail traders has beenparamount in the capital market. But, the dishonourable fact is that thehousehold investors park their savings significantly lower in capital market,perhaps because of the higher risk probability of getting indulged in themarket scams, manipulations, frauds and also on account of the higherunpredictability.

Any analysis or interpretation about the securities marketwill be incomplete without the mentioning of investors and stakeholders inparticular, the retail investors. It is advisable for the retail investors toconsider the risk undertaken through thorough assessment and in an abundantlycautious manner. As retail investors look for long matured investments inconverse to the FIIs, FFIs, QIBs and HINs playing for short-term capital gains,the government and its various concerned agencies must look after the interestsof the retail investors for proliferating the economic status.

There is growingconcern about the welfare and probity of capital market on the internationalplatform so as to make the securities markets shielded, crystalline anddeprived of frauds, misappropriations, malfunctioning and corporate scams. Currently,Indian securities market is one of the most vigorous and dynamic securitiesmarket in the world with updated state of technology, shortest trading settlementcycle and paperless proceedings with screen based trading system, bettercorporate governance norms and quicker dissemination to maintain informationsymmetry. Although, securities price manipulations, magnified fluctuations,repeated corporate rackets, abortive corporate governance norms etc. have beenthe main reasons for keeping the retail investors away from the securitiesmarket. FINANCIALINNOVATIONS AND DEVELOPMENT IN INDIAN CAPITAL MARKETNSE (estb.1992) instigated theinitiation of online trading which led to the extensive popularisation of theNSE in the brokers’ fraternity. The eradication of fixed charges in the form ofcommissions has augmented competition among the brokers, the creation of assetbacked securities, deduced quantum of equity required for working capital orcurrent operations and further trimming in the financing cost. The scriplesstrading enlargement and book entry settlement with reduced back officepaperwork has led to curtail the transaction cost.

Capital market insurancesolutions offer a propitious means of funding protection for even the largestpotential catastrophic losses. Unit linked insurance plans (ULIP) – the capitalmarket linked insurance products are considered to be the new best-sellinginstruments in the insurance market. The conducting of online examinations andthe provision of award certification by NSE, under its programmes of NSE’scertification in financial markets (NCFM) has been considered to be one of themost encouraging innovative steps. Currently, certifications are available inmultiple modules covering different sectors of financial and capital markets.

The introduction of committees for IPO issues regarding the mismanagement offunds has led to create an element of certainty and uniformity among theinvesting communities. The facilitation of the process of demutualisation andcorporatisation of stock exchanges and launching of the electronic ordermatching system for trading in gilt edged securities on its negotiated tradingsystem allowed capital markets to boom. Allowing Mutual Funds to levitate GoldExchange Traded Fund Schemes which have permitted to invest primarily in goldand gold related instruments and the issuance of guidelines for privateplacement of debt by listed companies. CHALLENGES INTHE DEVELOPMENT OF CAPITAL MARKETSThe proper functioning of capitalmarkets resides upon the several preconditions classified into 3 groups: sounddescriptive macro-economic policy, sturdy institutional and legal setting and aproperly functioning financial infrastructure. Until these preconditions arecomplied with, the government efforts to thrive local capital markets are boundto fail, resulting in shallow markets and delude investors and thereforegenerally advisable to sequence financial sector reforms such that theseconditions are sufficiently in place before local capital markets areestablished. BENEFITS TO THERETAIL INVESTORS FROM THE CAPITAL MARKETSWisely taken investment decisionsputting into consideration the viability of the company, fundamental analysis, pastfinancial performance, management structure, business environment, marketcompetitiveness and other macro environment factors turns out to be desirableand fruitful.CapitalAppreciation:It necessitates the difference between the purchasing and selling price of ashare of a company which signify the capital gain.Dividend Income:Asum of money agreed upon by the directors of a company to be distributedamongst the shareholders on proportional basis from the company’s profit.

Issuances ofBonus shares:Incentive, entailing a shareholder to acquire additional shares from thecompany instead of a dividend without necessarily paying.Rights Issuances: Investors areopportune to be equipped with rights shares in proportion to their oldshareholding pattern at a price lower than the market prevailing price. Participation inthe Management: Investorshave the right to participate in the company’s decision making process therebyexercising their voting rights in AGMs. Bankingcollateral and social security benefits: Share certificates serve as collateralto obtain bank loans for individual use or business development.

Buying ofstocks could be used as individual preparation towards personal pension plan,therefore having an opportunity to considerably invest in the stock marketduring earlier age. CHALLENGES FACEDBY THE RETAIL INVESTORSInadequateCapital: Thesmall investor with less capital invested in the stock market trades forhimself, not for a company. Although, small investors generally invest instocks, mutual funds and index funds, investment choices available likeoptions, futures, forwards and swaps are usually too complicated and expensivefor small investors.Cost: Small investors’lower degree of negotiating power allow brokerage firms too charge a higherpercentage of management fees on small accounts thereby meaning a higher returnfor the year to break even. Funds, especially index funds, have very low annualfees.

Diversification: As a smallinvestor, it’s harder to build own diversified portfolio due to limitation ofavailable resource to spread across various industries or companies.Information: Oneother disadvantage from the small investor’s point of view is the informationasymmetry.Professional investors have research staffs that are constantly providing themwith up to date information. As a small investor, it can feel one step behindour competitors. However, the internet has made a big dent in this disadvantage. FINDINGSAs per the analysts, the fixed incomegenerating securities and the volume of trading transactions have an inverserelationship. Equity securities and the debt instruments do possess a higherdegree of substitution.

In fixed or partly negotiable fee model environment,reductions in brokerage fees are strongly positively correlated with increasein trading activity. Reduced trading fees in a market with a non-negotiable feemodel has a positive influence levels of trading activity increase incost-to-trade are associated with declines in depth of retail activity as thereis a significant negative relationship between increase in clearing fee andlevels of trading activity. Moving from a fixed to a negotiable or even partlynegotiable fee model has the effect of reducing cost-to-trade. SUGGESTIONSThe outcome of this research leads tothe suggestion that the regulators must include the role of behaviouraldimensions in its awareness campaigns due to the criticality of even thequalitative factors in investment decisions. This research also recommendsapposite measures to address the genuine uneasiness of the retail investors.

There is need to create financial literacy and awareness, expanding the numberof issues, providing diverse investment options, training and increasing thereach of intermediaries, enhancing investor protection measures, simplified normsand cost-effective services. CONCLUSIONThe small investor’s attitude towardsdebt instruments needs change, and that this will be impossible without aradical overhaul of the small savings schemes in India. There seems to bewidespread misconception about pooled investment vehicles that needs to beremoved as investments such as mutual funds can really fulfil the entire rangeof risk appetite for small investors while increasing the depth and width ofprimary and secondary debt capital markets. Finally some suggestions regardingmarket innovations in terms of a derivative product (Counter Party RiskProtection Security) that may help allay small investors concerns whiletransacting in corporate securities and help fuel growth in these markets.

 BIBLIOGRAPHY ·        Dr.Shanmugasundaram, V., Investor Behaviour towards Various Capital MarketInformation, Annamalai University, India.···                  


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