Thesis title "IMPACT OF REGULATORY MEASURES FOR EMPOWERING RETAIL INVESTORS IN INDIAN CAPITAL MARKET"

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IMPACT OF REGULATORY MEASURES FOR EMPOWERING RETAIL
INVESTORS IN INDIAN CAPITAL MARKET
1. PREFACE
The savings of every individual to promote investment and help development in economy by
way of additional income to accomplish their financial goals in terms of individuals and the
creation of jobs, increase in Gross Domestic Product (GDP) and adequate foreign reserves to
fuel economic development. The knowledge on investment avenues help planning, financial
goals for both long and short term for every individual. The primary objectives of any earning
individual are safety, income, growth of capital, whereas secondary objectives being tax
minimization and marketability or liquidity. The Capital Market facilitates and by promoting
efficiency in the allocation of financial resources for the socially and economically deserving
wherever it’s required. They influence both the quality and the pace of development in the
economy, which is evident from the well-being of their citizens. An efficient and integrated
financial market is thus an important infrastructure that facilitates savings, investment and
consequent economic growth. Planning of finance plays has a significant role and provides an
important contribution to individual and also the economic growth. The market intermediaries
and regulators along with the government helps shaping financial planning and paves way for
proper investment by converting savings into investments in a appropriate channel. The
introduction of Liberalization, Privatization and Globalization (LPG), the Indian economy
made remarkable changes and development have been achieved during the early 1990’s for the
improvement of market by opening-up of economy to Foreign Portfolio Investors. This gave
greater choice for Individuals, Domestic Institutions and Foreign Portfolio Investors to
effectively accomplish their finances more transparent and effective way which helped them
in generating more profits. Retail Investors are the silent heroes of the Indian capital market.
Retail investors’ interest must be safeguarded, which is very significant to frame policies,
procedures and educating investors about the need for investment and the benefits to the

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society. In general, retail investor has less adequate knowledge in-spite of various measures
taken by regulators to create awareness on capital markets, the role of market intermediaries
and regulators measures unless they are made aware or they show interest in knowing the same.
Investment environment is more dynamic in Capital Markets. Investing in capital market is a
grave venture. This needs more knowledge, passion and confidence apart from patience else it
may denote the financial position of the investor. Investors demographic characters and
personality types influences the investment process, including the choice of avenues, planning
of funds, holding and buying capital. Regular income, capital appreciation, dilution of liquidity
riding with the market, provision for future diversification of asset holding, quick gain, etc.,
are the factors which drive the decision of investors.
India is an attractive destination for Foreign Portfolio Investors, due to its vibrant economy,
geographical advantage, growth potential and well diversified Stock markets. The Indian
capital market is ranked one among top 4 most attractive inbound investment destinations by
transnational corporations released by United Nations agency UNCTAD. The irony is that
retail investors of the Indian capital market, considers this as a platform to generate more wealth
in the short term. The decline in retail participation from 75 % to 48% and an upward surge in
FPI from 14% to 35% at the end of 2012 shows that the opportunity of making profits were
missed by retail investors in the markets. The retail investment turnover in the Indian Capital
markets for the FY 2014-15 is lowest, having dropped to 34% from 89.5% in 2001. On the
other hand, the influence of foreign portfolio investors (FPIs) who was allowed to invest in
Indian capital markets since 1993, has risen to 47% from 8% in the same period. Indicating
that retail savings are mostly into bank deposits, there is the need for diverting the savings of
retails from bank deposits to stock markets. The retail participation in Indian capital market
came down from 20 million to less than 8 million post globalization. 80% of retail investments
come from 10 major cities of India and participation from rural parts is meagre. The statistics

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from RBI and SEBI shows that the Foreign Portfolio Investors (FPI’s) brought Rs.2.58 lakh
crores for the FY 2013 – 2014 (as per the latest Statistical data available on RBI website). The
daily Capital market average volume of retail investors is down to Rs 4,615 crore in 2013-14
being the lowest since 2003. The downward surge of 66% from the high of Rs 13,709 crore in
2009. Between 1993 and 2014, the retail investor participation has withered to 34% from 65%
on total market. The below picture shows that the retail participation has tumbled year by year.
Figure: Retail Investors’ participation in Indian Capital Market
Source: Rajesh Mascarenhas, ET Bureau (Oct 21, 2013)
The attrition in Indian capital market shows that the market is not conducive to retail investors,
which is a serious issue must be addressed by the regulator to have a stable and healthy
economy. The Indian capital market being the largest investment avenue for various financial
institutions across economy must look at safeguarding their own investors. Understanding the
market changes and investors’ perception towards it, is challenging to policy makers regarding
the problems faced. This study is aimed at understanding the retail investors’ attitude towards
the capital market regulations adopted by the policy makers, retail investors knowledge and
acceptance of the same and to ascertain the ways to retain the existing and to bring more retail
investors into the market. The regulations need to be friendly to retail investors also. It is

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therefore necessary to educate the retail investors so that they can have information for their
investments done in Indian capital market.
2. RESEARCH METHODOLOGY
This study is based on primary data collected using a structured questionnaire. However, the
secondary data is also made use of wherever it becomes necessary. The importance of this
study is to understand the concern of retail investors who may have stopped investing in
markets due to their bad experiences while investing. The study employed non-probabilistic
sampling technique which is generally used for qualitative or exploratory studies for choosing
research respondents. Convenient (accidental sampling, grab or opportunity) sampling is a type
of non-probability sampling, where the sample is drawn from the population close to hand. As
the population is unknown, spread across the sphere, the sample size of 384 is used for this
study as suggested by Krejcie, R.V. & Morgan, D.W. (1970) in their book Educational and
Psychological Measurement, 30, Page no. 607-610. The sample respondents who have stopped
investing in capital markets since 2014 having registered with market intermediaries from
Coimbatore district, Tamil Nadu being used for research.
The responses being collected using Google forms via emails, using social media such as
Google + and Facebook, telephonic and direct interaction with the respondents. The possibility
of segregation of investors based on geography is very less as many of the sample respondent
investors having more than one dematerialisation accounts with different market intermediaries
and dealt with markets from different places. The relevant secondary data were gathered from
reports, books, journals, periodicals, dailies, magazines and websites for research report
preparation.
Statistical tool such as Simple Percentage Analysis, Chi-Square test, ANOVA, Correlation,
Multiple Regression, Friedman rank test and Factor analysis were employed to process the data
collected.

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3. SUMMARY
India is one of the developing economy in this universe. But the same cannot be spoilt for a
long time. The time has come to achieve double digit economic growth and to compete with
developing economies. This can be achieved using the resources within ourselves instead of
getting it from others. Summary of findings, suggestions and conclusion is as follows.
“Penny saved today is a penny earned tomorrow”. Financial planning helps individual, family
and economy to meet financial needs and unseen expenditure in the future. Investment in right
avenue gives investors more financial freedom, increase in returns and wealth. Retail Investors
may consider aspects such as Safety, Additional Income, Growth, Tax Minimization, and
Liquidity as important factors in making a choice of investment from the hard earned money.
In other words, characteristics of investment instruments, Investment environment and
Investors’ behaviour plays dynamic role in making investment decisions by retail investors,
whereas the portfolio investors invest their money with the sole objective of making profits
whereas retail investors’ objective differ from everyone based on their financial goals. FPI’s
stake in Indian Capital Market is more than 40% and its phase of growth will eradicate retail
investors, if the same trend continues.
The major portion of profits from the stock market is being relished by FPI’s. The impact of
price volatility is more dangerous with respect to small investments made by retail investors
when FPI’s pulls out their investment. Regulators are forced to make and make changes in
policies in tune with the safety of Investments by FPI’s than Retail Investors. SEBI’s initiative
to boost and restore investor confidence after series of capital market scams by way of creating
awareness on markets jointly with Market Intermediaries and Investor Associations which need
to be strengthened. The recent initiative of SEBI vide its circular dated June 02, 2011
incentivizing Market intermediaries to bring fresh blood into the market, which motivates the
stock brokers to reach more investors is the major step towards restoring retail investor

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confidence. The introduction of Rajiv Gandhi Equity Savings Scheme (RGESS) by the
Government of India in the Budget session 2013 to attract first time investors into markets by
giving exemption in tax for their income under 80CCG of Income Tax Act, 1961 for the
investment of Rs.50000 in equity and mutual funds in Indian capital market will infuse more
fresh blood into the markets. The financial literacy initiatives like Investor Awareness
Programs conducted across parts of India is reaping confidence.
It is suggested that every market participant must know their role in the development of our
nation and act accordingly. The institutional investors are smart enough to make investment
decisions, whereas retail investors need proper guidance and help in converting savings into
capital and profits into additional income for individuals. The market surges year to year, but
retail investors tend to lose confidence, when they come across any difficulties. The first and
foremost step in addressing this issue is to create more awareness about capital markets and
risks associated with it followed by educating investors making wise decision while making an
investment. The regulators should also strive to create a platform where all market participants
are treated on par with other and investor friendly environment. Last but not the least, the co-
operation of retail investors is vital for the economic development. To conclude, one will
appreciate that the suggestions and opinions of this research will consume less time and effort
to achieve the goal. It is only that everyone should be conscious of these and take corrective
action, if necessary.

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