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A Study on Factors Influencing Investor’s Investment Decision

Article  in  Test Engineering and Management · May 2020

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 A Study on Investor’s Attitude towards Investment in Equity Stocks with Reference to East Godavari...

A Study on Investor’s Attitude towards Investment in Equity Stocks

with Reference to East Godavari, West Godavari & Vijayawada
Districts of Andhra Pradesh
N. S. V. N Raju1 and Anita Patra2
1
Department of Management Studies, Aditya College of Engineering & Technology, Kakinada, Andhra Pradesh , India
E-mail- [email protected]
2
School of Management, Centurion University of Technology & Management, Parlakhemundi, Odisha, India, E-mail- [email protected]

Abstract: The developments in the financial markets around the globe are providing a wide variety of markets
and investment options to the investor’s. This in turn makes the investment decision process more complex.
Research has been done to identify the factors influencing the investor’s attitude towards investment. Primary
data is collected through questionnaire. The average value of the top five highly influential factors according to
the investors’ were what the company does , valuation of the company’s Stock , company’s 10-Q annual
reports , Price to earnings ratio , Is the company profitable. The five factors which were given lowest priority
or which had low influence on the attitude of the retail investors investing in equity stocks were Revenue/
profit patterns of the company was considered to be the lowest influencing factors among the five, customer/
client reviews about the company , vision and mission of the company , risk factors involved in the nature of
business, debt-to-equity ratio.
Keywords: Investment, investors’ attitude, influencing factors

I. INTRODUCTION
Capital market development has been closely related to an economy’s overall development. As economy
develops, the indirect lending by savers to investors tends to become more efficient. As economy grows
further, specialized financial intermediaries and securities markets develop. As securities markets mature,
investors, especially individual investors, can invest their funds directly in financial assets issued by firms.
The term investment means conversion of cash or money into a monetary asset or a claim on future
money for a return. Investment is considered the sacrifice of certain present value of money in anticipation
of a reward. Investment is the sacrifice of certain present value for the uncertain future reward. Investments
are always interesting, challenging and rewarding.

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 N. S. V. N Raju and Anita Patra

Today investors have various attractive avenues of investment with different features matching their
needs. But generally the art of investment is to see that the return is maximized with minimum risk which
is inherent in all investments. Investors differ in their pattern of investment, preferences, perceptions and
objectives for investment.
The developments in the financial markets is making the investment decision process more complex.
Hence this paper aims to identify the key factors which influence the investors to invest in equity markets.

II. REVIEW OF LITERATURE

Peter Roger Eiving (1970) identified those factors which motivated and guided the investment decisions of
the common stock investors. The factors include (i) Income from Dividends (ii) Rapid Growth (iii) Purposeful
Investment as a protective outlet of savings (iv) Professional Investment Management. Kannadhasan. M
(2006) examined the factors that influence the retail investors’ decision in investing. The decision of the
retail investors are based on various dependent variables viz., Gender, age, marital status, educational level,
income level, awareness, preference and risk bearing capacity. Shanmngasundaram V (2011) has done the
research on the impact of behavioural dimensions of investors in Capital market and has found that
investor decisions are influenced by Psychological factors as well as behavioral dimensions and this
Psychological effect is created by the fear of losing money, sudden decline in stock indices and lack of
confidence about their decision making capability. Mittal M and Vyas (2008) explored the relationship
between demographic factors and the investment personality exhibited by the investors. Empirical evidence
suggested that factors such as income, education and marital status effect an individual’s investment decisions.
Bennet, Ebenezer, et al (2011) in his study concluded, Out of the total 26 variables, it is found out that five
factors had very high influence over the retail investor’s attitude towards investing in equity stocks. They
are namely investors’ tolerance for risk, strength of the Indian economy, media focus on the stock market,
political stability and finally government policy towards business. Hussein A Hassan (2006) identified the
factors influencing the UAE investors’ behavior. Six factors were found as the most influencing factors on
the UAE. The most influencing factors include corporate earnings, get rich quick, past performance of the
stock . Luu Thi Bich Ngoc (2014) identified the behavioral factors influencing the decisions of individual
investors at the securities companies in Ho Chi Minh city, Vietnam. The five behavioral factors are Herding,
Market, Prospect, Overconfidence-gamble’s fallacy and Anchoring-ability bias. Bennet et al. (2011) carried
out a study and found that most of the investors expect the stock prices to go up to a degree greater than
most of their investments. If the market has gone down, they think it would rebound. If the market is up,
they think it would go further. In either case, they make investment decision on account of the assumption
that the stock market would give better returns. Rakesh H M (2014) identified that investors are fully aware
about the stock markets and they feel the market movements affect the investment pattern of investors in
the stock market. Parimalakanthi and Ashok kumar (2015) carried out a study and found that education of
investors is immensely important for the present day investors in Coimbatore investors, before making
investments, need to collect investment related information from internet and consult friends ,peers and
investment experts before making investments. Gnani Dharmaja et al. (2012) identified that accounting
information, financial literacy, investor’s financial tolerance are influencing the investor’s behavior.
From the above review, it is clear that there are some differences among the retail investors on the
factors that influence investor’s attitude towards investing in equity stocks.

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 A Study on Investor’s Attitude towards Investment in Equity Stocks with Reference to East Godavari...

III. OBJECTIVES OF THE STUDY

1. To analyze the investors preference towards various investment avenues in the sample Districts.
2. To analyze the factors influencing investment Decision.
3. To know the investor’s preferred sector for the investment.

IV. RESEARCH METHODOLOGY

4.1. Sampling Design

Random sampling technique has used for collecting the data from different investors. The investors are
selected by the random sampling method. The sample size covers 600 investors who were spread through
three Districts in Andhra Pradesh. From each district 200 investors, ten approved stock Brookings have
been chosen and twenty investors had contacted with the help of stock brokers.

4.2. Period of the study

The data are collected for a period of one year (i.e.) from January 201 to December 2016. The data
collected are the opinion of investors and their expectations are also analyzed.

4.3. Area of the operation

The study is based on the data collected from investors in three district of Andhra Pradesh i.e. East
Godavari, West Godavari and Vijayawada.

4.4. Statistical Tools

The data collected is compiled and described using tables and percentages. The data have been analyzed
through descriptive statistics and Chi-square test.

4.5. Limitations of the study

1. The Study is limited to only 600 investors.
2. This Study used only some factors to analyze the factors effecting investment behavior of Individual
investor.
3. The survey is conducted only in three districts of Andhra Pradesh i.e. East Godavari, West Godavari
and Vijayawada.
4. The study has also the limitation of time, place and resources.

V. RESULTS AND ANALYSIS

Table 1
Responses regarding Age of respondents
S.No Age Group No of Respondents percentage
1 less than 20 years 134 22
2 20 - 40 years 393 66
3 40 - 60 years 64 11
4 more than 60 years 9 2
Total 600 100
Source: primary data

1343 International Journal of Control Theory and Applications

 N. S. V. N Raju and Anita Patra

From the above table 1, It is understood that out of 600 respondents 66 % of respondents belongs to
age group of 20-40, 22% respondents are below 20 years and 11% respondents between 40- 60 years. Only
2% of respondents are more than 60 years of age group. Above table indicates that most of the respondents
belong to age group of 20-40.
Table 2
Occupation of the respondents
S.No Occupation No of Respondents percentage
1 businessmen 286 48
2 housewives 21 4
3 professional 70 12
4 retired persons 9 2
5 salaried persons 214 36
Total 600 100
Source: primary data
Occupation also influences investment decisions of individual investor. The above table shows the
occupation of sample investor. 48% of investors were businessmen and 36% of investors were salaried
persons and 12% of investors were professionals and 4% of investors were housewives, 2% of investors
were retired persons.
Table 3
Income level of the respondents
S.No Income level No of Respondents percentage
1 less than 2,00,000 132 22
2 2,00,000 - 4,00,000 405 68
3 4,00,000 - 6,00,000 54 9
4 more than 6,00,000 9 2
Total 600 100
Source: primary data

The important factor which influences the whole investment decisions and attitude of individual
investor is income level of investor. When level of income increases the risk tolerance level of investor also
increases. Above table shows that 68% of respondents are between 2lakhs and 4lakhs income level and
22% of respondents are below 2 lakhs income level and 9% of respondents are between 4lakhs and 6lakhs
income level and 2% of respondents are above 6lakhs income level.

Table 4
Investor’s preferable investment sector
S.No Preferred sector No of Respondents percentage
1 IT sector 245 41
2 Manufacturing sector 158 26
3 pharmaceuticals 89 15
4 Shipping & logistic 108 18
Total 600 100
Source: primary data

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 A Study on Investor’s Attitude towards Investment in Equity Stocks with Reference to East Godavari...

From the above table it clearly understood that 41% of investors showed interest to invest their fund
in IT sector and 26% investors and 18% investors were preferred to invest Manufacturing and shipping &
logistics sector respectively. 15% investors were preferred to invest in pharmaceuticals sectors.

Table 5
Investor’s preferred investment avenues
S. No. Preferred Investment No of Respondents Percentage
1 bullion Market 121 20
2 Primary market 50 8
3 Government Securities 212 35
4 Real Estate 68 11
5 secondary Market 149 25
Total 600 100
Source: primary data

From the above table it clearly understood that 35% of respondents preferred to invest government
securities and 25% respondents and 20% respondents preferred to invest in secondary markets and bullion
market respectively.8% respondents were preferred to invest in primary markets.

TESTING OF HYPOTHESIS

Hypothesis - 1
“There is no association between age of the investors and their preference of investments”.
To test the above hypothesis the researcher has used the ‘chi-square test’.
Observed frequency
Age of the Respondants
S. No. Preferred Investment less than 20 years 20 - 40 years 40 - 60 years more than Total
60 years
1 bullion market 32 82 7 0 121
2 Government Securities 57 145 10 0 212
3 Primary market 3 45 2 0 50
4 Real Estate 23 121 5 0 149
5 secondary market 19 0 40 9 68
Total 134 393 64 9 600
Source: primary data

CHI – SQUARE TEST

Oi Ei (Oi-Ei) (Oi-Ei)2 (Oi-Ei)2/Ei
32 27.02333 4.976667 24.76721 0.916512068
82 79.255 2.745 7.535025 0.095073182

1345 International Journal of Control Theory and Applications

 N. S. V. N Raju and Anita Patra

7 12.90667 -5.90667 34.88871 2.70315427

0 1.815 -1.815 3.294225 1.815
57 47.34667 9.653333 93.18684 1.968181733
145 138.86 6.14 37.6996 0.271493591
10 22.61333 -12.6133 159.0962 7.035503145
0 3.18 -3.18 10.1124 3.18
3 11.16667 -8.16667 66.69444 5.972636816
45 32.75 12.25 150.0625 4.582061069
2 5.333333 -3.33333 11.11111 2.083333333
0 0.75 -0.75 0.5625 0.75
23 33.27667 -10.2767 105.6099 3.173691609
121 97.595 23.405 547.794 5.612931246
5 15.89333 -10.8933 118.6647 7.466319911
0 2.235 -2.235 4.995225 2.235
19 15.18667 3.813333 14.54151 0.957518291
0 44.54 -44.54 1983.812 44.54
40 7.253333 32.74667 1072.344 147.8415686
9 1.02 7.98 63.6804 62.43176471
TOTAL 305.6317436
Source: computed data

Degrees of Freedom
V= (r-1) (Cc-1)
V= (4-1) (5-1)
V = 12
12 degrees of freedom 5% level of significance is 21.02609
The calculate value (305.6317436) is more than the table value. So hypothesis is rejected

Graph 1: Computed value and Chi-Square table value

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 A Study on Investor’s Attitude towards Investment in Equity Stocks with Reference to East Godavari...

Conclusion: from the above graph it can be conclude that the calculate value (305.631746) is more than
the Chi-Square table value at 12 degrees of freedom is 21.026 .so there is no association between age of
the investors and their preference of investment.
Table 6 shows the mean value and the standard deviations of statements that may likely influence the
attitude of the investors investing in equity stocks. The average value of the five top highly influential
factors according to the investors’ were what the company does with a mean value of 3.77 (SD 0.979)
valuation of the company’s Stock with a mean value of 3.73(SD 0.876), company’s 10-Q annual reports
with a mean value of 3.71 (SD 0.971), Price to earning ratio with a mean value of 3.70 (SD 0.797), Is the
company profitable with the mean value of 3.67 (SD 0.833).

Table 6
Descriptive Statistics
Statements Mean Std. deviation
What the Company Does 3.77 0.979
Is the Company Profitable 3.67 0.833
History and Outlook of the Company’s Earnings. 3.58 0.976
Valuation of the Company’s Stock 3.73 0.876
The Company’s Competitors 3.50 0.838
Who Runs the Company. 3.53 0.960
How Clean the Company’s Balance Sheet 3.66 0.952
Company’s 10-Q Annual Reports. 3.71 0.971
Any Red Flags/ Company’s Integrity 3.56 0.886
Is the Company’s Competitive Position Sustainable? 3.55 0.915
Is the CEO clean, credible and reliable with proven credentials? 3.64 0.884
Business model of the company 3.61 0.850
Competitive advantage of the company over other companies 3.51 0.844
Revenue/ profit patterns of the company. 3.36 0.931
Profit margins of the company. 3.65 0.904
Debt-to-Equity Ratio. 3.46 0.872
Price to Earning Ratio. 3.70 0.797
Risk factors involved in the nature of business. 3.40 0.933
Dividend history of the company. 3.56 0.978
Customer/ Client reviews about the company. 3.37 1.019
Values and philosophy of the company. 3.48 1.020
Vision and Mission of the company. 3.39 1.079

The investors considered the following five factors would have low influence on the investors investing
in equity stocks. Revenue/ profit patterns of the company was considered to be the lowest influencing
factors among the five with a average mean value of 3.36 (SD 0.931), customer/ client reviews about the
company with a mean value of 3.37 (SD 1.019), vision and mission of the company had a mean value of

1347 International Journal of Control Theory and Applications

 N. S. V. N Raju and Anita Patra

3.39 (SD 1.079), risk factors involved in the nature of business had a mean value of 3.40 (SD 0.933). debt-
to-equity ratio had a mean value of 3.46 (SD 0.872).

VI. CONCLUSION
Out of the total 22 variables, it is found out that five factors had very high influence over the investor’s
attitude Towards investing in equity stocks. They are namely what the company does, valuation of the
company’s Stock, Company’s 10-Q annual reports, Price to earnings ratio and Is the company profitable.
Hence this study is Concluded that the factors had very high influence over the retail investor’s attitude
towards investing in equity stocks.

REFERENCES
Bennet, E., Selvam, M., Indhumathi, G., Ramkumar, R. R., & Karpagam, V. (2011). Factors Influencing Retail Investors’
Attitude towards Investing in Equity Stocks: A Study in Tamil Nadu. Journal of Modern Accounting and Auditing, 7(3),
316.
Bennet. E, and Selvam. M. (2011), Investors’ perception towards the influence of SPERTEL risks on the value of equity
shares. A Study conducted at Coimbatore City, International Journal of Research in Computer Application and Management,
1 (2).
Gnani Dharmaja. V, Ganesh. J, Santhi. V. (2012), “Astudy on the individual investor behaviour with special refernce to
Geojit BNP Paribas financial services Ltd,Coimbotore” International Journal of Reaserch in Management & Technology,
ISSN:2249-9563 Vol. 2, No. 2.
Luu Thi Bich Ngoc (2014), “Behaviour pattern of individual investors in stock market”, International Journal of Business and
Management ISSN: 1833-3850,Vol. 9, No. 1.
Hussein A. Hassan Al-Tamimi (Summer 2006), “Factors influencing Individual Investor Behaviour: An empirical study
of the UAE Financial Markets”, The Business Review, Cambridge; 5, 2 pp. 225-232.
Kannadhasan. M., “Risk Appetite and Attitudes of Retail Investors with Special Reference to Capital Market”, The
Management Accountant, June 2006, pp. 448 453, 2006.
Mittal M and Vyas R. K. (2008), “Personality type and and Investment choice An empirical study”, The Icfai University
Journal of Behavioral Finance, Vol. V, No. 3, pp. 6- 22.
Parimalakanthi K. and M. Ashok Kumar (2015), “Astudy on investment preferences and behaviour of individual investors
in Coimbatore city”, Bonfring International Journal of Industrial Engineering and Management Science, Vol. 5, no. 4.
Petter Roger Ewing., “Motivating Factors Guiding the Common Stock Investor”; Dissertation Abstracts International
Vol 31, No. 5 1970, P. 1975A, 1970.
Rakesh H M, (2014) “A study on individuals investors behaviour in stock marets of india”, International Journal in Management
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