CHAPTER II

REVIEW OF LITERATURE

2.1 Review Motivation

This chapter examines in a nutshell the previous studies related to this topic
conducted by various scholars and researchers both in India and abroad. The review
of the previous research studies is a foundation of any study. The well-structured
literature review is accompanied by relevant studies and findings, continuous flow
of write ups from capital market to stock brokers and the behaviour of the investor
towards investments. The review includes past and present relevant references with
consistent, appropriate referencing style, proper use of terminology, and an unbiased
and comprehensive view of the previous researches and the research gap on the
topic. The review has been presented in a chronological order. For the sake of clear
and easy understanding, the study has been presented in four sections. This section
highlight the study related to Capital Market, Secondary Market, Equity Market and
Behavioural pattern of Individual Investors towards investment and Stock Broker &
Stock Broking. It is presented in the following sub-headings.

2.2 Capital Market

2.3 Secondary Market
2.4 Equity Market
2.5 Investors Behaviour towards investment and Stock Broker
2.5.1 Factor Influencing Decision making
2.5.2 Awareness
2.5.3 Service Satisfaction
2.5.4 Risk & Return
2.5.5 Stock Broker
a. Working of Stock Broking Industry
b. Role of Stock Broker
c. Broker’s Recommendation/Advice

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Chart No. 2.1 Model of Review of Literature

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2.2 Capital Market

Bhole (1995)1 stated that various categories of people in India have become
preoccupied, rather obsessed with, the industrial securities market since the middle
of 1980’s, particularly since the launching of the New Economic Policy (NEP) in the
middle of 1991. The stock market has been regarded and projected as the barometer
of the heal -1 of the economy. The necessity of the growth of equity culture is being
constantly stressed. Through the stock market activity has been subject to wide
fluctuations, the long term trend has been one steep increase. An accelerating or
exponential increase in new issues has occurred during the 80’s and 90’s. Michael
Sammanasuan (2010)2 examined the overall experience of investors in the capital
market investment in Trichy, Tamil Nadu. Investors having long years of market
experience have a better level of diversification than those having a short period of
market experience. Majority of investors having varying periods of market
experience except those having experience between 6 and 10 years mostly prefer to
invest through the secondary market. Shivakumar Deene and Satyanarayan Pathi
(2013)3 examined about various sources of investment information, awareness
towards capital market and assessed the factors influencing investment Knowledge.
The study revealed that there is a need of awareness towards capital market and it is
very important attract many small investors to the stock market.

2.3 Secondary Market

Stock exchanges are the important ingredients of the secondary market.

Rohatji (1973)4 mentioned that the basic function of the stock market is to provide
ready marketability or liquidity to holding securities. The ideal stock market is one
that can provide instantaneous and unlimited liquidity. Blume and Friend (1978)5
examined the pros and cons of numerous proposals for improving the securities
market. The result of the study was Individual investors’ transaction has always
been considered as an essential factor for liquidity and efficiency of the market and
no one group of investor has an monopoly in security investment. This attracted the
large number of medium and lower class individual. Another researcher studies the
stock exchange before and after independence in India. The researcher also mentions
that a large number of individual investors are investing their large part of savings in

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secondary market. This was mentioned by Panda (1980)6 in his study about the role
of stock exchanges.

Various studies were conducted on stock market regulation. Few studies are
1. Francis (1991)7 studied about SEBI – The Need of the Hour, 2. Barua (1993)8
studied about SEBI’s Regulation, priorities: Need for Change and 3. Dhillon (1993)9
did a research on Market Regulation and stock market activity. The study showed
there should be changes in settlement return, trading volume, open position and
price volatility. Nidhi Walia (2004)10 examined the present status of stock
exchange’s on-line trading in India. The study highlights that with IT based
economy, internet is used as an effective tool in catalysing the business activities.

Som Sankar Sen Et. Al. (2007)11 analysed liquidity of stock market and
exchange rate. Taking monthly data on both BSE and NSE, the study reveals the
positive relationship between exchange rate and stock market liquidity in
concurrent, lagged and lead forms. Nupur Gupta and Vijay Agarwal (2013)12
examined the investment pattern of households in India's two largest metros-
Mumbai and Delhi. It was found that Stock market investment was the third most
preferred form of investment in Mumbai and the result of the study was stock
market investments were preferred by middle age group households. Mariammal
(2014)13 examined the factors that influence the acceptance and usage behaviour of
online share investors and the factors that affect the attitude of the share investors
towards the adoption of online share trading in Tirunelveli District. The researcher
states that around fifty per cent of the respondents use the internet for e-payment
facilities. This is a very positive development for the stock broking firms who intend
to offer stock trading via the internet, as most of the share brokers are in the trading
business to supplement their income and to some extent for amusement and
knowledge.

2.4 Equity Market

Equity market deals with share (stock). Gupta (1987)14 examined the
distribution of Equity as per the geographical areas and bond ownership in India.
The spotlight of the study is on equity shareholders. It covers individual holder of

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industrial securities. This study has confirmed that semi urban and rural areas
constituted a negligible proportion of the share- holding population of India. So far,
the equity share holding has remained by and large an urban or rather a metropolitan
phenomenon in India. The researcher mentioned, there is a lack of infrastructure
facilities for share transaction in the rural areas. Radha (1995)15 conducted a study
on corporate security investors’ investment plan in Tamil Nadu. The study
mentioned that the most important objective of investment in share market is capital
appreciation. The respondents of the study did not know much about the equity
market and they relied more on the information which is published in journals and
magazines.

Sasidharan (2010)16 examined the corporate equity culture among the people
of Kerala with regards to age, education, occupation and level of satisfaction of the
investors in corporate equity investment. The study shows that the factors
considered at the time of making investment are risk factor, capital appreciation and
liquidity. Sumathi (2011)17 examined the investment psychology of Indian women
investors. The findings of the study is, most of the Indian women are investing in the
companies where she herself or any member of family is working or public sector’s
share. Most of them don’t have sufficient knowledge to understand the equity
markets. Another reason is that the other family members did not encourage them to
invest in equity. Still they were interested to investing in equity oriented securities.
Another study was done by Srividhya (2012)18 to find out the various investment
preferences and investors perception on risk and return and evaluate investor level of
satisfaction and their futuristic perceptions towards retail equity market investment.
Her findings were the most preferred investments and are well established and the
investors strongly agree that the investment in capital market alone gives more
returns with minimum risk. The knowledge and awareness about retail investment
helps investors to take has enabled the investors meaningful investment decisions.

Venkata Ramana Murthy (2013)19 conducted a study to examine the

women’s investment practices towards equity stock. The study shows that compared
to other categories of investors, many young age group working women have

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invested money in direct equity oriented securities, around 48% through mutual fund
and some of them through insurance linked products.

2.5 Investors’ Behaviour towards investment and stock brokers

Behavioural Factor has remained one of the most fascinating fields for
research in finance. It has enticed many researchers to engage in research and as a
result, the various dimensions of behavioural finance have been investigated.
Behavioural finance studies the motives, attitudes, preferences, perception and
expectations of investors. Studies so far conducted have broadly covered these
aspects.

2.5.1 Factor Influencing Decision Making

Helm and Sabrina (2007)20 revealed a diversity of loyalty effects of

corporate reputation as it dealt with the findings that was conducted among German
investors of a publicly traded company and revealed the detrimental effect of choice
and the impact of reputation on individual investor. The study suggested that the
initial investment decision was determined by the corporates reputation, which led to
detrimental stock choices. Gyu-Yeol Et.Al (2009)21 in a promising investment area
of GUMI in South Korea found the investment behaviourial factors of investors. The
study showed profitability, investment stability, investment locations, investment
regulations and investment well beings were the behaviourial factors. The study
found that the accounting information, liquidity, profitability and well-being,
location is the most important factor. The behaviour of the individual investor is
influenced by the empirical factors and the same has varying degree of effects on the
investors of Greeks Stock Exchange has important influence and financial needs for
personal have least impact in Greek. All these were mentioned in the study done by
Anna Et, Al (2004)22.

In 200623, Hussein and Tamimi examined the factors influencing behaviour

of investors in UAE. They founded that there are six factors which are the most
influencing ones on the investor. The study also shows few factors like family
member opinion, expected loss in international financial market and the gut feeling
about economy were found to be the least influencing factors. Petter (1970)24

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conducted a study to identify the factors which motivate or guide the investment
decisions of the common stock investors in India. They are, income from dividends,
rapid growth, purposeful investment as a protective outlet of savings and
professional investment management. Gupta (1991)25 examined about, Indian
investors, their investment habits and preferences. The study showed that 75% of
the share owners are long term investors, many youngsters have entered into the
share market, 6.5% of the Indian household have invested in shares.

Lal Jawahar (1992)26 made an attempt to study the Indian investors’

understanding level of various financial and accounting information published by
companies and the extent to which they were using this for investment decision.
Near to 50% of the respondents revealed that they understood the financial and
accounting information/data which was published by the company but, it was found
immaterial for investment decision making. The researcher also mentioned in his
findings that the information provided by the company normally is not according to
the need of investors, and is not what they exactly want for investment decision.
Bandgar (2006)27 examined about, middle class investor’s preference for financial
instruments in Greater Bombay (Mumbai). His study focused on existing pattern of
financial instruments and the performance of middle class investors, their behavior
and problems. The study shows the middle-class investors were highly educated
and but the same time middle class investors were lacking skill and knowledge to
invest and take investment related decision.

Alleyne and Broome (2010)28 stated that the theory of planned behaviour is a
significant predictor of investment intentions. The findings further show that
attitudes and reference groups (peers, family and others) and beliefs about the
obvious and present obstacles and also the advantages and opportunities help the
student decide on his intentions to invest. Ebenezer Bennet Et. Al. (2011)29 studied
various factors that influence the retail investors’ attitude towards investing in equity
stock market in Tamil Nadu. The study identified following highly influential
factors, are Investors’ tolerance for risk, strength of the Indian economy, media
focus on the stock market, political stability and finally government policy towards
business. It identified the lowest priority factor, and they were given information

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about four factors and were given lowest Stories of successful investors, get rich
quick philosophy, information available on internet, cost cutting by companies.

Jain and Mandot (2012)30 stated that demographic factors influence the
investment decision of the investors. The investors have different attitudes towards
decision making, some are risk seekers and some are risk averse. People with
different ages, income level, knowledge, gender, marital status and occupation
makes different decisions related to investment. Sultan and Pardhasaradhi (2012)31
studied about the various factors which influence the individual equity investors at
the time of selecting stock for investing in the Indian market. The findings of the
study shows stock marketability, past performance of the stock, recent price
fluctuation, wealth maximization, risk minimization, social responsibility and
expert recommendation are most influencing factor for investment. Family
members, friends & family, and co-workers opinion are considered as least
important for investment.

Amit B. and Prashanth (2014)32 mentioned that empirical evidences

supporting the theory of excessive trading which argue that high overconfidence
behavior will lead to the tendency of investors to take aggressive and excessive
trading strategy. They recommended practical suggestions as implication of the
results that investment companies need to provide insight and training to the
investors, brokers and investment managers about investment mistakes that can
occur because of overconfident behavior. Ajay Kejriwal (2016)33 observed that
equity shareholding has witnessed strong shifts in errand of large institutional
investors like Mutual Fund and insurance companies. The study also mentioned that
equity is a solid asset of wealth formation and domestic institutions have understood
the same.

2.5.2 Awareness

Pierre Sindambiwe (2014)34 conducted a study with reference to Rwandan

Stock Exchange , to investigate how stock market awareness of leaders of selected
organizations affects their level of participation capital market and the extent of
stock market awareness of stock market functioning. The study shows that the extent

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of directors’ awareness towards the functioning of the stock market is of moderate
level and respondent’s awareness is high towards financial literacy regarding
calculation of rate of interest, exchange rate calculation, business diversification and
portfolio management. SEBI AND NCEAR (2000)35 conducted a Survey to estimate
the number of households and their attitude towards equity and other savings
instruments in India. The study mentioned that our house hold investors lack in
awareness towards stock Market. Few major findings of the study are Bank deposits
have an appeal across all income class, 43% of the non-investor household
equivalent to around 60 million households (estimated) apparently lack awareness
about stock markets and compared with low income groups. Kannadharan (2006)36
examined the factors that influence the retail investors' decision in investing in
capital market. The study shows that all the retail investors are aware of at least
one investment type in capital market, almost 90% of the investors are not aware
about the measure taken by the Government to protect and the income level of the
retail investors is playing a highly dominating role to decide his/her investment
behaviour and investment strategy.

Maruthu Pandian and Benjamin Christopher (2007)37examined equity

investors awareness of towards the stock market. The study also includes stock
market literacy of investors towards company listed, stock exchanges and regulatory
bodies of stock market. The study revealed that the awareness is high and
significant in case of young male investors, post-graduates, businessmen, investors
reading more number of magazines and viewing investment related programmes on
television and the internet, members of the investor forum. Mittal and Gupta
(2008)38 studied about investor’s awareness towards mutual fund and factors
affecting the investment decision to invest in mutual funds. The study revealed that
more than 80 per cent of the investors were aware of the different products of
mutual funds and risks associated with it. Further, most of the investors were
satisfied with the services provided by the mutual funds. Shobana and Jayalakshmi
(2009)39 examined the investors’ preference, level of investor’s awareness and the
factors influencing the decision of the investor in Salem District. The study found
that real estate, bank deposits and jewellery were the preferred investments.
Investors above 50 years of age, post graduates and professionals had high level of

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awareness. In their study also mentioned that Age and education do not have any
significant influence over investor awareness but occupational status leads to
difference in the awareness level of people.

Shrikrishna and Rakesh (2014)40 observed the level of awareness and

perception of retail investors towards future and options in Mysore City. The study
revealed that majority of the retail investors are partly aware of equity futures and
options and the retail investors invest their funds not for single objective but for
multiple objectives. Kavitha (2015)41 examined the investor’s attitudes and
perceptions towards stock market investments and how investors’ level of awareness
influences their intention to invest in the stock market. The study made several
recommendations to increase investor awareness and the regulatory authorities
should improve on their performance in order to increase the confidence of the local
investor. Kruti K. Mehta (2013)42 had done a research on investor’s general and
legal awareness for on line trading in Gujarat. Few findings of the study are some
investors get the information from personal contacts, few from news published by
Commerce chambers, associations of Industry, etc., 10% from legal advisors, some
from online portal, websites and rest from brokerage firms. Awarness about SEBI
rules and grievance provisions are low.

2.5.3 Service Satisfaction

Mamunur Rashid and Ainun Nishat (2009)43 examined the retail investor’s
satisfaction on the working pattern of the market in Bangladesh. They mentioned
that satisfied investors are the most important factor of the stock market for a
developing country. The study suggested that the need for appropriate regulation,
disclosure requirements to be sure about the supply of quality information, education
to investor and Technology based trading in brokerage firm for the satisfaction of
investor. Bhagawati P. and Subhas M.S (1991)44 examined the problems faced by
the investors in Hubly and Dharwar districts. Their study mentioned that satisfaction
has been shown to be a significant predictor of brand choice and purchase intentions.
A very less percentage of investors were not satisfied with the content of the
published information. In another research, the study mentioned that customer
satisfaction can change over a period of time. Prabhakara Reddy (2010)45 examined

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about investors’ attitude towards mutual funds and the satisfaction level of
investors who invested in public and private sector mutual funds. Level of
satisfaction of investors with the services and returns provided by the public and
private sector mutual funds is not influenced by any one of the socio economic
factors. All the investors irrespective of their socio economic background have
satisfied almost equally with the services and returns of public and private sector
mutual funds. However, investor’s satisfaction with the services of private sector
mutual funds is higher than public sector.

John Sasi Kumar (2012)46 examined the satisfaction of the investors by the
services provided by the share broker and the services received by the investors. The
researcher has done SWOT analysis of share brokers because this will help the share
broker to improve the services. The researcher has also identified the gap’s in the
service between the stock market investors and the share brokers in Coimbatore city.
According to the study, the share brokers provide number of services, the most
common amongst them is execution-only and another important service is advisory.
The results show that the strength of stock brokers is providing quality services and
the most important factor is charging reasonable brokerage and providing
transparency in transactions. It also found that the investors are not happy with one
share brokers and that is why they are having account with more than one share
broker. It is also found that the investors are service specialization specific and they
look for various services and expertise in various broker, and the main reason for
having multiple brokers is their specialisation.

Sarabjit S S. (2012)47 conducted a study to identify the service quality gaps

in the stock broking firms, and find out the reasons for the long term relationship of
the consumers associated with the stock broking firms. The findings of the study
shows that there are different types of reasons for association with a particular Stock
Broking Firms like less brokerage, favourable trading tips, faith, personalised
attention, brand value and 24x7 access. Respondents give maximum weightage to
individual and personalised attention. A big proportion of the respondents are at
times satisfied with their Stock Broking Firm. The study shows that there is a gap
between investor’s expectation and perception regarding safety of transaction with

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the stock broker. Mani (2014)48 examined investment information seeking behaviour
of equity investors, investment behaviour and problems faced by them and factors
associated with the level of awareness in Erode District of Tamil Nadu. Investors
who mainly depend on the secondary market rely on brokers for buying and selling
shares. 27% of them are not satisfied with the consultancy services offered by
brokers. With regard to execution of orders, 92% investors are satisfied with the
performance of brokers.

2.5.4 Risk and Return

Randolph Western Feed (1969)49 examined the individual financial

investment decision. The study showed the relationship between amateur and non-
investors and examined individual risk performance and its importance in
determining and explaining investment management and performance. The results
showed that there was a significant difference between the types of investors with
respect to risk performance. Certain personality and cognitive judgement factor were
associated with choice rationality, perceived risk and risk preference. Donald E
Fischer and Ronald J. Jordan (1994)50 analysed the relation between risk, investor
preferences and investor behaviour. The risk return measures on portfolios
determine the main factor of an investor's attitude towards risks. Most investors
expect additional returns for additional risks taken. The conservative investor
requires large increase in return for making small increases in the level of risk. The
aggressive investor will be ready to take high risk even for a small increase in return.

Madhumathi (1998)51 studied about the Individual investors risk perception

and the impact on the investment decisions taken by them and examined the risk
perception of the individual investors in India. The finding of the study showed that
the most of the investors were risk bearers and considered the company’s
performance as main factor to invest in the company. These groups of respondents
also sought the advice of share brokers and experts in the field. The market
conditions, industrial position and the social changes were the factors considered by
the risk seekers to take investment decision, and they trusted the newspapers and the
company’s reports for their information. The risk avoiders relied on the advice of
their friends and relatives and did not have any specific strategy.

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 Kabra Mishra and Dash (2010)52 analysed that, people living in the same
society and having same income level different in their investment pattern. The
research indicated the factors influencing the decisions in India and used two factors
i.e age and gender. They admitted that various factors affect the investor’s behaviour
towards investment. The level of risk taken by the respondents, of different age
group differs and in addition to the age group, their gender also contributes to the
level of risk tolerance in decision making of investments. Venkata Durga Rao
(2014)53 examined the investors' perception towards risk-return of investment and
the post investment satisfaction of the small equity investors in Indian capital
market. The area chosen for the study was Guntur and Krishna. 50% of the
investors are interested to operate in secondary market because they can make their
own portfolio with the help of stock brokers and there is a chance to reduce the risk
based on the fundamentals and stock market conditions prevailing in the stock
exchanges. The study suggested authorities should implement more training and
awareness programmes for the investors.

2.5.5 Stock Brokers

The previous study about stock broker is reviewed with the angle of working
of stock broking industry, Role of stock broker, broker recommendation/Advice.
The reviews are as follows,

a) Working of Stock Broking Industry

Suresh Prabhu (1995)54 pointed out the following points in a seminar

organized by Cochin Stock Exchange on the theme, Stock-broking in the changed
environment, for a stock broker to gain a foothold in the industry, In order to
become successful in the shares broking business, the changing environment looks
for professional standards, functional strength backed by corporate right, ethical
behavior and a comprehensive and total approach to business from the part of stock
brokers. The researcher also states that with corporatiotisation of membership, the
members shall provide multiple services and facilities to their clients and the
brokerage charges should be nearly equivalent to the cost. Sivakumar (1996)55
mentioned that stock-broking industry is at the crossroads, with the decreasing value

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of stock exchange membership cards and the rapidly declining brokerage levels and
jobbing spreads. He feels that the broking community, barring exceptions, is also not
equipped to handle the rapid changes in the environment. With the setting up of the
National Stock Exchange, usage of information technology will play a good role in
stock market trading. The study concludes that the broking community shall
recognize the changes and work towards consolidating the changes and work
towards consolidation and positioning in such a way so as to be able to take
advantages of opportunities that lie ahead.

Mayya M (1996)56 warns the stock brokers by stating that the business in the
stock market is shrinking with small investor having virtually deserted the market.
The disenchantment of retail investors towards equity investment has badly affected
the stock broking community’s existence and survival in the market. Santi Swarup
and Amika Verma (1998)57 examined the effect of reforms in stock exchange for the
development of capital market and intermediaries Perception. The researchers
examined the important Stock Exchange reforms and their impact on capital market
developments from the view of the intermediaries. The perception of 30 brokers
from Delhi Stock Exchange relating to the major reforms that have taken place in
the operation of Stock Exchanges like changes in forward trading, introduction of
depositories, reduction in settlement period, changes in capital adequacy norms and
the segregation of transitions were obtained through questionnaire. The study
suggested to brokers that the investors need to be educated about scrip less trading
and the brokers should be qualified enough to deal with the clients effectively.
Gupta L.C. (1999)58 examined the problems associated with the Indian capital
market. It stated that the majority of the respondents were not satisfied with the
company management and about 64% were of the same opinion about the statutory
auditors. A majority of the investors did not have much confidence even with the
regulatory agencies and large number of respondents had complaints against
companies rather than stock brokers.

Vijay P (2000)59 examined the impact of internet based trading on stock

brokers. The study revealed that the losers are really going to be stock brokers and
information providers. Now, when internet based trading gets fully under way a

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stock broker may get totally disinter mediated. The same might be the case with data
base companies, which ask us to pay for information. Parul Monga (2000)60 reports
that the Securities Exchange Board of India committee set up for uniform rules and
byelaws has recommended the need for minimum educational qualification for a
person to be eligible to become a member of a stock exchange. In the opinion of the
committee he/she should be a graduate from a recognized university from any
discipline or such higher qualification as prescribed by the governing board of the
stock exchange. The committee also recommended that if a broker failed to trade for
a minimum period of 50 trading days in a financial year, firm shall be deemed to be
an inactive member. If he fails to activate his membership card in two years, the
firm renders himself liable for termination of his membership rights and the
governing board of the exchange may extinguish the membership rights of such a
member.

Satish (2000)61 stated that the internet has revolutionized the brokerage
industry. On line brokerage has grown substantially over the last six months. The
study further states that with the emergence of e- broking, which offer many benefits
like, level field to all investors, comfort of the house, simplicity, low brokerage
charges and value added services, it could be possible for some of the off line trade
to shift to on line trade. Sanjay Kular (2000)62 reported that brokerage firms are
facing more competition, which is increasingly, coupled with a sharp fall in
brokerage rates, and is giving the Indian stock broking industry a tough time. The
founded that Stock brokers who offer clients the best advisory services, backed by
strong research products and helped them make gains will be positioned to charge
higher rates. Peter (2001)63 evaluated the accounting methods and practices adopted
by stockbrokers in Kerala and e-threats and challenges confronted by the
stockbrokers. The study also evaluated the effect of SEBI regulations on stock-
broking in Kerala. Most of the brokers who have primary market operations
examine primary issues of stocks on behalf of their clients/investors. Around 50% of
them succeed in getting client acceptance of their evaluation. Most of the brokers
fully comply with the code of conduct prescribed by SEBI. Brokers of Kerala lack
professional attitude and approach when they deal with investor and other agencies.

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 Jayanta Kumar Seal (2007)64 in the BSE, the explore equity trading was
basically a floor based activity and the stock broking was done through stock
brokers, through telephones or personally. The competition increased in the last few
decades due to the increase in the number of people trading in shares and the stock
brokers. Due to the change in scenario, the existing players are faced with a situation
wherein either they have to change their product offering or perish. Jennifer and
Lynn Hanson (2009)65 examined the internet stock brokers and how they provides
cheap on line stock investing. It was found that Stock trading can be done through
internet via websites provided by stock brokers. With the internet being made easily
accessible to the stock trader and also the common man, a smooth online trading has
been created with the effective guidance provided by the brokerage agency. The
study also mentioned that on line trading system has gradually eliminated the
traditional method of brokerage system. Anurag Bansal (2015)66 mentioned that the
customer has been empowered by the broking industry along with the regulators and
exchanges through the numerous initiatives by them. Some of the initiatives are
introducing new type of investment mode, educating the investors, creating
awareness among the investors, utilization of technology and market participation.
The study showed that these initiatives will motivate the investors to invest in stock
market.

Now a day, mobile trading app is attracting the stock market investors. It
leads to increase in growth of trade volume. With the advent of the internet and the
requirement for a change in the present scenario, and the penetration of internet and
participation through mobile smart phones over the years assisted stock broking
industry to increase their level of business. This was mentioned in an article of Form
Views (2015)67. Sanket Dhanorkar (2016)68 mentioned in his article that the stock
market is seeing a very drastic change in its basic functioning with the investor
being spoilt for choices in selecting service providers in the stockbroking space
which has multiplied with the mushrooming of discount brokers who do not offer
any additions or incentives to the basic accounts held by the investor. The investor
gets the basic trading facility at a fraction of the cost of 'full-service' brokerages,
which apart from helping the investor to buy and sell shares, includes additional
features like research reports, favourable advice and a personal manager who will

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take care of all the needs of the investor. However, many of the regular traders often
find the brokerage charged by traditional broker is too high and is eating up their
profits. Discount brokers thus help you save off up to 90% of brokerage costs
incurred with full-service brokers. For a newbie investor, a traditional broker may
work better. The first time investors may benefit from the added attention but they
must be careful so as to not fully depend on the trading tips provided by the
traditional broker. Rekha Shah (2016)69 in her articles dealt with various penalties
and debarment applicable to stock broker in their business transaction if they have
not followed SEBI compliance and Surveillance. It also mentioned that brokers need
to ensure cross checking of fund transfer accounts and internal accounts and balance
checking of funds and stock settlement related to the unregistered intermediary
activities. Out of the total Order issued by SEBI’s between February 2015 to January
2016, majority of the orders were issued regarding broker regulation i.e. 35.09%

b) Role of Stock Brokers

Nissim Ben David (2008)70 evaluate the indicator for internalization of

analyst’s recommendations by investors in Israeli stock market. The high light of the
study is that it was the first time an index towards analyst’s recommendations with
reference to evaluating investor’s reactions in various stock markets has been
proposed. Since it can improve investment strategies which is followed by the
publication of an analyst’s recommendation, the information is very valuable.
Brennan (1998)71 examined several phenomenon that arose from the limited
information possessed by individual investors. The source through which the
investors received information about securities was also studied and tried to find the
extent of information disseminated by brokers. The individual investor, who has
limited knowledge of the equity market, has to enter the markets guided by the
unreliable advice of the friends and stock brokers. Tomy Varghese (1999)72
examined on individual investors in the capital market in Kerala on professional
competence, he states that brokers are not well informed. His survey reveals that
53% of investors feel that brokers are not honest and 83 per cent have experienced
delay in payments. However, the majority of the investors, around 74 per cent
considered the brokers are helpful.

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 Chris Robertson (2006)73 analysed how a new investor is benefitted by using
a stock broker and and the various opportunities it has in the present scenario. For
the new investor, online stock trading creates a worldwide investment opportunity,
and the same can be understood by the investor with the help of the stock broker
who will help him take the right decision regarding his investment and assist him in
managing the investments. Hence, for a new investor the stock broker can be the
means to solve all the problems related to the stock market. Victor (2011)74
examined the Brokers Role in Investing. The study mentioned that the stock broker
behaves as an agent and provides various services to the investor. A broker acts as
an agent to the buyer and also the seller of the stocks and tries to make the best
investment for the client on a commission basis. The stock broker will buy/sell for
the investor and ensuring that the best price and also provide valuable services and
information to help him make the right investment decision.

Sanjay Kanti Das (2012)75 analysed the attitude of the investors towards
investment on mutual funds in Nagaon district of Assam. As per the study, the
investor’s perception about financial advisors/brokers reveals that, majority of
respondent’s perceived financial advisors and brokers are more interested in their
own incentives. Some investors who believes that financial advisors/brokers and
have limited knowledge (17.84%) about different mutual fund schemes. Thus it is
very much clear from this study that the financial advisors and brokers are least
bothered about the interest of the investors. Seetha R V and Sriram (2015)76analysed
how effective is the role of investment advisors in instruments selection and also to
study the drift in saving and investment patterns and also to study the modern means
of saving and investment options. The study also reveals that 96.2% of the
respondents from Vellore want to deal with equity instruments and wished that the
commission percentage should be less than 0.50% and this indicates that the
brokerage firms need to work on the percentage of commission charged.

c) Broker’s Recommendation/Advice

Lewellen Et, Al. (1982)77 examined the portfolio decision processes of

individual equity investors in U.S. The results of which indicated that age had a
strong influence of the portfolio goals of the investors. Age and risk taking

60
 properties were inversely related and the women investors were found to be broker
reliant unlike men. Groth John Et, Al (1984)78 made an attempt to probe into the
capabilities of those entities that purvey investment recommendations to
individuals who opt to participate directly in the market by managing their own
portfolio. They have pointed out that brokerage house recommendations to its
individual customers during 1960s suggested that they were genuinely valuable.

Hall and John (2002)79 has evaluated the Brokers Buy, Hold and Sell
Recommendations. The result of the study is, investors, who invested in the
Johannesburg Securities Exchange (JSE) based on their brokers’ advice, were able
to get risk adjusted returns superior or equal to the market. Aregbeyen and
Mbadiugha (2011)80 examined the factors influences investment decisions in
Nigerian. The ten most influencing variables based on the ranking of the investor,
because of which they are attracted towards the stock market are motivation by
people who have attained earned a lot of money and secured their future because of
the share investments, recommendations by the trust worthy and doyens in the field
of stock broking, the company’s team management, knowledge about the advantages
of investing in the stock market, having knowledge of company’s internal factors
and predictions by the experts in the field regarding the future pricing of the shares.
Taqadus Bashir Et.Al., (2013)81 analysed different factors that influence the
individual’s investing investment behaviour and effect of advocate recommendation
on investor behavior. The found that the most influencing items to the investor is
the self-image or the firm’s image and the accounts information like the dividend
paid by the company, the reputation of the firm in the market, investor feelings for a
firm’s products and services and the firm's involvement in solving community
problems, and firm’s status in industry. Nagy and Obenberger (1994)82 analysed the
factors influencing an investor’s behavior. The study mentioned suggestions of
broking firm, individual (proprietorship) stockbroker, members of family and
colleagues are largely neglected. Many individual investors discount the benefits of
valuation models when evaluating stocks.

Lewellen, Lease and Schlarbaum (1997)83study showed that male investors

spend more time on analysis and spend more money on security analysis. The male

61
investor does not rely on their brokers, conducts more transaction and believes that
returns are more highly predictable, and anticipate higher possible returns as
compared to the women investors. Busse and Green (2001)84 analyzed that morning
call and mid-day call segment on CNBC TV provide a unique opportunity to shed
light on the efficient market hypothesis. The broker advises the client on what shares
need to be bought and which need to be sold, but the final decision is that of the
investor is called advisory dealing. In a different type of dealing, wherein the stock
broker ascertains the clients investment objectives and then makes all the dealing
decisions on the behalf of the client is called Discretionary dealing.

Krishnan and Booker (2002)85 examined the factors that influence the
investor’s decision who generally depend on the analysts’ recommendations to
arrive at a short-term decision to hold or to sell a stock. Ravinder Kumar and Nidhi
Walia (2007)86 found Indian investors are very orthodox and do not accept any
change at the first instance. Till date only a handful of investors can be identified as
using information technology for on line stock trading to invest in stock market.
Traditional traders or investors still want stock broker to conduct their trade and they
favour and trust their broker. Online trading gives the educated investors and
opportunity to make their own decisions with a close watch on market sensitivity by
browsing through various sites. Bennet Et. Al. (2011)87 analysed the needs of
investors on the stock selection decision based on 29 factors. They found that
majority of sample retail investors in Tamil Nadu considered that return on equity,
quality of life, return on investment, profit-earnings ratio influence the decision
makers. The retail investors gave the lowest priority to factors such as analyst
recommendation, broker and research report, recommendations by friends, family
and peer groups, geographical location and social responsibility.

62
 Summary of the Selected Reviews
Table No 2.1 Summary of the Selected Reviews

Area of Focus of Author & Findings

the Research Year
Secondary Somsankarsen Positive relationship between exchange rate
Market et.el. and stock market liquidity in concurrent,
2007 lagged and lead forms.
Equity Market Srividhya The investors strongly agree that the
2012 investment in capital market alone gives more
returns with minimum market risk.
Factor Gyu-Yeol et.al Profitability, investment stability, investment
influencing 2009 locations, regulations and investment well
Decision Making beings were the behaviourial factors.
Factor Bandgar The middle-class investors were highly
influencing 2006 educated and but the same time middle class
Decision Making investors were lacking skill and knowledge to
invest and take investment related decision.
Awareness SEBI-NCEAR The study mentioned that our house hold
towards stock 2000 investors are lack in awareness towards stock
market Market.
Influence of level Kavitha One of the suggestion is the regulatory
of awareness 2015 authorities should improve on their
performance in order to increase the
confidence of the local investor.
General and legal Kruti K. Mehta Awareness of investors towards SEBI and
awareness for on 2013 function of SEBI is low. More than sixty per
line trading cent of the investors are not aware about
grievances related to clearing and Settlement
of Organizations/ Depositories.
Satisfaction level Mamunur The study suggests the importance of
of retail investors Rashid and Md. effective regulation, disclosure requirements
Ainun Nishat to ensure a supply of quality information,

63
 2009 investor education and technology driven
trading in brokerage houses for overall
investor satisfaction.
Stock Broker John Sasi Studied the service gap between the investors
Services Kumar 2012 and the share brokers in Coimbatore city.
Stock broker adopted some strategies to retain
their clients with them like safe & secured
transaction and providing information on
time.
Service quality Sarabjit Singh Some investors are satisfied with the services
Gaps Shergill provided by the Stock Broker. Customers do
2012 not feel safe in transactions with the stock
broking firm and this creates the gap between
the expectations and perceptions regarding the
feeling of safety in transaction.
Risk Perception Madhumathi The risk seekers generally took decisions
of Individual 1998 based on market conditions, industrial
Investors position and social changes. They depend on
newspaper, publication and reports of
company for information.
perception Venkata Durga Most of the sample investors are interested to
towards risk- Rao operate in secondary market because they can
return 2014 make their own portfolio with the help of
stock brokers and there is a chance to reduce
the risk.
Practices adopted Peter Majority of the brokers succeed in getting
by stockbrokers 2001 client acceptance of their evaluation. Most of
the brokers fully comply with the code of
conduct prescribed by SEBI. Stock brokers in
Kerala lag behind in professional approach.
Discount brokers Sanket Discount brokers thus help you shave off up
Dhanorkar 2016 to 90% of brokerage costs incurred with full-
service brokers. For a newbie investor, a

64
 traditional broker may work better.
Stock Broker Tomy Varghese The majority of the investors considered the
performance 1999 brokers are helpful. However, 53 per cent of
investors feel that brokers.
Benefits of using Chris Robertson Internet stock trading provides worldwide
a stock 2006 investment opportunity to investors and Stock
Broker broker helps the small investor to understand
this type of trading system.
Role of Seetharam The study reveals that 96.2% of the
investment Vedantam and respondents from Vellore want to deal with
advisors Sriram 2015 equity instruments and wished that the
commission percentage should be less than
0.50% and this indicates that the brokerage
firms need to work on the percentage of
commission charged.
Choosing Broker Ravinder Traditional traders still prefer to choose
Kumar & Nidhi broker as a stock trading mechanism because
Walia 2007 they are more loyal to their broker.

Research Gap

In the following manner, the present study is maintaining its uniqueness

from other related studies. As per the researcher’s knowledge goes, still, there are
very few research works that deal with the stock broker’s performance and their role
on investment decision. And no study is combining the primary and secondary
information which is high lighting the importance and significance of the stock
broker’s role on investment. The study brings out the numerical evidence which
high lights the co-relation between the growth of stock brokers and the investment
size and value. On the other hand, it also measured the role of stock brokers in
different dimensions of an equity investor’s point of view.

65
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