Author:Saravanan, S.


Indian Stock Market, Mechanism of Pricing and Allocation in India

Indian stock market is one of the markets among the developing countries that attract more investors and has also surprised being resilient to major turmoils which is evident from the recent situational factors that affected global markets a large, but not the same extent in our exchanges. Participation of domestic institutional investors is increasing with the increase in investor's confidence and awareness in our market. Individual investors are becoming more professional in their investment. There is a drastic increase in the number of investors who have opened Demat accounts post 2013 and counting still.

Economic reforms in Indian capital market started in the earlier part of 1990s which was then controlled by CCI Controller of Capital Issues in India. CCI was abolished in the year 1993 and a new regulator Securities Exchange Board of India took over the control of Indian Stock Market. Fixed pricing mechanism was the one widely used during the period with lack of facilities in almost all sector since IT was much developed in India. With the advent of IT, Indian stock market took a shape with introduction of online terminals by NSE which was youngest stock exchange; this welcomed many investors into the stock market. Stock Exchanges started following Book-building method of pricing mechanism and companies are given the choice of either following 100% or 75% Book building methods. In 100% book building methods companies are instructed to provide not less than 25% of total number of shares to retail investors.

Initial Public Offers are widely discussed and researched topic by many of the researchers and experts, Most of them related to the performance of Initial Public Offers with various factors either to measure long term or short term. When it comes to performance it is related to the secondary data available, which were tested with performance as dependent and other factors as independent variables. It is imperative that investor's to behave rational, but decisions are made from the psychological point of view in many situations attributed to awareness level, availability of information etc., Psychological factors have major influence on decision making.

Thaler (2005) Behavioral finance explains interaction between human and his/her motivation towards investment, either partially or completely influenced by psychological factors. Our proposed research is from behavioural point of view, to know the variables and its strength in deciding the investor's interest.

Variables for the Study

Literature concentrating on financial behaviour of retail investors specific to Initial Public Offers is limited in India and using of structural equation modelling is rarest in the case of identifying the determinants in case of Retail Investors Intention based on the various perception parameters about the Initial Public Offers. Since the model will have complex relationship between the variables were identified through Structural Equation Modelling (SEM), instead of Regression analysis or Analysis of Variance. SEM has the ability to select an appropriate model among the competing ones, also with validity and reliability measures to test the variables in study. Five factors were considered based on the emerging literature to identify the pattern of relationship between Information asymmetry, Market and Company Perception, Societal Perception, Representativeness and Familiarity, Intention.


Park & Gunther (2007) Receiver's perception is affected by information given behavior by attitude change which in turn finally changes the behaviour of receiver. Abdallah & Hilu (2015) their exist a direct relationship between risk attitude and market perception. Lee (2009) Attitude is the more relevant variable to explain intention. Gopi & Ramayah (2007) all investment activities of individual investors are guided by their attitude. Michael (2011) Individual investors are favourable towards investments in which they are highly motivated and less favourable towards the one that are less motivating. Attitude has evaluative effect on individual feelings towards behavior. Lo & Repin (2001) has studied the psychological characteristics of professional securities traders while they are engaged in live trading. They reported a significant correlation between market events and physiological characteristics. Lawrence (2013) higher quality disclosure of financial part influence investors to take more risk by investing more. Investor's access to information can influence their perception towards behaviour. Cuong & Jian (2014) Attitude of a person is related to confidence in the issue, familiarity in the issue. Investor Behaviour in any investment decision is seen as a factor of attitude of individual, influence of social norms, information an individual has about the investment and influence of other control variables like market.

Theoretical Underpinnings

Theory of planned behavior considers behavioural intention as an immediate antecedent before the future behaviour. Many researches claim that the intention paves the ways for behavioural performance and increase the chance of behaviour being conducted. In case of stock market investment behavioural intention motivates individual investor's to make a specific investing decision. Following model was used to determine individual investor behavior by Cuong & Jian (2014) which is a modified Ajzen model of TPB. Since information is the key in making decisions the variable was included in the research to find its relationship and certain variables were either included or excluded to fit according to the investor base for initial public offers.

Gaps in Literature

  1. Most of the studies available are done with the market data available from the technical point of view related to their performance. Performance is assessed either in short or long run based on the return the IPOs provided in the period considered. Our research is aimed at behavioural view not technical.

  2. From the behavioral point of view reviews available were huge enough to know about the factors but not the specific items that constitute the factors since most of the reviews were either related to secondary market investment or in the non-financial areas.

  3. Most of the research were conducted in developed countries which has opened a arena of discussing from Indian perspective since the penetration level of investment in riskier asset class like shares is lower, of which primary market investment has even lower awareness and penetration.

    Objective of the Study

  4. To describe the determinants involved in shaping the intentions from behavioral perspective.

  5. To develop, validate a structural model with the determinants identified and establish a relationship among themselves and with Intentions.

    When it comes to investments there is lot of...

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