Documente Academic
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PROJECT REPORT
ON
Submitted to:-
Submitted by:-
Mr.Pramod UNIYAL
Anil Chamoli
MBA 3rd
Asst. Prof.
OIMT
CERTIFICATE
This is to certify that the project report A study of factors impacting participation of
retail investor in India has been prepared out by Anil Chamoli under supervision and
guidance. The project report is submitted towards the partial fulfillment of 2 years, full
time Masters of Business Administration.
Candidate declaration
I, Anil chamoli, student of MBA 3RD Semester, Omkarananda Institute of Management and
Technology, here by declare that the project report titled A study of factors impacting
participation of retail investor in India is completed & submitted under the valuable guidance
of MR. ALOK PRAKASH faculty of management. It is an original work. The imperial
finding in this report is based on the data collected by me. This project has not been submitted to
Omkarananda Institute of Management and Technology or any other university for the purpose
of compliance of any requirement of any examination or degree.
Director
Asst.Prof.
Dr.Aditya gautam
Pramod Uniyal
OIMT
OIMT
PREFACE
Summer training project is necessary part for fulfillment of M.B.A course. The emphasis in the
project is providing the study and an insight into Indian FMCG Business Scenario.
The summer training project is designed to provide participation of MBA program as on the job
experience. This has given a chance to try and apply the academic knowledge and gain insight
into corporate culture. This helps in developing decision-making abilities and emphasizes on
active participation by the student.
I undertook my project in MOTILAL OSWAL SECURITY LTD. a leading bottler and
marketing partner of the Pepsi Foods. During the training, I had worked on the project A study
of factors impacting participation of retail investor in India
I gained valuable experience & knowledge during the survey. The project consists of my findings
after tabulation of collected data, then analyzed conclusions were drawn and finally suggestions
were put forward.
EXECUTIVE SUMMARY
The increasing trend towards globalization and industrialization has increased the trend of
competition in the financial market, intensified by the coming of Non Banking Financial
Company (NBFC), like motilal oswal Securities, and so has the need for the marketing of
financial instruments has intensified.
NBFCs are financial institutions are ones which provide banking services without meeting the
legal definition of a bank, i.e. one which does not hold a license. They are not allowed to take
deposits from public. Nonetheless all the operations of these institutions are covered under
banking regulations.
This project is completely focused to identify some of the demand drivers, rather factors that
make people invest in such institutions and in this regard what are the various differentiating
factors that provide motilal oswal Securities a competitive edge over other players in the market.
There has been an emphasis on the various businesses and of motilal oswal Securities that make
it standout in this league, rather than being a me too product. In words of Al Ries and Jack
Trout, differentiate or die.
Krishnan and Booker (2002) [8] analyzed the factors influencing the decisions of
investors who basically used analysts recommendations to arrive at short term decision
to hold or to sell a stock
METHODOLOGY
This is a two dimensional project focusing on two aspects, as already mentioned (objectives). For
my project work I have focused on both primary and secondary data as well.
Basically any research work proceeds as:
2.
For this project my challenge was to find out the factors and the scenario of individual
customer. For which I conducted a descriptive research.
I have collected primary data through questionnaire and survey.
For secondary data, company records, some reviews in economic times, data on
moneycontrol site, some online research works have been referred.
I have taken 11 factors in my survey so my population size is of 66. I have targeted only
investors, who were customers, general investors and company employees.
A factor analysis has been run on the data to find the most influential factor.
For rest my own analytical skill is used.
This project has been a great insight for me as I came to know about stock market, demat
accounts, buying and selling of dematerialized securities, who are brokers, how to make
investment and how to track portfolio of investments.
The project is aimed to cover maximum factors affecting the demand drivers and
competitiveness.
Nowadays even the government is taking up steps to find such factors to give a boost to the
Indian financial system.
LIMITATIONS OF STUDY
INDUSTRY OVERVIEW
The Financial Market
The financial industry or financial services industry includes a wide range of companies and
institutions involved with money management, lending, investing, insuring and securities
insurance and trading services. The following institutions are a part of the industry:
Banks
Credit card issuers
Investment companies
Investment bankers
Securities traders
Financial planners
Security exchanges
The major crises that have shaped the modern financial industry are:
Black Monday(1987)
Asian Financial Crisis(1990)
Stock Market Downturn(2002)
Sub-prime Crisis(2007)
On the basis of geographical concentration, Western region has maximum of 52%, around
24% are located in the North, 13% in South, and 10% in the East.
3% of firms started broking operations before 1950, 65% between 1950-1995, and 32%
post 1995.
On the basis of terminals 40% are located in Mumbai, 12% in Delhi, 8% in Ahmadabad,
7% in Kolkata, 4% in Chennai, and 29% in other cities.
From the study it was found that 36% of firms trade in cash, 27% in derivatives, and 20%
in cash, derivatives and commodities.
In the cash market, 34% trade in NSE, 14% in BSE, 45% in both. Whereas in debt
market, 31% trade in NSE, 26% trades in BSE, and 43% in both.
Majority branches are located in North, i.e. 40%, 31% in West, 24% in South, and 5% in
East.
In terms of sub-brokers, around 55% are located in South, 29% in West, 11% in North,
and 4% in East.
Trading, IPOs and Mutual Funds are the top three products offered by 90% of firms
offering trading, 67% IPOs, and 53% offering Mutual Fund transaction.
In terms of various areas of growth, 84% of firms have shown their interest in expanding
their institutional clients, 66% firms intend to increase FIIs, and 34% are interested in
setting up Joint Ventures in India and abroad.
In terms of IT penetration 62% firms provide their website, and 90% have email facility.
Competition
The industry is now in a fairly high growth phase. However the brokerage industry is very
cyclical and is impacted by activity levels in the markets. During the downturns such as 20082009 periods, the smaller players were squeezed out of the business. As a result there is a
contrast consolidation happening in the industry.
A new entrant in addition to the above also needs a reasonable level of capital to fund the
working requirements of the business (finance to customers, deposits with exchanges, etc).
The scale requirements are increasing constantly and as a result a new entrant will require higher
levels of investments in the future to enter the business. As pointed out, it is likely to see many
entrants in the industry. On the contrary, it is likely that the smaller players will exit by selling
out or closing.
Not much relevant in most segments except investment banking, where employees control client
relationships and hence have to be highly compensated.
This is important in the institutional brokerage business which involves high volume and low
brokerage charges. The extent of buyer power is very low to non-existent in all kinds of retail
segments.
Threat of substitutes
The products offered by all firms in this industry are more or less differentiated. Investing rather
saving in the bank rather than investing in a brokerage firm can be one option; else this is not
applicable for this industry.
In a summary the industry has a moderate to low level of competitive advantage. There is low
level of customer lock-in and customer will move his or her business if the brokerage rates are
not competitive with rest of the industry. The only competitive advantage for companies in this
sector comes from size and scale which enables them to leverage their size to reduce average
costs and thus make a profit on low brokerage margins.
In addition to high fixed costs, the industry has very low margin cost. As a result the cost of
adding an additional customer is low and per transaction costs are limited. Due to this reason, we
are seeing a constant pressure on the brokerage rates has intensified the competition in the
industry and is resulting in consolidation with the top players.
The basic brokerage business is now sometimes a loss leader to enable the brokerage firm to
acquire customers and sell other products such as wealth management services, or third party
mutual funds. This segment will provide adequate returns in the future for a company with scale.
Potential yield
Risk Rating
Higher risks assumes higher profits and vice versa. Risk ratings are a vital point when
making a decision to park ones resources into this industry.
Liquidity
To maintain strong and flexible liquidity position people tend to invest in financial markets,
in order to meet their contingencies.
Availability of information
The more disclosure, the more is information symmetry, and so will be visibility and access
to returns and so will be the expectation from this market increase along with investment.
Access to alternatives
More the disclosure in the market more will be the competition with more profits, so more
will be the choices and access to alternatives to park ones resources.
Money supply
The supply of money has a big role to play in this industry, the more the supply of money in
this industry; more will be the availability of financial services and products.
Interest rates
Interest rate determines the terms of trade, fluctuations in interest rates can entirely fluctuate
this industry. Higher interest rate= will give higher returns, with great supply no doubt but
borrowing or ascertaining the real market value may become difficult.
Inflation
Value of a currency appreciates and depreciates with the rates of inflation. Inflation thus
serves as a great supply driver in this market. As in high inflation with higher supply of
money there will be higher supply and vice versa.
Economic conditions
Rates of inflation, the upsurge or downturn in the domestic and global economy is another
supply driver which is beyond the control of any business firm.
Government Regulations
The attitude of the government towards the trade policies and various other financial firms
and industry matters a lot. Various restrictions or duties or taxes may restrict the supply and
may hinder the growth of this industry. And will flourish with the ease of trade.
The global economy is slowly recovering from a deep recession, with significant risks
remaining.
Countries are looking for ways to achieve sustainable economic growth and job creation.
Competitiveness has become more important than ever
-Globalization will continue and strong international competitors are emerging.
-Companies are re-examining everything in terms of how and where they operate.
India has achieved a long-term competitive transformation, but the next stage of
development will be more challenging.
Seeing the overall brokerage as a single unit, the key success factors or the winning strategy of
Indian Brokerage Industry is a mixture of:
People
Process
Technology
There are the three ingredients that together create value for both international and domestic
customers.
By people it indicates to the service providers or the employees of the various firms of this
industry, who day in and day out interact with the customers and provide them services and
satisfy them.
Transparency of the process followed and disclosure method is yet another success factor. The
settlement of transactions is generally done in a process of T+2 days. And the government
support even still plays a very vital role in forming the rules and norms of such processes.
Technology enables to stay competitive and on edge with the competitors; facilitating the ease of
processes and speed and to maintain and be up to date. This serves as a great success of the
brokerage industry.
All these factors together help create value to the customer.
MEASURES
OBJECTIVES
Strengthening of institutional
framework in primary and secondary
markets Demutualization
To ensure transparency.
Investor protection.
Provide a standard framework for operations.
Deregulation.
Reduces the conflict of interest.
PESTEL analysis stands for "Political, Economic, Social, Technological, Environmental and
Legal analysis" and describes a framework of macro-environmental factors used in the
environmental scanning component of strategic management. It is a part of the external analysis
when conducting a strategic analysis or doing market research, and gives an overview of the
different macro environmental factors that the company has to take into consideration. It is a
useful strategic tool for understanding market growth or decline, business position, potential and
direction for operations.
Political factors are how and to what degree a government intervenes in the economy.
Specifically, political factors include areas such as tax policy, labour law, environmental
law, trade restrictions, tariffs, and political stability.
Economic factors include economic growth, interest rates, exchange rates and the
inflation rate. These factors have major impacts on how businesses operate and make
decisions. For example, interest rates affect a firm's cost of capital and therefore to what
extent a business grows and expands.
Social factors include the cultural aspects and include health consciousness, population
growth rate, age distribution, career attitudes and emphasis on safety. Trends in social
factors affect the demand for a company's products and how that company operates.
Legal factors include discrimination law, consumer law, antitrust law, employment law,
and health and safety law. These factors can affect how a company operates, its costs, and
the demand for its products.
The Federal Reserve System is a government institution created to administer nations credit and
monetary policies and to oversee the banking industry as well as certain aspects of the broker
activity, such as credit.
The Fed is responsible for establishing and enforcing monetary policy and for regulating the
amount of credit outstanding. The fed does this by establishing the bank discount rates and the
rules for credit. The markets response to the Feds determination to control inflation by raising
and lowering the discount rate affects long term interest rates, which have a significant impact on
the securities market.
The Securities Exchange Commission (SEC) is the primary regulatory agency that oversees the
securities industry. The SEC is an independent bipartisan, quasi-judicial agency of the
government. The laws administered by SEC deal with securities and finance and seek to provide
protection for investors in their securities transactions.
The Office of the Comptroller of the Currencys (OCC) principal function is supervising the
national banking system. The OCC must approve the establishment of new national banks, bank
mergers involving national banks, and the liquidations of national banks.
COMPANY OVERVIEW
Motilal Oswal Securities Ltd.
Motilal Oswal Securities is a leading research and advisory based stock broking house of India,
with a dominant position in both institutional and retail broking. Asia money Brokers Poll 2005
has ranked us the best Indian brokerage firm. There are various other categories where we have
been rated number one most independent research, sales and service etc by the Brokers Poll.
In March 2006, AQ Research, a firm that analyses the accuracy of a brokers research call,
declared Motilal Oswal Securities the best research house for Indian stocks.
Motilal Oswal Securities has witnessed rapid organic growth due to favorable market conditions
as well as efforts put in by the company itself. FY05 and FY06 saw the company grow
inorganically through acquisition of three significant regional broking firms from Andhra
Pradesh, Karnataka and Kerala. Over a period of time many more regional broking firms may be
acquired to gain solid footing in various regions of India.
The company was founded in 1987 as a small sub-broking unit, with just two people running the
show. Focus on customer-first-attitude, ethical and transparent business practices, respect for
professionalism, research-based value investing and implementation of cutting-edge technology
have enabled us to blossom into an almost two thousand-member team.
Our institutional business unit has relationships with several leading foreign institutional
investors (FIIs) in the US, UK, Hong Kong and Singapore. In a recent media report we were
rated as one of the top-10 brokers in terms of business transacted for FIIs.
Our unique Wealth Creation Study, authored by Mr. Raamdeo Agrawal, Managing Director, is
now in its eleventh year. Investors keenly await this annual study for the wealth of information it
has on how companies created wealth during the preceding five years.
The organization finds its strength in its team of young, talented and confident individuals.
Qualified professionals carry out different functions under the able leadership of its promoters,
Mr.Motilal Oswal and Mr. Raamdeo Agrawal Stringent employee selection process, focus on
continuous training and adoption of best management practices drive the quest to achieving our
Vision.
Motilal Oswal Securities Ltd. was founded in 1987 as a small sub-broking unit, with just
two people running the show. Focus on customer-first-attitude, ethical and transparent business
Wealth Management
Commodity Broking
Institutional Equities
Private Equity
Principal Strategies
We have a diversified client base that includes retail customers (including High Net worth
Individuals), mutual funds, foreign institutional investors, financial institutions and corporate
clients. We are headquartered in Mumbai and as of June 30, 2008, had a network spread over 450
cities and towns comprising 1,496 Business Locations operated by our Business Partners and us.
As at June 30, 2008, we had 486,648 registered customers.
In 2006, the Company placed 9.48% of its equity with two leading private equity investors based
out of the US New Vernon Private Equity Limited and Bessemer Venture Partners.
The company got listed on BSE and NSE on September 9, 2007. The issue which was priced at
Rs.825 per share (face value Rs.5 per share) got a overwhelming response and was subscribed
27.18 times in turbulent market conditions. The issue gave a return of 21% on the date of listing.
As of end of financial year 2008, the group networth was Rs.7 bn and market capitalization as of
March 31, 2008 was Rs.19 bn.
For year ended March 2008, the company showed a strong top line growth of 91% to Rs.7 bn as
compared to Rs.3.68 bn, last year. New businesses like investment banking, asset management
and fund based activities have contributed to this growth.
Rs. Crores
91%
EBIDTA
270
97%
PAT
156
100%
Credit rating agency Crisil has assigned the highest rating of P1+ to the Companys short-term
debt program.
Awards
For his work and contribution to the capital markets, Oswal has received several awards
including
Motilal Oswal Securities won the Best Performing Equity Broker (National) Award at
CNBC TV18 Financial Advisor Awards 2013 held in Mumbai.
Motilal Oswal Financial Services Ltd's Analyst Mr. Jinesh Gandhi won the Best Market
Analyst Award for the categories Equity-Auto at India`s Best Market Analyst Awards
2013 organized by Zee Business.
Motilal Oswal Securities was declared "Best Equity Broker" at Bloomberg UTV
Financial Leadership Awards in April 2012.
Motilal Oswal Securities was awarded with Best Performing National Financial Advisor
Equity Broker Award in 2012, second time in succession.
Motilal Oswal Financial Services was honoured with an award for Best Use in PR in
Financial Services Category at India PR & Corporate Communications Awards 2012.
Motilal Oswal Securities received Best Equity Broking House Award by BSE IPF-D&B
Equity Broking Awards 2011
Motilal Oswal Mutual Fund's MOSt Shares M50 ETF was adjudged Most Innovative
Fund of the Year by CNBC TV18 CRISIL Mutual Fund Award 2011
CNBC TV18 awarded Motilal Oswal the Best Performing Equity Broker Award in 2010
at CNBC TV18 Financial Advisor Awards 2010
Best Capital Markets & Related NBFC Award for FY11 by CNBC TV18 India Best
Banks & Financial Institutions Awards 2011
Motilal Oswal IB team won the Asia Pacific Cross Border Deal of the year award in 2010
and the CEO Ashutosh Maheshvari got India M&A Investment Banker of the Year award
Motilal Oswal Securities Ltd. rated as No.1 Broker in ET Now Starmine Analyst
Awards 2009[10].
Motilal Oswal Securities Ltd. wins the Best Research as Research Showcase Partner at
RESEARCHBYTES IC AWARDS 2014. The winners were selected from a poll of over
1500 Fund Managers/Analysts!.
Motilal Oswal Securities received two awards for its equity research in IT and
commodity (forex) segments at India's Best Market Analyst Awards 2014, India's biggest
Financial Market Awards also called as ZEE Business Awards 2014.
Achievements
Oswal has received the Rashtriya Samman Patra awarded by the Government of India for being
amongst the highest income taxpayers in the country for a period of 5 years from FY95FY99.
Oswal is associated with various social organisations. He is the President of the Jain International
Trade Organisation (JITO) and a Trustee of Agarwal-Oswal Chhatravas of the Rajasthan
Vidyarthi Griha; among others
He has authored two books of quotations on The Essence of Business & Management and The
Essence of Life.
MOSt Vision
Commodity broking
Financing
Depository Services
IPO distribution
We offer these services through our branches, Business Partner locations, the internet and mobile
channels. We also have strategic tie-ups with State Bank of India and IDBI Bank to offer our
online trading platform to its customers.
Commodity Broking
Through Motilal Oswal Commodities Broker (P) Ltd our fully owned subsidiary; we provide
commodity trading facilities and related products and services on MCX and NCDEX. Besides
access to the best of research in the form of Daily Fundamentals & Technical Reports on highly
traded commodities, our clients also get access to our exclusive Customized Trading Advice on
both the trading platforms. We offer these services through our branches, Business Partner
locations, the internet and mobile channels
Portfolio Management Services
Motilal Oswal Portfolio Management Services offer a range of investments solutions through
discretionary services. We at Motilal Oswal have helped create wealth for our customers through
our Portfolio Management Services. Our knowledge of the markets together with our
understanding of our customers and their risk profiles has helped us design a range of portfolio
offerings for our clients. These include the Value PMS, Bulls Eye PMS, Trillion Dollar
Opportunity and Focused Portfolio Series I. As of June 30th, 2008, the assets under management
of our various portfolio schemes stood at Rs.6.92 bn.
Motilal Oswal group has applied to the regulatory bodies for a license to operate as a Domestic
Asset Management Company (Mutual Fund) and we expect to begin operations soon.
Institutional Equities
We offer equity broking services in the cash and derivative segments to institutional clients in
India and overseas. These clients include companies, mutual funds, banks, financial institutions,
insurance companies, and FIIs. As at March 31, 2008, we were empanelled with over 300
institutional clients including 191 FIIs. We service these clients through dedicated sales teams
across different time zones.
Investment Banking
We offer financial advisory services relating to mergers and acquisitions (domestic and crossborder), divestitures, restructurings and spin-offs through Motilal Oswal Investment Advisors
Private Ltd. (MOIAPL)
We also offer capital raising and other investment banking services such as the management of
public offerings, private placements (including qualified institutional placements), rights issues,
share buybacks, open offers/delistings and syndication of debt and equity.
MOIAPL has closed 23 transactions in 2007-08 worth US$ 1.8 billion and had 18 mandates in
hand as at March 31, 2008.
Private Equity
In 2006, our private equity subsidiary, Motilal Oswal Venture Capital Advisors Private Ltd
(MOVCAPL) was appointed as the investment manager and advisor to a private equity fund,
India Business Excellence Fund, which was launched with a target of raising US$100 mn. The
fund is aimed at providing growth capital to small and medium enterprises in India, with
investments typically in the range of US$3 mn to US$7 mn.
MOVCAPL will manage and advise the fund and other private equity funds, which may be
raised in the future. In its final closing, in December 2007, the fund obtained commitments of
US$125 mn (Rs.4,875 mn) from investors in India and overseas. The Fund has deployed/
committed $ 58 mn across 8 deals.
MOVCAPL has recently launched an INR 750 crores domestic Real Estate Private Equity Fund
called India Realty Excellence Fund sponsored by Motilal Oswal Financial Services Ltd.
Principal Strategies Group
For effective management of treasury operations and to capitalize on market opportunities, the
Group has set up a 30 member team which would be responsible for effective deployment of
funds into different trading and arbitrage strategies.
Mr. Motilal Oswal is the promoter of Motilal Oswal Securities Ltd. He is an member of Institute
of Chartered Accountants of India and started the business along with the co-promoter Mr.
Raamdeo Agarwal in 1987.
Business Administration is his forte, Honesty, transparency and client goodwill form the core of
his business practice.
Service is required in everything, in research, in execution and in settlement. It is going to be
the key to survival. If you give good service and value to your clients, it will translate into good
business.
This has been a strong belief of Mr. Motilal Oswal and he has not only practiced it himself but
also made efforts to inculcate similar values in the employees of the organization.
He had been elected as a Director of BSE and joined its governing board in 1998. He is currently
a member of various committees of CDSIL and SEBI.
Mr. Raamdeo Agrawal is the co-promoter of Motilal Oswal Securities Ltd. A member of the
Institute of Chartered Accountants of India & an equity research stalwart, he is the man behind
the strong research capability at MOSt.
He is respected by all in the research and broking industry for his valuable insights on issues
related to equity research. His firm belief in Value-Investing, as practiced by the legendary
Warren Buffett and Charlie Munger, forms the core of MOSt investment philosophy.
Management Team
MOSt management team is regularly engaged in finding ways to improve operational
efficiencies and customer satisfaction.
You will find CAs, CFAs, ICWAs, CSs, MBAs and IT professionals managing crucial functions,
to bring you best products and services - from research & advice to trade execution & settlement.
At MOSt we practice meritocracy and each of the team members is provided extensive training.
Weakness
Opportunity
to
Threats
Risk Tolerance
Risk refers to the volatility of portfolios value. The amount of risk the investor is willing to take
on is an extremely important factor. While some people do become more risk averse as they get
older; a conservative investor remains risk averse over his life-cycle. An aggressive investor
generally dares to take risk throughout his life. If an investor is risk averse and he takes too much
risk, he usually panic when confronted with unexpected losses and abandon their investment
plans mid-stream and suffers huge losses.
Return Needs
This refers to whether the investor needs to emphasize growth or income. Younger investors who
are accumulating savings will want returns that tend to emphasize growth and higher total
returns, which primarily are provided by equity shares. Retirees who depend on their investment
portfolio for part of their annual income will want consistent annual payouts, such as those from
bonds and dividend-paying stocks. Of course, many individuals may want a blending of the two
some current income, but also some growth.
The time horizon starts when the investment portfolio is implemented and ends when the
investor will need to take the money out. The length of time you will be investing is important
because it can directly affect your ability to reduce risk. Longer time horizons allow you to take
on greater risks with a greater total return potential because some of that risk can be reduced by
investing across different market environments. If the time horizon is short, the investor
has greater liquidity needs some attractive opportunities of earning higher return has to be
sacrificed and the result is reduced in return.
Tax Exposure
Investors in higher tax brackets prefer such investments where the return is tax exempt, others
will have no such preference.
Management Outlook
lf the management is progressive and has an aggressively marketing and growth outlook, it will
encourage innovation and favor capital proposals which ensure better productivity on quality or
both. In some industries where the product being manufactured is a simple standardized one,
innovation is difficult and management would be extremely cost conscious. In contrast, in
industries such as chemicals and electronics, a firm cannot survive, if it follows a policy of
'make-do' with its existing equipment. The management has to be progressive and innovation
must be encouraged in such cases.
Competitors Strategy
Competitors' strategy regarding capital investment exerts significant influence on the investment
decision of a company. If competitors continue to install more equipment and succeed in turning
out better products, the existence of the company not following suit would be seriously
threatened. This reaction to a rival's policy regarding capital investment often forces decision on
a company'.
Technological changes create new equipment which may represent a major change in process, so
that there emerges the need for re-evaluation of existing capital equipment in a company. Some
changes may justify new investments. Sometimes the old equipment which has to be replaced by
new equipment as a result of technical innovation may be downgraded to some other
applications, A proper evaluation of this aspect is necessary, but is often not given due
consideration. In this connection, we may note that the cost of new equipment is a major factor
in investment decisions.
Market Forecast
Both short and long run market forecasts are influential factors in capital investment decisions.
In order to participate in long-run forecast for market potential critical decisions on capital
investment have to be taken.
Fiscal Incentives
Tax concessions either on new investment incomes or investment allowance allowed on new
investment decisions, the method for allowing depreciation deduction allowance also influence
new investment decisions.
The analysis of cash-flow budget which shows the flow of funds into and out of the company
may affect capital investment decision in two ways. 'First, the analysis may indicate that a
company may acquire necessary cash to purchase the equipment not immediately but after say,
one year, or it may show that the purchase of capital assets now may generate the demand for
major capital additions after two years and such expenditure might clash with anticipated other
expenditures which cannot be postponed. Secondly, the cash flow budget shows the timing of
cash flows for alternative investments and thus helps management in selecting the desired
investment project.
Non-economic Factors
New equipment may make the workshop a pleasant place and permit more socializing on the job.
The effect would be reduced absenteeism and increased productivity. It may be difficult to
evaluate the benefits in monetary terms and as such we call this as non-economic factor. Let us
take one more example. Suppose the installation of a new machine ensures greater safety in
operation. It is difficult to measure the resulting monetary saving through avoidance of an
unknown number of injuries. Even then, these factors give tangible results and do influence
investment decisions.
Risk Tolerance: Risk refers to the volatility of portfolios value. The amount of risk
the investor is willing to take on is an extremely important factor.
Return Needs: This refers to whether the investor needs to emphasize growth or
Income.
Investment Horizon: The time horizon starts when the investment portfolio is
implemented and ends when the investor will need to take the money out.
Tax Exposure: Investors in higher tax brackets prefer such investments where the
return is tax exempt, others will have no such preference.
Market Trends: Need to understand how various asset classes have performed in the
past before planning for finances.
Investment Needs: How much money an investor needs at the time of maturity?
Risk Coverage: A type of insurance coverage that can exclude only risks that have
been specifically outlined in the contract.
Dependents: People who relies on another person, especially a family member, for
financial support.