As my graduation internship report, I did a research to find out whether the market price of equities is sensitive to corporate governance or not. If the investors rely on fundamental analysis then corporate governance should affect equities’ price. A set of declarations and their impact on equities price were surveyed among a sample of 100 investors. This research didn’t focus on degree of impact of corporate governance on equities price. They survey findings are illustrated below.
51% of the respondents stated that they started investing in stock market less than one year ago. On the other hand 32% started between 1 to 3 year ago and 17% started more than 3 years ago. That shows that last year there was huge interest in investing in stock market.
Average investment of the respondents is 445,760.50 and mode value is 200,000. These indicate tight portfolio of most of the investors. Tight portfolio is believed to have a more risk propensity as investors have little or no scope for diversifying portfolio or averaging price of a loosing stock.
People have scattered idea about acceptable P/E ratio for buying any stock. 23% of respondents think that any stock is buy-able when P/E ratio is between 1 and 10. 41% of respondents were found more risky traders who choose P/E ratio between 11 and 20 as acceptable for buy decision. The most risk takers, 13% traders, stated that 21 to 30 range is good P/E ratio for their buy consideration. Other 22% do not have any idea regarding the relation between risk and P/E ratio. It can be assumed that most of the new investors who penetrated stock market in 2010 do not have good idea about stock market.
When 13% stated that P/E ratio between 21 and 30 is preferable for buying, 29% also stated that range of P/E ratio is good for selling. That indicates that there is not much clear idea about P/E ratio and risk. Other 30% respondents have no idea about it. In total it can be concluded that there are not much consciousness regarding P/E ratio.
33% of the respondents stated that ratio of Price and Net Asset Value (NAV) should be between 3 and 4 for buying that stock. Other 43% has no idea about NAV and its impact on equity price.
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It is surprising that no significant portion of respondents have any strong standing on a question of acceptable Price/NAV ratio for selling consideration. The highest portion consists of 46% of respondents don’t have any idea in using NAV is determining the sell situation or finding over valued stocks.
In practice there are mainly three types of analysis procedure for forecasting future price of any equity. Those are, Fundamental analysis, Technical analysis and speculation or rumor based analysis.
It is surprising that there are only 5% of respondents are solely dependent of fundamental and only 2% are solely dependent of technical analysis. At the same time, 12 % respondents are solely dependent of speculative or rumor based trading. Other 81% of respondent have a mixed analysis procedure. It is good to have 36% respondents depends on both fundamental and technical analysis as a mixed analysis procedure. So, it is evident that peculation or rumor based trading is widely dispersed as a sole basis or element of mixed basis of equity price analysis.
33% of respondent solely depend on fundamental analysis for analyzing IPOs. There is no scope for technical analysis for analyzing any equity which has not yet traded in market. That’s why no person depends on technical analysis for analyzing IPOs. 8% of the investors solely depend on speculation or rumor and others have a mixed analyzing procedure consisting of fundamental and speculation or rumor based analysis.
Though there is only 5% respondents solely depends on fundamental analysis, 7% trader stated that fundamental analysis is fully important to them relative to other analysis procedure. That means more 2% investors, who have mixed strategy, have found fundamental analysis same important as of other analysis. The mixed strategy traders give on average 51.10% emphasis on fundamental analysis. At the same time, most of the traders give 50% emphasis on fundamental analysis.
Though the bases of primary and secondary stock analysis are same, the emphasis on the fundamental analysis is different. Where the emphasis on fundamental analysis for secondary market is 51.10%, the same for primary market is 53%. That means the investors are more conscious on primary investment than that of secondary. But the mode values emphasis on fundamental analysis for both primary and secondary market are same, which is 50.
In most of the cases a significant portion of the respondent didn’t have any idea on the impact of corporate governance. That indicates lack of awareness among investors.
Trading Experience
51% of the respondents stated that they started investing in stock market less than one year ago. On the other hand 32% started between 1 to 3 year ago and 17% started more than 3 years ago. That shows that last year there was huge interest in investing in stock market.
Average Investment
Average investment of the respondents is 445,760.50 and mode value is 200,000. These indicate tight portfolio of most of the investors. Tight portfolio is believed to have a more risk propensity as investors have little or no scope for diversifying portfolio or averaging price of a loosing stock.
Acceptable P/E Ratio for Buying
People have scattered idea about acceptable P/E ratio for buying any stock. 23% of respondents think that any stock is buy-able when P/E ratio is between 1 and 10. 41% of respondents were found more risky traders who choose P/E ratio between 11 and 20 as acceptable for buy decision. The most risk takers, 13% traders, stated that 21 to 30 range is good P/E ratio for their buy consideration. Other 22% do not have any idea regarding the relation between risk and P/E ratio. It can be assumed that most of the new investors who penetrated stock market in 2010 do not have good idea about stock market.
Acceptable P/E Ratio for Selling
When 13% stated that P/E ratio between 21 and 30 is preferable for buying, 29% also stated that range of P/E ratio is good for selling. That indicates that there is not much clear idea about P/E ratio and risk. Other 30% respondents have no idea about it. In total it can be concluded that there are not much consciousness regarding P/E ratio.
Acceptable Price to NAV Ratio for Buying
33% of the respondents stated that ratio of Price and Net Asset Value (NAV) should be between 3 and 4 for buying that stock. Other 43% has no idea about NAV and its impact on equity price.
Please explore the Next Page of this article.
Acceptable Price to NAV Ratio for Selling
It is surprising that no significant portion of respondents have any strong standing on a question of acceptable Price/NAV ratio for selling consideration. The highest portion consists of 46% of respondents don’t have any idea in using NAV is determining the sell situation or finding over valued stocks.
Basis of Investment Decisions
In practice there are mainly three types of analysis procedure for forecasting future price of any equity. Those are, Fundamental analysis, Technical analysis and speculation or rumor based analysis.
It is surprising that there are only 5% of respondents are solely dependent of fundamental and only 2% are solely dependent of technical analysis. At the same time, 12 % respondents are solely dependent of speculative or rumor based trading. Other 81% of respondent have a mixed analysis procedure. It is good to have 36% respondents depends on both fundamental and technical analysis as a mixed analysis procedure. So, it is evident that peculation or rumor based trading is widely dispersed as a sole basis or element of mixed basis of equity price analysis.
33% of respondent solely depend on fundamental analysis for analyzing IPOs. There is no scope for technical analysis for analyzing any equity which has not yet traded in market. That’s why no person depends on technical analysis for analyzing IPOs. 8% of the investors solely depend on speculation or rumor and others have a mixed analyzing procedure consisting of fundamental and speculation or rumor based analysis.
Emphasis on Fundamental Analysis
Though there is only 5% respondents solely depends on fundamental analysis, 7% trader stated that fundamental analysis is fully important to them relative to other analysis procedure. That means more 2% investors, who have mixed strategy, have found fundamental analysis same important as of other analysis. The mixed strategy traders give on average 51.10% emphasis on fundamental analysis. At the same time, most of the traders give 50% emphasis on fundamental analysis.
Though the bases of primary and secondary stock analysis are same, the emphasis on the fundamental analysis is different. Where the emphasis on fundamental analysis for secondary market is 51.10%, the same for primary market is 53%. That means the investors are more conscious on primary investment than that of secondary. But the mode values emphasis on fundamental analysis for both primary and secondary market are same, which is 50.
Summary
In most of the cases a significant portion of the respondent didn’t have any idea on the impact of corporate governance. That indicates lack of awareness among investors.
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