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“IMPACT OF COVID- 19 PANDEMIC ON INVESTMENT BEHAVIOR OF
ENTREPRENEURS IN INDORE, MADHYA PRADESH: A COMPARATIVE STUDY WITH REGARDS TO DIFFERENT INVESTMENT AVENUES.”
Asmi Patodi
Management Student, Daly College of Business Management, Indore, M.P. Tapas Upadhyay Dr. Neetika Shrivastava
Assistant Professor, Daly College of Business Management, Indore, M.P.
Abstract: The report presents a comprehensive analysis of the impact of the Covid-19 pandemic on investment decisions of entrepreneurs residing and operating in Indore, Madhya Pradesh. With lockdowns coming into effect repetitively, and thereby, restricting economic activities, the economy witnessed an extended period of slowdown; not only did millions of people lose their jobs, but also businessmen faced a severe blow. The respondents owned either an established business or a budding one. The relationship between the Covid-19 pandemic and change in investment decisions of such businessmen with respect to various investment avenues available in the market was studied. In addition to this, the report also summarises what investment avenues exactly are, what are their different types and what are the main objectives which drive a businessman towards investing his money. A quantitative (survey) method was used in the research wherein 100 people, who lie under the sample category were sent the questionnaire. The trends in investments made by all the respondents in different investment avenues were analysed.
The data was then analysed using T-Test. It was found that Investor preferences are dynamic. A number of external factors and investor behavior drive such preferences. This research has made a sincere attempt to comprehend the preferences and deviations in different investment avenues of businessmen in pre and post covid situations.
Keywords: Investment Preference, Pandemic, Investment Avenues 1. INTRODUCTION
COVID-19, a highly infectious virus, caused a significant disruption to human life. To combat the outbreak, measures included social isolation, the closure of establishments and institutions, limiting modes of transport, and country-wide lockdowns. Such steps were needed considering that this is a novel disease with no cure, but the effects on global economic growth have been significant.
Besides the effect on living souls and global inventory networks, this epidemic also sparked great interest, displacing the buds of the Indian economy's apparent recovery at the end of 2019 and mid-2020, growing at 1.9 percent in 2020-21. Organizations around the world are concerned about the impending collapse of the global currency trading sector. In addition to the current situation, the slow financial development last year, especially in non- industrialized countries like India, has created surprisingly unstable economic conditions.
Flights, hotels, cafes, retail, transportation, ports, and port services are high impact areas of Covid-19 risk. The medium impacted areas are automobiles, building materials, and private genuine products, and the least or not impacted areas include education, dairy products, fertilizers, consumer products, and medical care.
2. LITERATURE REVIEW 2.1 Investment
In financial terms, investment refers to “allocation of monetary resources to assets that are expected to yield some gain or return over a given period of time.” People invest their funds in shares, debentures, fixed deposits, national saving certificates, life insurance policies, provident funds etc. Investment, for them, is a commitment of funds to derive future income in the form of interests, dividends, rents, premiums, pension benefits and the appreciation of the value of their principal capital.
83 2.2 Different Investment Avenues
Investments are not the means to earn exuberantly, one cannot hit a jackpot overnight. One must, therefore, build a strong, sustainable, and long-term portfolio to get returns consistently.
Following are the different avenues available in Indian market:
• Equity: The popularity of equity as an asset class is growing, but it is not for everyone.
Equity is probably the most volatile asset class with no guaranteed returns. The stock market, however, can have the highest returns in the long term with a higher alpha.
• Mutual Funds: Mutual funds are professionally managed investment funds that pool the money of investors to make investments. Their money can be invested in a variety of securities. Mutual Funds can put their money into stocks, debt or both and even in gold.
• Bonds or Debentures: Bonds and debentures are long-term investments that produce a reliable flow of cash based on the interest rate. They include Government securities, savings bonds, public sector unit bonds etc.
• Bank Fixed Deposits (FDs): Bank FDs are considered to be among the safest and most traditional investments in the country. The rate of interest on the principal amount is fixed over a predetermined period. A person's interest rate is added to their income, which is then taxed according to their tax bracket.
• Public Provident Fund (PPF): PPFs are popular investment products with longer maturities of 15 years. Especially in the later years, compounding tax-free interest has a substantial impact. In addition to the government guaranteeing the principal and the interest earned (reviewed quarterly by the government), it is a safe investment.
• National Pension System (NPS): PFRDA (Pension Fund Regulatory and Development Authority) manages the National Pension System, an investment product geared towards long-term retirement planning. In addition to equity and government funds, fixed deposits, corporate bonds, liquid funds, etc. are also included.
• Real Estate: Investment in property is one of the most common forms of investing in the country. Real estate investments provide capital appreciation and rental income. Unlike other asset classes, real estate is highly illiquid.
• Gold: In India, gold is the most traditional form of investment, but owning gold in the form of jewelry raises safety concerns and high costs in the form of 'making charges'.
ETFs are a safer and more cost-effective way to invest in gold papers.
• Life Insurance: Investing in permanent life insurance policies with an investment component allows you to grow your wealth tax-deferred. The cash-value component of your life insurance policy is not taxable until you withdraw the proceeds.
2.3 Objectives behind investing money
• Safety of capital: There is no such thing as an absolutely risk-free investment or one that is completely safe. In order to achieve your primary objective of safety, you will choose investments that are low in risk. Nevertheless, the safest investments tend to have the lowest returns and may not even keep up with inflation. Government securities, money market instruments, and bank-guaranteed securities are safe investments.
• Income: To increase returns, you need to sacrifice some safety in order to increase income. To keep up with the rate of inflation, even the most conservative investors like to have some level of income in their portfolio. Stock market investing yields high returns, but increases risk.
• Growth: Growth oriented people tend to be less concerned with safety, and don't rely exclusively on income from investments. Growth instruments are likely to fluctuate in value more than other types and may be more prone to loss. Investments in publicly traded companies are generally associated with growth and are high-risk investments.
• Tax Savings: Profits generated by common shareholders are taxed differently from capital gains. Capital gains taxes are significantly lower than taxes on interest income or
84 ordinary income like salary. In order to save taxes, registered plans such as national pension schemes and tax-free savings accounts are best.
3. RESEARCH METHODOLOGY 3.1 Rationale
This article examines how the COVID-19 outbreak affected investment behavior of individuals due to the decline in business income, loss of job, and changes in cash preserved for emergencies during outbreak of COVID-19 but contrast it with other COVID- 19-related literature that has examined macro factors such as stock market fluctuations, employment changes, and GDP declines. Reviewing Literature of similar studies in relation to earlier crises provided greater insight into the impact of the COVID 19 pandemic on investor behavior, and provides insight into the different dimensions of investor behaviour.
3.2 Objectives
The aim of the study was to explore the various Investment Options that entrepreneurs prefer while making investment decisions. Another objective was to understand the change COVID19 brought about in the investment levels of these entrepreneurs, and for the same following hypotheses were proposed:
H01: There is no significant difference in stocks and real-estate investments of entrepreneurs pre and post COVID.
Ha1: There is significant difference in stocks and real-estate investments of entrepreneurs pre and post COVID.
H02: There is no significant difference in Money Market Funds & Certificate of Deposits investments of entrepreneurs pre and post COVID.
Ha2: There is significant difference in Money Market Funds & Certificate of Deposits investments of entrepreneurs pre and post COVID.
H03: There is no significant difference in ULIP & Other Insurance Policies investments of entrepreneurs pre and post COVID.
Ha3: There is significant difference in ULIP & Other Insurance Policies investments of entrepreneurs pre and post COVID.
H04: There is no significant difference in Bonds & Saving Accounts investments of entrepreneurs pre and post COVID.
Ha4: There is significant difference in Bonds & Saving Accounts investments of entrepreneurs pre and post COVID.
H05: There is significant difference in Consolidated Investments of entrepreneurs pre and post covid.
Ha5: There is no significant difference in Consolidated Investments of entrepreneurs pre and post covid.
3.3Research Design
In order to explore the relationship between the Covid-19 pandemic and investor behavior a controlled enquiry of non-experimental kind was followed. To conduct extensive research, a survey was conducted of over 100 entrepreneurs of Indore, Madhya Pradesh, to understand their investment preferences and the effect of COVID19 pandemic on their current investment decisions. For data collection, a self-administered questionnaire was circulated through Google forms to collect information from respondents. The respondents were asked to fill certain demographic information necessary to carry out the research. The further sections consisted of General Investment Questions and Investment Behavior Impacted by Covid-19.The research was conducted on 100 entrepreneurs of Madhya Pradesh. Use of Convenience sampling was done to select the Sample Units. In convenience sampling, the selection of units from the population is based on easy availability and/or accessibility.
Telephonic calls were made to the respondents and they were requested to participate in the
85 study. The age of the respondents varied between 20 to 60 years. The sample comprised of 68 males and 32females engaged in diverse businesses like retail, wholesale, fashion designing, real estate developers, tuition service providers, etc.
4. ANALYSIS
The analysis of the survey uses various tools of statistical data like averages and means to study the data and also used various depiction tools such as pie charts and bar graphs to represent distribution and percentages of various demographics in an easy-to-understand and use manner.
4.1 Investment Demographics of the Respondents 4.1.1 Awareness of Investment Avenues
75.8% of the respondents are apprised of investment avenues with low-risk, like Savings Account, Bank FDs, PPFs whereas the emerging investment avenues like Hedge Funds, Virtual Real Estate, and private equity investments are known just to 20.2% of the respondents.
4.1.2 Most Preferred Investment Avenues
53.5% of the respondents believe that the best option of investing money is real estate. This is because real estate has a tendency to appreciate its value over the years, and in addition, it is highly improvable which helps fetch extra revenue to the investors. It is a self- sustaining asset when compared to stocks, which are self-liquidating. Mutual funds are another preferred option for investing. Bonds are the least preferred option to invest in due to the different risks involved- credit risk, market risk, interest rate risk and inflation risk.
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4.1.3 Investment Objectives
One of the main reasons, which gathered the vote of 79.8% of the respondents in terms of the motive behind investing is to help money grow. It cannot be neglected that money put to some use is always better than the money kept idle.
4.1.4 Change in Investment Pattern during Pandemic
Majority of the respondents faced a variation in their investor behavior with the outbreak of covid-19.
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4.2 Investment Trend post COVID19
The respondents who answered that there is a change in their investment pattern post Covid were further asked to give information regarding the amount they invested in various investment options pre and post covid. Results of the same are discussed further.
From the overall sample, 52 respondents filled in data with respect to their previous and current investment levels. The table shows the percentage of respondents who had increased their investment, decreased their investment or have not changed their investment post pandemic in various investment avenues. Change in total investment was also mentioned in the table.
Table 1. Investment difference pre and post pandemic Effect of
Pandemic (Percentage
of Respondents)
Investment Avenues
Stocks &
Real Estate
Money Market Funds &
Certificate of Deposits
ULIP & Other Insurance Policies
Bonds &
Saving Accounts
Total Investment
Increase in
Investment 28.84615385 9.615384615 13.46153846 9.615384615 36.53846154 Decrease in
Investment 51.92307692 23.07692308 21.15384615 25 59.61538462 No Change
in
Investment 19.23076923 67.30769231 65.38461538 65.38461538 3.846153846
Total 100 100 100 100 100
88 The real estate sector was striving hard to cope-up with the effects of pandemic since the virus almost brought the property transactions to a near-halt during the period of March 2020 to June 2020. Although the market was seen making strides for the good, leaping towards recovery, the second wave which hit the country caught the sector unawares. The construction activities were put on a hold and the migrant workers departing to their hometowns aggravated the situation. And, as cities like Mumbai, Pune and Delhi NCR were imposed with partial lockdown yet again, the sector faced a serious blow. Struggling for healthcare, the people stopped visiting the sites, consequently slowing down the property transactions. The unprecedented scale of the impact of COVID-19 on Indian real estate can be gauged from the fact that the sector has incurred a loss of over Rs 1 lakh crore since the pandemic broke out (Source: KPMG). Significant liquidity crunch was observed for the real estate developers which can be inferred from the fact that the residential sales went down from 4 lakh units to 2.8 lakh units in 2020-21 when taking into consideration the top 7 cities of India. In a report by India Ratings, the residential demand faced a decline of over 40% and experts say that the situation will remain the same until the virus is controlled effectively. With nationwide lockdowns, and safety measures, the buyers had access to restricted movement and has post-pandemic become more cautious which led to a significant increase in the unsold real estate inventory as well. Although hope prevails for the real estate sector, with people eventually realizing the need for shelter, and other virtual tours coming into picture, the recovery is still going to be challenging. The stock market turned out to be a black swan even during the pandemic, although there were downturns, the market was resilient and it bounced back into the recovery phase soon. With reasons as such, and the liquidity of the businessmen getting affected due to uncertain emergencies, a decrease in investment seems fair.
Since banks use money from money market accounts to invest in stable, short-term and low-risk securities which are fairly liquid, money market funds have been seen as relatively safe with the investments I such avenues not changing significantly. Since Certificate of Deposits cater to long term benefits in form of interest, there was no significant withdrawal observed in terms of investment in such avenues.
Investments in ULIP and other insurance policies did not seem to attract a lot of variation, since the respondents already seemed to have knowledge of it, and most of them had their life insurance policies intact even before covid-19. 70% of the respondents had their life insurance policies from before the pandemic whereas 26 % got one after the reality of value and safety of life was put to test. With the policy framework already intact for most of the respondents, they continued to invest in a similar fashion.
Although the bond rates are driven by interest rate sensitivity, their trait of coming with a long term date of maturity makes them less volatile and relatively safer. This was seen even in the investment behavior of the respondents who did not face a major variation in their investments in bonds. Although Savings Account pay a modest interest rate, the advantage of parking cash whenever one wants, and withdrawing in situations of uncertainties, most of the respondents continued to invest in a similar fashion, to feel secured about the future which hardly anyone knows how it is going to unfold during the pandemic.
At an industry level, the number of Demat accounts opened in the last year is more than the collective accounts opened in the previous 3 years collectively. The same is visible in the steady increase in the number of folios and AUM of the Mutual Fund Industry. The monthly SIP contribution has also increased to about Rs 9,000 crore per month, which is a steady increase on a yearly basis (Source: Money control). One of the reasons for this could be the convenience which tech-savvy new millennials find in using it. And, with the availability
89 and reach of internet in Tier 2 as well as Tier 3 cities, the people have embraced the online system of investing well. People trying their hand for the first time in investing also have been reported to find equity investments attractive and the traditional investors, in search for more returns than provided by Bank FDs, Bonds etc. had a chance to enhance their overall returns. In addition to this, awareness drives run by SEBI, AMFI, and mutual fund industry have also helped alleviate myths associated with equity investing among people.
However, it cannot be neglected that there has been a considerable decrease in investments among people from pre-covid situation to post-covid. One of the reasons for this could be the liquidity affected due to the pandemic which caught people unawares. Pay reduction and businesses incurring losses in some sectors led to people utilizing their past savings, thereby decreasing the amount in hand to invest. The variations in total investment, therefore, have been necessarily due to varied business sectors involved in the survey filled by businessmen and entrepreneurs.
Therefore, a need for conducting T-tests was deemed necessary.
4.2 t Test Results
The researcher wanted to understand whether the difference in investment levels observed in the respondents of the study was statistically significant or not and therefore employed paired sample t test to understand the difference in level of investments done in different avenues pre and post covid. Analysis was also done to determine the difference in total investments that were done by respondents’ pre and post pandemic.
4.2.1 Investment in stocks, real estate, business, and precious collectibles
The t test showed two-tailed P value equals 0.6650.By conventional criteria, it means that there is no significant difference between pre and post covid investments in stocks and real estate. Here, the null hypothesis was accepted. At 95% Confidence level the Intermediate values used in calculations: t = 0.4356
df = 50 standard error of difference = 98713.812.
4.2.2 Investment in Money Market Funds and Certificate of Deposits
The results showed two-tailed P value equals 0.0562.By conventional criteria, it means that there is no significant difference between pre and post covid investments in Money Market Funds and Certificate of Deposits. Here, the null hypothesis was accepted. At 95%
Confidence level the Intermediate values used in calculations: t = 1.9536 df = 51 standard error of difference = 6530.963.
4.2.3 Investment in ULIP (Unit Linked Insurance Plans) and other insurance policies It was analyzed that two-tailed P value equals 0.7090.By conventional criteria, it means that there is no significant difference between pre and post covid investments in ULIP and Other Insurance Policies. Here, the null hypothesis was accepted. At 95% Confidence level the Intermediate values used in calculations: t = 0.3753
df = 51 standard error of difference = 24591.351.
4.2.4 Yearly Investment in bonds and saving account
Results depict that two-tailed P value equals 0.5562.By conventional criteria, it means that there is no significant difference between pre and post covid investments in Bonds &
Savings Accounts. Here, the null hypothesis was accepted. At 95% Confidence level the Intermediate values used in calculations:t = 0.5924
df = 51, standard error of difference = 11703.773.
4.2.4 Consolidated Yearly Investments
T test Results yielded the two-tailed P value equals 0.0980By conventional criteria, this difference is considered to be not quite statistically significant. Therefore, null hypothesis
90 was accepted. At 95% Confidence level the Intermediate values used in calculations:t = 1.6605, df = 264 and standard error of difference = 12.186
All the T-Tests applied to the different investment avenues, as well as the consolidated investment amount tend to accept the null hypothesis implying that there were no significant statistical changes in the investor behavior of businessmen regarding different avenues. However, when the data collected was analyzed, it was inferred that either the businessmen had increased their investments or decreased them, which laid the foundation to conducting the T-Tests. When T-tests failed to accept the alternate hypotheses, it was inferred and concluded that the respondents failed to be from one business sector. As every business sector was impacted in a varied way, the tests failed to take that into consideration. What undoubtedly can be concluded is that there were variations seen in investor behavior, particularly when it came to avenues like real estate and stocks.
5. CONCLUSION
The main purpose of the present research was to study the impact of the Covid-19 pandemic on the perceptions, and decisions of individual investors, here, businessmen and entrepreneurs in Indore. To this end, a well-structured questionnaire was distributed among businessmen belonging to Indore. After collecting response on questionnaire, it was found that a significant number of respondents had withdrawn their investments in real estates and equity investments. This could primarily be because of the restricted movement of people due to the imposed lockdowns and decline in site visits. The stock market faced a hit too, compelling the investors to reframe their portfolios. There was no significant impact observed on investment avenues like ULIP, Bonds, and Saving Accounts since these are comparatively safer investments due to the long-term nature of bonds, and the emergency fund comprising the Saving Accounts. People continued to invest in ULIP and other insurance policies in a similar fashion since the framework remained same from pre-covid.
There was significant impact in the total investments of the respondents as well, with a tendency of decrease in investments from pre covid to post covid.In present times, investors seem to have become more risk averse, and prefer relatively secure investment options offering moderate return with low risk.
Thus, quantitative data obtained from the questionnaire were further analyzed by framing various hypotheses and the results were obtained after applying paired T-tests to these hypotheses. As a result, all the null hypotheses were accepted despite the fact that there were significant changes in investments and investor behavior of businessmen. This needs to be looked into, and the research will be continued to specifically test the variations in investor behavior of businessmen of a particular sector, since it cannot be neglected that not every business was impacted by the covid-19 outbreak to the same extent.
6. LIMITATIONS& SCOPE FOR FUTURE RESEARCH
The sample is a small size and does not necessarily replicate the investor behaviour of every businessman.
The respondents are from varied business sectors, which was evident in the t-Tests results which showed significant difference in level of investments done pre and post Covid. An extensive survey can be conducted, necessarily taking into consideration one business sector at a time. Analysis of different policies undertaken regarding such investment avenues can be compared, and suggestions can be provided.
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indian-market/
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4. https://www.outlookindia.com/outlookmoney/equity/covid-19-impact-on-stock- market-4666
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