Investor Sentiment in India: A Survey

In this paper we examine definitional aspect of Investor Sentiment, the key economic, market and regulatory factors that influence investor sentiment and the relationship between investor sentiment and market performance. There seems to be no clear consensus on the concept of investor sentiment and hence any meaningful definition ought to be inclusive and fluid. The important economic factors highlighted in the work are: Real GDP, Corporate Profits, Rate of Inflation, Level of Interest Rate, and Liquidity in the Economy. The market based factors that can be linked to Investor Sentiment are: Put Call Ratio, Advance Decline Ratio, Earning Surprises, P/E Ratio, and Price to Book Value. The regulatory framework of a financial market does seem to have a strong bearing on investor sentiment especially the legal provisions relating to corporate governance and Grievance Redressal Mechanism. Most respondents believe that investor's sentiment and market returns are bilaterally co-related. Our findings are largely in conformity with recent studies for other capital markets. These findings can be used to develop a comprehensive Investor Sentiment Index for India and hence have significant implications for investors, market intermediaries and financial regulators.