Booming SENSEX Vs Indian investors

Economic, political or social factors have always made stock markets around the world to be an unstable and volatile place for investors. Even the indices of the developed countries have become unstable places for investments. But do these really affect the long term expectations of the investors? Will they expecting better returns? Or do they fear to invest more?

“The rather steep rise in the Sensex sometimes surprises me, sometimes worries me. I don’t think the fundamentals change so rapidly from day to day.” Finance Minister Mr. Chidambaram said. It has been assessed that the Sensex is driven by copious flow of funds from a number of sources abroad. The changing scenario in these financial markets also will have a strong effect on the investors in the market. This will affect the mental strength of an investor who is investing in the capital market. The confidence of the investor in the market and his expectations from the market too would be affecting with these changes.

FII's are pumping more and more capital to the Indian equity market. With stocks markets breaching new milestones every few sessions, inflow of funds from FII's is unlikely to take a U-turn, global rating agency Standard and Poor's reported. "The current macroeconomic scenario is sustainable and the likelihood of reversal (of capital flows) is very low and at this point almost non-existent," S&P Chief Economist (Asia- Pacific) Subir Gokarn said.

An ordinary investor is a person who turns his day to day savings to the capital market. His perception about the capital market too need to be considered. What does he expect from a rising SENSEX? Is he expecting a rise in his investment or is he fear a correction? It is related to the field of behavioral finance. It can be considered a helpful supplement to classical financial theory, which currently dominates financial analysis and academic research. This field considers psychological factors as an important input to financial analysis and decisions, and is gaining increasing momentum in academic research and practical applications throughout the world. Behavioral finance can help to explain many reactions in financial markets that appear to be contrary to conventional theory. It can also make important contributions to help avoid serious mistakes, and it can help in the development of investment strategies.