CHAPTER- 1: INTRODUCTION

1.1 About the Industry 1.2 About Organization/ Company Profile

CHAPTER 2: Literature Review

2.1 Literature Review

2. 2 About The Topic

INDUSTRY OVERVIEWThe Financial MarketThe 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 exchangesProducts of the financial market:Fig: 1The major crises that have shaped the modern financial industry are: The Great Depression(1929) Black Monday(1987) Asian Financial Crisis(1990) Stock Market Downturn(2002) Sub-prime Crisis(2007)

The Classification of financial market in India

Fig: 2

THE BROKERAGE INDUSTRYThe brokerage industry is currently characterized by a large number of companies (private or unorganized). In effect it is a fragmented industry with a large number of participants. The industry thus has monopolistic competition, i.e. a large number of firms selling a slightly differentiated product.Indian stock broking industry is the oldest trading industry that has been around even before the establishment of BSE in 1875. Despite passing through a number of changes in post liberalization period, the industry has found its way towards sustainable growth. With the purpose of gaining deeper understanding about the role of Indian stock broking industry, in the countrys economy, here are some data gleaned from analysis of secondary research. On the basis of recent research: 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.Brokerage terminals in various regions:Almost 52% of the terminals in the sample are based in the Western region of India, followed by 25% in the North, 13% in the South and 10% in the East. Mumbai has got the maximum representation from the West, Chennai from the South, New Delhi from the North and Kolkata from the East.Mumbai also has got the maximum representation in having the highest number of terminals. 40% terminals are located in Mumbai while 12% are from Delhi, 8% from Ahmadabad, 7% from Kolkata, 4% from Chennai and 29% are from other cities in India.

Fig: 3Branches and sub-brokers in various regions:The maximum concentration of branches is in the North, with as many as 40% of all branches located there, followed by the Western region, with 31% branches. Around 24% branches are located in the South and East constitutes for 5% of the total branches of the total sample.In case of sub-brokers, almost 55% of them are based in the South. West and North follow, with 30% and 11% sub-brokers respectively, whereas East has around 4% of total sub-brokers.

Fig: 4 Fig: 5

Analysis of brokerage industry based on Michael Porters 5 factor model

Fig:1.6CompetitionThe 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 2008-2009 periods, the smaller players were squeezed out of the business. As a result there is a contrast consolidation happening in the industry.

Potential of new entrantsA 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. Power of the supplierNot much relevant in most segments except investment banking, where employees control client relationships and hence have to be highly compensated. Power of the buyers/customersThis 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 substitutesThe 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.DEMAND AND SUPPLY DRIVERS OF THE INDUSTRY

Demands for financial products are driven by risk-reward assessment, which considers: Potential yieldThe expectation of financial incentives or return on investment is a great demand driver which tempts people to invest or engage into transactions of the financial markets. Risk RatingHigher risks assumes higher profits and vice versa. Risk ratings are a vital point when making a decision to park ones resources into this industry. LiquidityTo maintain strong and flexible liquidity position people tend to invest in financial markets, in order to meet their contingencies. Availability of informationThe 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 alternativesMore 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.The major supply drivers are: Money supplyThe 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 ratesInterest 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. InflationValue 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 conditionsRates 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 RegulationsThe 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.

GLOBAL AND DOMESTIC ECONOMIC ENVIRONMENT OF The financial industryAccording to global 2000 (annual report by Forbes), seven of the top 10 companies belonged to the financial industry. These included the Citygroup, Bank of America, HSBC Holdings, and JPMorgan Chase. Their combined revenue in 2007 was worth $647 billion, down from 2006 high of $785 billion.According to Fortune 500 rankings, in 2006 financial services generated $257 billion in profits, a third of total Fortune 500 profits. In 2008, however, they lost a staggering $213 billion, a total swing of $470 billion. Big players on the list, such as Citygroup and Bank of America, may only be alive today just because of government money.The financial industry is an industry in itself as well as an ancillary that supports other industries. Trade and commerce across the world would come to standstill if there was no means to fund, pay and protect the transactions.

The Brokerage industryDomestic Economic EnvironmentIn 1991, Manmohan Singh, as Finance Minister in Narasimha Raos government, embarked on a programme of liberalization prompted by an acute balance-of-payment crisis.

Fig: 1.7 (Indian economy growth factors)Indian Brokerage Industry-Pre 2000 Post liberalization period. Business restricted to friends and relatives. Settlement T+15 days. Low trade volumes- No derivatives trading allowed. Lack of investment in technology- No front or back office software.Indian Brokerage Industry 2000-2008 Venture capital funding for brokerage businesses. Investment in technology- Front end and back end. National presence. Integrated risk management system. Significant increase in trade volumes- Derivatives trades play a major role. Margin funding for the retail clients.Indian Brokerage Industry 2009 onwards Paradigm shift from transaction oriented to research/ portfolio based advisory. Focus on franchisee based business model. Dematerialized accounts access for international trade. Access to international stock exchange. Trading on hand held platform (mobile phones etc) allowed.

Current Global Economic Environment

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.Stable and robust growth in face of global challenges

Fig: 1.8

Critical Success Factors of the Industry

Fig: 1.9Seeing 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 TechnologyThere 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.VARIOUS MEASURES TAKEN BY INDIAN GOVERNMT TO IMPROVE THE SITUTATION OF INDIAN STOCK MARKETMEASURESOBJECTIVES

Allow foreign institutional investors to invest in equity and debt markets.

Liberalization of stock market to attract foreign investment in order to boost economic growth.

Expanding the product range offered by the stock exchanges.

Bring Indian market at par with the international standards and diversify product portfolio.

Allowing Indian companies to issues ADRS and GDRS.

Allowing Indian companies to invest abroad.

Facilitate market integration and give freedom to the companies. Access to more funds for investment.

Divestment of government ownership

Facilitate growth through privatization

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.

BSE and NSE to set up and maintain corporate bond reporting platforms

To capture all information relating to trading. Investor protection

Making PAN compulsory

Strengthening KYC (Know Your Client)

Fig: 1.10

PESTEL ANALYSIS OF BROKERAGE INDUSTRY

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.

Fig: 1.11

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. Technological factors include technological aspects such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality and lead to innovation. Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance. 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.

Fig: 1.12LEGAL ISSUES WITH A BROKERAGE FIRMSecurities Exchange Act of 1934 (Exchange Act)In contrast to the Securities Act, the Exchange Act primarily regulates transactions of securities in the secondary market - that is, sales that take place after a security is initially offered by a company (the issuer). These transactions often take place between parties other than the issuer, such as trades that retail investors execute through brokerage firms. The Exchange Act operates somewhat differently from the Securities Act. To protect investors, Congress crafted a mandatory disclosure process that is designed to force companies to make public information that investors would find pertinent to making investment decision. In addition, the Exchange Act provides for direct regulation of the markets on which securities are sold (the securities (stock) exchanges) and the participants in those markets (industry associations, brokers, and issuers).

Monetary and Fiscal PoliciesIn the securities industry there exist regulators who have established a set of rules and regulations that administer the entire industry. Financial markets, depositors, clearing houses, and vendors work together to regulate the investment in the industry.The 3 major US government agencies that govern the securities industry and frame monetary and fiscal policy, they are: the Federal Reserve System, the Securities Exchange Commission (SEC), and the Office of Comptroller of the Currency. Federal Reserve SystemThe 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. Securities Exchange CommissionThe 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. Office of the Comptroller of the CurrencyThe 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

Fig: 1.13History of Indiabulls In middle of 1999, when e-commerce was just about starting in India, Sameer Gehlaut and his close IIT Delhi friend Rajiv Rattan got together and bought a defunct securities company with a NSE membership and started offering brokerage services. A Few months later, their friend Saurabh Mittal also joined them. By December 1999, the company embarked on its journey to build one of the first online platforms in India for offering internet brokerage services. In January 2000, the 3 founders incorporated Indiabulls Financial Services and made it as the flagship company. In mid 2000, Indiabulls Financial Services received venture capital funding from Mr. L.N. Mittal & Mr. Harish Fabani. In late 2000, Indiabulls Securities, a subsidiary of Indiabulls Financial Services started offering online brokerage services and simultaneously opened physical offices across India. By 2003, Indiabulls securities had established a strong pan India presence and client base through its offices and on the internet. In September 2004, Indiabulls Financial Services went public with an IPO at Rs 19 a share. In late 2004, Indiabulls Financial Services started its financing business with consumer loans. In March 2005, Indiabulls Properties Private Ltd, a subsidiary of Indiabulls Financial Services, participated in government auction of Jupiter Mills, a defunct 11 acre textile mill owned by NTC in Lower Parel, Mumbai. Indiabulls Properties private Ltd won the mill in auction and that purchase started Indiabulls real estate business. A few months later, Indiabulls Real Estate company Pvt. ltd bought Elphinstone mill in Lower Parel, another textile mill auctioned by NTC.With real estate business gaining size, Indiabulls Financial Services demerged the real estate business under Indiabulls Real Estate and each shareholder of Indiabulls Financial Services received additional share of Indiabulls Real Estate through the demerger. Subsequently, Indiabulls Financial Services also demerged Indiabulls Securities and each shareholder of Indiabulls Financial Services also received a share of Indiabulls Securities. In year 2007, Indiabulls Real Estate incorporated a 100% subsidiary, Indiabulls Power, to build power plants and started work on building Nasik & Amravati thermal power plants. Indiabulls Power went public in September 2009. Today, Indiabulls Group has a net worth of Rs 16,796 Crores & has a strong presence in important sectors like financial services, power & real estate through independently listed companies and Indiabulls Group continues its journey of building businesses with strong cash flows.

BUSINESS LIFE CYCLE OF INDIABULLS

Fig: 1.14The business life cycle is a model that enables businessmen to identify the level of performance at which their business is operating and to determine exactly what needs to be done to move to the next level.The various levels of a business life cycle are: Start up Rapid Growth Maturity Decline Re-birth/ deathThe startup of IndiabullsIndiabulls was in start up phase in the year 1999. Sameer Gehlaut, Rajiv Rattan and bought a defunct securities company with NSE membership and started brokerage services. Saurabh Mittal joined the founders. -The founders were usually involved in running the business. -The primary emphasis was on generating and selling offline brokerage services.-There was less staff with modest pay in the industry, which provided personalized services.The rapid growth stageIndiabulls success geared up quite early, within one year of its inception in 2000. -Indiabulls Financial Services received venture capital funding from Mr. L. N. Mittal and Mr. Harish Fabani and started online brokerage services.-It opened many physical offices all across the country thereon and made pan India presence.- Went public in 2004 (IPO was Rs. 19 per share) and also started providing customer loan in the same year.-Became a private ltd. in the year 2005. Participated in government auction and bought Jupiter mills to start its real estate business, and so on.-In 2007, started Power Indiabulls.Indiabulls by this time had a huge customer base, with wide number of physical offices. Its sales and demand increased and it made its presence greatly visible in the financial and other markets.Maturity stageIndiabulls is still in the process of reaching the maturity stage. Its financial services and signature account services are in their boom phase and are expected to reach there the earliest. With its current pace of developments, expanded and loyal customer base, constant research and development, and other initiatives Indiabulls is sure to reach the maturity stage as a market leader very soon. And so will increase its profitability and side by side will its competition in the market.

Decline/Re-birthWith an upsurge in demand for financial services. NBFCs like Indiabulls have a great opportunity to develop and expand in the market with its current potentials and probably will never reach this stage unless it gives up to its competitors in the maturity stage.

JOURNEY OF INDIABULLSFig: 1.15INDIABULLS GROUP OF COMPANIES

Fig: 1.16

COMPANY FINANCIALS Total group net worth: Rs.16,844 Crs Total group PAT for FY 10-11: Rs 944 Crs Total group capital expenditure: Rs 6,200 CRs (US $ 1.4 bn) capex in financial year 10-11. Planned capex of 29000 (us $ 6.5 bn) in the FY 2014-2015. Focus on execution and on the ground results translating into profits. For its ongoing projects Indiabulls groups customers 385 MTs of steel, 550 MTs of cement, and 1700 CUM of RMC on daily basis. Creating value for shareholders: Dividend payout of 232 Crs in FY 10-11.

INDIABULLS IS A LEADING FINANCE COMPANY

Fig: 1.17

ASSET GROWTH

Fig: 1.18 Assets have grown at a quarterly average of Rs. 2000 Crs, over last 9 quarters with a decrease in non-performing assets. Long duration mortgage loans have lead to steady asset growth and increase in Net Asset Income. Company continues to grow its branch networks and now has 170 branches across the country. Company has well trained in house direct sales team, over 1300 people to promptly attend to prospective customers.

MISSION AND VISION

MISSION:Rapidly increase the number of client relationships by providing a broad array of products offering to emerge as a clear market leader. VISION:To be the largest and most profitable financial services organization in Indian market and become one stop shop for all non banking financial products and services for the retail customers.STRATEGIES AND FOCUS CONSOLIDATIONAim to be among the top 3 players in existing products within next 3 years. NO NEW PRODUCTSFocus on gaining size and scale in existing core products. NO CAPITAL MARKET FUND RAISINGAll businesses are well funded to achieve growth and size. Avoiding excessive debt from the capital market. GOALFY 2013/2014, target of US $ 1.4 bn in cash generation from 3 companies (real estate, finance and power).LITERATURE REVIEW The Securities Brokerage Industry is cyclical and comprised of two distinct types of businesses. Brokerages, also known as financial services companies, strive to meet the investing needs of their clients, and exchanges facilitate securities trading. Net profits correlate to the performance of the broader equity market. In this market with less differentiated products and many players, there exists an oligopoly (saying in book terms), characterized by tough competition, entry and exit barriers and many more.

1. Al Ries and Jack Trout, in his work said differentiate or die, too many less differentiated products creates a kind of information overload, and in this clutter of too much information, products which are not properly differentiated or advertised just end up becoming a me too product. To avoid it every marketer needs to position his/ her products in a way that makes a specific image in the minds of consumers.

2. Jack Miller, in his work published on June 03, 2010, talked about how investors make investment decisions. He broke the process of decision making in pulling the buy or sell trigger. According to him investors made the investment decisions in the ways like simple screening, then lateral recommendation, followed by piggy bank investing.

3. According to U.S. Securities and Exchange Commissions, one of the articles: investors first evaluate their current financial roadmap, and then they evaluate their comfort zone in taking on risk. Consider an appropriate mix of investments, create and maintain an emergency fund, consider dollar averaging, consider rebalancing portfolio occasionally, and in the process also try to avoid the circumstances that can lead to fraud.OBJECTIVE OF THE PROJECTAn increasing trend has been observed in demand for the services of Non-Banking Financial Institutions nowadays. This project is aimed to find out factors affecting investment decisions in these firms. There has also been emphasis to find out the plus points of Indiabulls or the differentiating factors that give Indiabulls a competitive edge. In short: To find out the factors affecting investment decisions in a NBFC. To find out various competitive advantages that makes Indiabulls of the largest stock broking companies.

METHODOLOGYThis 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:

Fig: 2.1 For this project my challenge was to find out the factors and the competitive advantages. 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.

Fig: 2.2

SCOPE OF THE PROJECT

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.FACTORS AFFECTING INVESTMENT DECISIONSThere are a numerous reasons that affect investment decisions here are some of them: Risk ToleranceRisk 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 NeedsThis 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. Investment Time HorizonThe 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 hasgreater liquidity needs some attractive opportunities of earning higher return has to be sacrificed and the result is reduced in return. Tax ExposureInvestors in higher tax brackets prefer such investments where the return is tax exempt, others will have no such preference. Management Outlooklf 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 StrategyCompetitors' 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'. Opportunity created by technological changeTechnological 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 ForecastBoth 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 IncentivesTax 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. Cash Flow BudgetsThe 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 FactorsNew 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.FACTOR ANALYSIS BASED ON FACTORS AFFECTING INVESTMENT DECISIONSFactor analysis is a data reduction/summarization technique. Generally in market research there are many factors/variables which are correlated which needs to be reduced to manageable levels.Generally factor analysis is used where multi co-linearity exists. For factor analysis to run the null is that the correlation matrix is an identity matrix.KMO and Bartletts testKaiser-Mayer-Olkin (KMO) test is to test the appropriateness of the factor analysis, if the value is between 0.5 to 1, the test is considered to be significant. Bartletts TestUsing Bartletts test of sphericity we test the null hypothesis, if the significant value is