CAPITAL MARKET AND

PRIMARY MARKET

Presented by Aprameya JoshiIII BBM

CAPITAL MARKET

Markets for buying and selling equity and debt instruments. Capital markets channel savings and investment between suppliers of capital such as retail investors and institutional investors, and users of capital like businesses, government and individuals.

Capital markets are vital to the functioning of an economy, since capital is a critical component for generating economic output.

Capital markets include primary markets, where new stock and bond issues are sold to investors, and secondary markets, which trade existing securities.

Ctnd.Primary Market provides the channel for sale of new securities

and also for the new companies to enter into the share market and make their mark.

These shares are issued in both domestic and international markets and is a channel for the companies to meet their financial requirements.

FEATURES OF PRIMARY MARKETFeatures of primary markets include: The securities are issued by the company directly to the

investors. The company receives the money and issues new securities to

the investors. The primary markets are used by companies for the purpose

of setting up new ventures/ business or for expanding or modernizing the

existing business .Primary market performs the crucial function of facilitating

capital formation in the economy .

The need for primary market

To raise funds for certain purposes.To create market for new issues of

securities.To establish the magnitude of the

resources.To mobilize the resources in the economy.

PROSPECTUSA disclosure document that describes a

financial security for potential buyers. It commonly provides investors with material information about the securities being issued. As per the section 56 of the companies act all the contents of the prospectus should be disclosed in a fair and unbiased manner.

Role of SEBI in primary market: Entry norms for a company Promoters’ contribution Disclosure Book building Allocation of shares Market intermediaries

Players in new issue market• ISSUER: The corporation, municipality, government

agency or investment company offering securities for sale to investors.

• UNDERWRITER: An investment bank that serves as intermediary between the issuer and the investing public.

• SYNDICATE: A group of investment banks which jointly underwrite and distribute an offering.

• REGISTRARS: They maintain the dematerialised application for new issues,their cheques,stock invests etc., and work under the stipulations of SEBI and RBI rules

Types Of Issues

Types of issues in a capital marketPublic issue : when a company raises funds by

selling its shares to the public through issue of offer document it is called public issue.

– Initial public offering: when a unlisted company makes a public issue for the first time and gets its shares listed on stock exchange.

– Further public offering: when a listed company makes another public issue to raise capital through an offer document.

Right issue: when an existing company wants to raise additional capital, securities are offered to the existing shareholders on a pre-emptive basis.

Preferential issue: this is an issue of shares by listed companies to a selected group of persons(u/s 81 of companies act 1956)

Functions of primary market• The main function of a new issue market is to facilitate

transfer of resources from savers to the users. The savers

are individuals, commercial banks, insurance

companies etc. The users are public limited companies

and the government. It is not only a platform for raising

finance to establish new enterprises but also for

expansion/ diversification/ modernization of existing

units. 

• In this basis the new issue market can be classified as:-– Initial public offering (for the first time)– Seasonal equity offering (raise additional capital)

Functions of new issue market

Origination: It refers to the work of investigation, analysis and processing

of new project proposals. It starts before an issue is actually floated in the

market. This function is done by merchant bankers who may be commercial

banks. At present, financial institutions and private firms also perform this

service. Though this service is highly important, the success of the issue

depends on the efficiency of the market

Underwriting: It is an agreement whereby the underwriter promises

to subscribe to a specified number of shares or debentures or a specified

amount of stock in the event of public not subscribing to the issue. If the issue is

fully subscribed, then there is no liability for the underwriter. If a part of share

issues remains unsold, the  underwriter will buy the shares. Thus, underwriting is

a guarantee for marketability of shares. There are two types of underwriters in

India - Institutional ( LIC, UTI, IDBI, ICICI) and Non-institutional are brokers.

Distribution: It is the function of sale of securities to ultimate investors. This

service is performed by brokers and agents who maintain a regular and direct

contact with the ultimate investors.

-issue of prospectus to public

-providing liquidity to the stocks

Factors considered by an investors

• Promoter’s creditability

• Project information• Product• Financial data • Risk factors• Auditor’s report

How to buy shares in primary market?

ONLINE

OFFLINE

Online share buying Offline share buying

Capital market and primary marketPresented by

Aprameya joshiIII BBM