Primary and secondary market

Primary market is where the securities are issued for the first time. IPO and
FPO
Secondary market is where the securities issued in primary market are traded
BSE and NSE.
Why companies issue shares to public? y Existing funds not sufficient for carryi
ng out business activities y It is an offer to public to subscribe to the share
capital of the company Different kinds of issues y IPO y Public issue by listed
company (FPO) y Rights issue y Preferential issue 1. IPO IPO is when an unlisted
co. makes either a fresh issue of securities or an offer for sales of its exist
ing securities or both for the first time to public. This makes the way for list
ing and trading of the issuer s securities. e.g IPO issued by PIPAV Shipyard, Ad
ani Power. 2. Public issue by listed company (FPO) FPO is when a listed co. make
s a further issue of its securities e.g FPO issued by NMDC, REC, NTPC. 3. Right
Issue it involves selling of securities in the primary market by issuing RIGHTS
to the existing shareholders. When the company issues additional
shares it has to be offered in the first instance to the existing shareholders o
n the pro rata basis. 4. Preferential Issue (QIP/ QIB) it is an issue of equity
by a listed company to the selected investors at the price which may or may not
be related to the prevailing market price. e.g QIP by INDIABULLS REAL ESTATE, HC
L INFOSYSTEMS, INDIA CEMENTS. SEBI S Entry norms for Primary Market a) Track rec
ord of dividend payment for minimum 3 yrs preceding the issue. b) Already listed
companies - when post-issue networth becomes more than 5 times the pre-issue ne
tworth c) For Manufacturing company not having such track record appraise projec
t by a public financial institution or a scheduled commercial bank. d) For corpo
rate body 5 public shareholders for every Rs.1 lakh of the net capital offer mad
e to the public e) Banks 2 yrs of profitability for issues above par. Offer docu
ments to companies.
Normal public issue , book building process and ASBA
Normal Price Issues Price at which the securities are offered and would be allot
ted is made known in advance to the investors Demand for the securities offered
is known only after the closure of the issue 100 % advance payment is required t
o be made by the investors at the time of application. 10 % advance payment is r
equired to be made by the QIBs along with the 50 % of the shares offered are res
erved for applications below Rs. 1 lakh and the balance for higher amount applic
ations. 50 % of shares offered are reserved for QIBS, 35 % for small investors a
nd the
Book Building A 20 % price Issues band is offered by the issuer within which inv
estors are
Demand for the securities offered , and at various prices, is available on a
allowed to bid and the final price is determined by the issuer only after closur
e of the bidding.
real time basis on the BSE website during the bidding period..
application, while other categories of investors have to pay 100 % advance along
with the application.
balance for all other investors.
ASBA
The objective of introducing ASBA is to ensure that the investor's funds leave h
is bank account only upon allocation of shares in public issues. The ASBA proces
s also ensures that only the requisite amount of funds are debited to the invest
or's bank account on allotment of shares. In this mechanism, the need for refund
s is completely obviated.
Some important terminologies: y Issue price The price at which company shares ar
e offered initially in the primary market is called issue price. y Floor price I
n case of book building process floor price is the minimum price at which bids c
an be made. y Price Band it specifies the lower and the upper limit of the biddi
ng of the shares. y Prospectus adequate disclosure of information to public as p
er guidelines by SEBI Listing of Securities y It means admission of securities o
n stock exchange y The prime objective of listing is to provide liquidity and ma
rketability to securities y Time period for listing the securities is 3 weeks. M
arket Capitalisation: It is the market value of a listed company, which is calcu
lated by multiplying its current share price (market price) by the number of sha
res in issue, is called as market capitalization
Secondary market: Secondary market refers a market where securities are traded a
fter being initially offered to the public in the primary market and / or listed
on the Stock Exchange. Majority of trading is done in the secondary market. Rol
e of secondary market Platform for trading of securities for companies its serve
s for monitoring and controlling activities. Secondary market comprises of y y E
quity Markets It refers to equity shares traded in stock market The Debts Market
It represents borrowing which has predetermined terms and conditions , rate of
interest, repayment of principal amount by borrower to lender. In the Indian.The
investors in debt market are banks, financial institutions, mutual funds. Debt
instruments terminology : - Maturity of a bond refers to a date on which the bon
d matures - Coupon refers to the periodic interest payments that are made by the
issuer of the bond to the subscriber of the bond. - Principal refers the amount
that has been borrowed and its also called the par value and the face value of
the bond. Segments in debt market Govt securities e.g NSC, KVP, NSS Public secto
r unit bonds e.g FD with NTPC, BHEL, REC, PPF with SBI Corporate securities e.g
Term deposits with L & T, Tata motors.
Stock exchange: Most stocks are traded on exchanges, which are places where buye
rs and sellers meet and decide on a price. Exchanges are physical locations, whe
re transactions are carried out on a trading floor. The other kind of exchange i
s virtual kind, composed of a network computers where trades are made electronic
ally which is widely used everywhere now. Exchange: y y Stock Exchange (BSE, NSE
and other local exchanges) Commodities Exchange (MCX, NCDEX, etc)
STOCK EXCHANGE There are 24 stock exchanges in India and the principal exchanges
are Bombay Stock Exchanges (BSE), National Stock Exchange (NSE). It has two seg
ments capital market segment and wholesale market segment o Capital market segme
nt covers equities, convertible debentures and retail trade in non-convertible d
ebentures. o The wholesale debt market is a market for high value transaction in
govt securities, PSU bonds, commercial papers and other debt instruments. o