Deepak Doddamani Archives - Page 4 of 6

What is Secondary market?

30th January 201929th January 2019 by stocksbaazigar

Capital Markets can be divided into Primary Market and Secondary Market. Secondary market Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock exchange. It is also called as aftermarket. Majority of the trading is done in the secondary market. It comprises of Equity Markets and Debt Markets. What is the role of Secondary market? For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, secondary equity markets serve as a monitoring and control conduit by facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions. Functions of the Secondary market Accuracy Function: Price accuracy can reduce the agency costs of management and make hostile takeovers a less risky proposition and thus move capital into the hands of better managers. Accurate share price aids the efficient allocation of debt finance whether debt offerings or institutional borrowings. Liquidity function: The greater the number of investors in the secondary market, more the liquid market. Continuous trading in after-market keeps it highly liquid. Price Discovery function: It provides the instant valuation of securities caused by the changes in the environment. Difference between Primary and Secondary markets Major Players in Secondary Market Brokerages and Advisory Services Commission Broker Jobber Floor Broker Taraniwalla/ Stag Odd lot dealer Budliwala Arbitrageur Security dealers Financial Intermediaries: Commercial Banks, Development Financial Institutions, Insurance Company, Mutual Funds, Non-banking Financial Companies (NBFC) Individual/ Retail Investors Major Instruments in Secondary Market Fixed Income Instruments: Bonds Debentures Term/Fixed Deposit Preference stock Mortgage backed of Asset backed securities Life Insurance Annuity Pension Plan Variable Income Instruments: Equity Derivative Hybrid Income Instruments: Mutual Fund Basket D (75% Equity + 25% loan) Convertible Preferential Share

What is ISIN?

28th January 201926th January 2019 by stocksbaazigar

Each of the securities dematerialized in the NSDL/CDSL depository bears a distinctive ISIN – an identification number. International Securities Identification Number (ISIN) is a unique identification number for each security issued in any of the International Standards Organization (ISO) member countries in accordance with the ISIN standard (ISO 6166). ISO 6166 was developed for use in an international (cross-border) as well as domestic trades. ISIN is a 12-character long identification mark. It has three components – a pre-fix, a basic number and a check digit. The pre-fix is a two letter country code as stated under ISO 3166 The number comprises nine alphanumeric characters (letter and/or digits).The check digit at the end of the ISIN is computed according to the modulus 10 “Double-Add-Double”. It establishes that the ISIN is valid. Securities issued by the same company, issued at different times or carrying different rights, terms, and conditions are considered different securities for the purpose of allocating ISIN and are allotted distinct ISINs.In India, SEBI assigns ISIN to various publicly traded securities. Different ISINs allocated to the physical and dematerialized securities of the same issue. To illustrate, ISIN INE 475c 01 012 has the following break up: IN – India E- Company Last digit (2 in this example) – check digit First four digits 475c – Company Serial Number; 01- Equity (it can be mutual fund units, debt or Government securities); 01 – issue number The third digit (E in the above example) may be E, F, A, B or 9. Each one carries the following meaning: E – Company F- Mutual Fund Unit A- Central Government Security B – State Government Security 9 – Equity Shares with rights which are different from equity shares bearing INE number. Whenever dealing with ISIN number, it is important to pay special attention to the third digit.

Rematerialisation Process

26th January 2019 by stocksbaazigar

What is re-materialization? Rematerialization is the exact reverse of dematerialization. It Refers to the process of issuing physical securities in place of securities held electronically in book-entry form in a depository. Under this process, the depository account of a beneficial owner is debited for the securities sought to be re-materialized and physical certificates for the equivalent number of securities is/are issued. Re-materialization Process 1.The DP should provide rematerialisation request forms (RRF) to clients 2. The client should complete RPF in all respects and submit it to the DP. 3. The DP should check RPF for validity, completeness and correctness. In particular, the following points should be checked There is sufficient free balance available in the client’s account to honor the re-materialization request. The name of client on RRF is exactly the same as that in the client account. In case of joint holding, the order of names appearing in RRF is the same as in the client’s account. Details like security type, face value, issuer’s name and lock-in status are filled-in correctly. The client has indicated his opinion to receive physical certificates either in jumbo lot for the entire quantity requested or in a market lot. Separate RRF is submitted for ‘free and locked-in securities’. Securities locked-in for a different reason; each ‘ISIN’ securities of different paid-up value; and each client account. RRF is signed by ‘the sole holder in case of single holding; all joint holders in case of joint holding, authorized signatories in the case of corporate accounts, constituted attorney in the case of NRI accounts. 4) If RRF is not found in order, the DP should return the RRF to the client for rectification. 5) If RRF is found in order the DP should accept RRF and issue an acknowledgement to the client. 6) DP should enter the re-materialization request in DPM. DPM will generate a remat request number (RRN) which should be mentioned on RRF. 7) An authorized person, other than one who entered the RRF details in DPM, should verify the details of RRN and release a request to the depository. 8) DP should complete the authorization of RRF and forward to the issuer or its R & T agent for re-materialization within seven days of accepting it from the client. 9) The issuer of its R & T agent should verify the RRF for validity, completeness and correctness. It should also match the details with the intimation received from the depository against the same RRN. 10) In case the issuer or its R & T agent finds RRF in order, it should confirm the remat request. The issuer or its R & T agent should then proceed to issue the physical security certificates and dispatch them to the beneficial owner. 11) The DP, on receiving confirmation of debit entry in DPM, should inform the client accordingly. The entire process takes a maximum of 30 days. No trading is possible on the securities sent for remat. This is the complete process of re-materialization of securities.

Dematerialization

25th January 2019 by stocksbaazigar

What is dematerialization? Dematerialization is the process of converting physical shares into an electronic form. Shares once converted into the dematerialized form are held in Demat account. India adopted the demat system successfully and there are plans to facilitate the trading of almost all financial assets in demat format in the future. Advantages of Dematerialization Share transactions like sale or purchase and transfer/transmission etc. can be effected in a much simpler and faster way. There is no risk due to loss on account of fire, theft or mutilation. There is no chance of bad delivery at the time of selling shares as there is no signature mismatch. Transaction costs are usually lower than that in the physical segment. The bonus /rights shares allotted to the investor will be immediately credited into his account. Time and money is saved as you are not dealing in paper now. You need not go to the notary, broker for taking delivery or submitting the share certificate Liquidity is very high in case of demat format as whole process in automated. Interest on loan against demat shares are less as compared to physical shares Investors save stamp duty while transferring shares in demat format. Securities that can be dematerialized According to the SEBI (Depositories and Participants) Regulations, 1996, the following securities are eligible for holding in demat form Shares, Scrips, Stocks, Bonds, Debentures, debenture stock or other marketable securities of similar nature of any incorporated company of body corporate including underlying shares of ADRs and GDRs Units of Mutual Funds, Rights under collective investment schemes and venture capital funds, commercial paper, certificate of deposit, securitized debt, money market instruments, and unlisted securities. Dematerialization Process (as per NSDL website) The client (registered owner) will submit a request to the DP in the ‘Dematerialization Request Form for dematerialization, along with the certificates of securities to be dematerialized. Before submission, the client has to deface the certificates by writing “SURRENDERED FOR DEMATERIALISATION”. The DP will verify that the form is duly filled in and the number of certificates, number of securities and the security type (equity, debenture etc.) are as given in the DRF. If the form and security count is in order, the DP will issue an acknowledgment slip duly signed and stamped, to the client. The DP will scrutinize the form and the certificates. This scrutiny involves the following Verification of Client’s signature on the dematerialization request with the specimen signature (the signature on the account opening form). If the signature differs, the DP should ensure the identity of the client. Compare the names on DRF and certificates with the client account, Paid up status, ISIN (International Securities Identification Number), Lock – in status, Distinctive numbers etc. In case the securities are not in order, they are returned to the client and acknowledgment is obtained. The DP will reject the request and return the DRF and certificates in case: A single DRF is used to dematerialize securities of more than one company. The certificates are mutilated, or they are defaced in such a way that the material information is not readable. It may advise the client to send the certificates to the Issuer/ R&T agent and get new securities issued in lieu thereof. Part of the certificates pertaining to a single DRF is partly paid-up; the DP will reject the request and return the DRF along with the certificates. The DP may advise the client to send separate requests for the fully paid-up and partly paid-up securities. Part of the certificates pertaining to a single DRF is locked-in, the DP will reject the request and return the DRF along with the certificates to the client. The DP may advise the client to send a separate request for the locked-in certificates. Also, certificates locked-in for different reasons should not be submitted together with a single DRF In case the securities are in order, the details of the request as mentioned in the form are entered in the DPM (software provided by NSDL to the DP) and a Dematerialization Request Number (DRN) will be generated by the system. The DRN so generated is entered in the space provided for the purpose in the dematerialization request form. A person other than the person who entered the data is expected to verify details recorded for the DRN. The request is then released by the DP which is forwarded electronically to DM (DM – Depository Module, NSDL’s software system) by DPM. The DM forwards the request to the Issuer/ R&T agent electronically. The DP will fill the relevant portion viz., the authorization portion of the demat request form. The DP will punch the certificates on the company name so that it does not destroy any material information on the certificate. The DP will then dispatch the certificates along with the request form and a covering letter to the Issuer/ R&T agent. The Issuer/ R&T agent confirms acceptance of the request for dematerialization in his system DPM (SHR) and the same will be forwarded to the DM if the request is found in order. The DM will electronically authorize the creation of appropriate credit balances in the client’s account. The DPM will credit the client’s account automatically. The DP must inform the client of the changes in the client’s account following the confirmation of the request. The issuer/ R&T may reject dematerialization request in some cases. The issuer or its R&T Agent will send an objection memo to the DP, with or without DRF and security certificates depending upon the reason for rejection. The DP/Investor has to remove reasons for objection within 15 days of receiving the objection memo. If the DP fails to remove the objections within 15 days, the issuer or its R&T Agent may reject the request and return DRF and accompanying certificates to the DP. The DP, if the client so requires, may generate a new dematerialization request and send the securities again to the issuer or its R&T Agent. No fresh request can be generated for the same securities until … Read more

How to open an account with Depository Participants?

25th January 2019 by stocksbaazigar

Any investor who wishes to avail depository services must first open an account with depository participants of NSDL and CDSL The investor can open an account with any depository participant of NSDL and CDSL. An Investor may open an account with several DPs or he may open several accounts with a single DP. The investor has the freedom to choose a DP based on criteria like convenience, comfort, service level, safety, reputation, and charges. After exercising the choice, the investor has to enter into an agreement with the DP. Types of accounts with DP Types of depository account depend on the operations to be performed. There are three types of demat accounts which can be opened with a depository participants wiz. 1. Beneficiary Account 2.Clearing Member Account 3.Intermediary Account A DP may be required to open three categories of accounts for clients – Beneficiary account, clearing member account and intermediary account. A beneficiary account is an ownership account. The holder/s of securities in this type of account own those securities. A Clearing Member Account and Intermediary Accounts are transitory accounts. The securities in these accounts are held for a commercial purpose only. A Clearing Member Account is opened by a Broker or a Clearing Member for the purpose of settlement of trades. An Intermediary account can be opened by a SEBI registered intermediary for the purpose of stock lending and borrowing. Documents for Verification For the purpose of verification, all investors have to submit the following documents along with the prescribed account opening form. Proof of Identity – A beneficiary account must be opened only after obtaining proof of identity of the applicant. The applicant’s signature and photograph must be authenticated by an existing account holder by the applicant’s bank or after due verification made with the original of the applicant’s valid passport, voter ID, driving license or PAN Card with a photograph Proof of Address – The account opening form should be supported with proof of address such as verified copies of ration card/ passport/ voter ID/ PAN card/driving license/ bank passbook. An authorized official of Participants, under his signature, shall verify the original documents. In case any account holder fails to produce the original documents for verification within the aforesaid period 0f 30 days, it must be immediately brought to the notice of NSDL. Failure to produce the original documents within the prescribed time would invite appropriate action against such account holder, which would even include the freezing of their accounts Client Types in Depository System There are several client types in the depository system and different codes are allotted to them. These are listed below. 1)Resident – Ordinary and HUF 2)Financial Institutions – Govt sponsored FI, State FCs, other 3)FIIs – Mauritius-based, Others 4)NRI –Repatriable, Non-Repatriable, Depository Receipts 5) Body Corporate – Domestic Company, Overseas Corporate Body, Repatriable, Govt company, Central Govt, State Govt, Co-operative body, NBFC, Non- NBFC, Broker, Foreign Bodies, Group companies, others, OCB – Non-repatriable, Depository Receipt 6) CM (Clearing Member) 7) Foreign National – Foreign National/Depository Receipt 8) Mutual Fund – Foreign National/ Depository Receipt 9) Trust 10) Bank – Foreign Bank, Co-operative bank, Nationalized bank, Other 11) Intermediary These are several client types in the depository system and different codes are allotted to them as above. No minimum balance is required for opening a depository account. After verifying the form and the documents DP opens the account of their clients.

Marketing Strategy for IPO

28th January 201924th January 2019 by stocksbaazigar

Marketing of IPO is very important to ensure 100% subscription of an IPO in all the segments. Marketing Strategy of IPO should be prepared by Marketing and PR team of the issuer with the Consultant having experience of Business-to-investor marketing. A wide spectrum of marketing tool should be used to achieve significant over-subscription from institutional as well as retail investors segment. The Road show In the road show a company and its underwriters transverse through the country as well as abroad. They conduct several meetings with potential investors; security analysis, brokers and potential underwriting syndicate members. Some of these meetings are one-to-one, but most are group meetings. The road show is most effective marketing tool for Institutional investors. The road show is conducted in the weeks immediately preceding the effectiveness and pricing of IPO, many indications of interest are placed immediately after a road show stop. The company’s story which may have been first told at the organizational meetings, which has been converted into an onscreen summary to be conveyed in 30 minutes or less to an astute and inquisitive audience can make or break an IPO. A successful road show typically, has a meaningful impact on the IPO price and on initial aftermarket trading Marketing strategy for retail investors Top 15 cities in India contribute more than 90% to the amount raised in IPOs. Therefore it is important to take press conferences in key cities. Advertisements in Newspapers, Business channels, and public relations campaign. Management interviews in print and electronic media. Broker conferences, press conferences etc. Site visit for key brokers across India. Sustained awareness program before SEBI observations, through corporate advertisement campaign. A good website and youtube channel having corporate videos, testimonials of customers etc. are important marketing tools. Marketing strategies for HNIs 25% of the Marketing budget of IPO goes in targeting High Net Worth Individuals (HNIs) of India and abroad. Initial contacts with High Net Worth Individuals (HNI) by Private Client Services (PCS) sales person Key HNI meet with the management Marketing strategies for qualified institutional investors. Develop equity story through research report Communicate equity story during pre-marketing where sector analysts interface with fund managers to discuss financials and answer preliminary questions Collate pre-marketing feedback and decide floor price Follow-up by senior salespersons to address investor queries Prepare senior personnel for management roadshows based on the interaction of the sector analyst and salespersons with fund managers. Finalize the management road show schedule to maximize investor coverage across investor geographies. One-on-one meetings and group functions with company management – video/telephone conferences in secondary cities as needed Regular interface by salespersons with fund managers to follow-up for bids.

Primary Market Prospectus

28th January 201922nd January 2019 by stocksbaazigar

A large number of new companies float public issue. Most of these companies are genuine, but quite a few may want to exploit the investors. Therefore it is important for Investors to obtain detailed information about a Company before investing i it. What is Prospectus? As per the guidelines issued by SEBI (Securities and Exchange Board of India), it is mandatory for disclosure to the public. This disclosure includes detailed information like the reason for raising the money, the way money is proposed to be spent, the return expected on the money etc. This information is in the form of ‘Prospectus’. It acts as both, a disclosure document and a marketing document. It required to contain a detailed description of the business, its current and past performance, the projects, cost of the projects, means of financing, product and capacity etc. It must also give a description of management structure, management salaries, operations, and financial conditions, dividend policy and Market capital of the company etc. It should also include information regarding the size of the issue, the current status of the company, its equity capital, details of promoters, underwriting, statutory compliances etc. It normally starts with a table of contents, definitions, risk factors, the summary of an issuer and financial data. This is followed by a detailed disclosure under three sections.: a)Issue Structure b) Issuer Information c) General and Statutory Information This way the Offer document covers all the relevant information to help an investor to make his/her investment decision. ‘Draft Offer document‘ Draft offer document means the offer document in draft stage. The draft offer documents are filed with SEBI, atleast 21 days prior to the filing of the Offer Document with Registrar of Companies (ROC)/ Stock Exchanges (SEs). The Draft Offer document will be available on the SEBI website for public comments for a period of 21 days from the filing with the Draft Offer document with SEBI. SEBI may specify changes if any which Company with the help of Merchant Banker shall carry out before submitting offer document to the ROC/SEs Abridged Abridged Prospectus is shorter version of Prospectus. It contains all the salient features of a Prospectus. It accompanies the application form of public issue. Red-Herring Red Herring Prospectus is a prospectus which does not have details of either price or number of shares being offered or the amount of issue. Shelf A Prospectus in respect of which the securities or the class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus is called as Shelf Prospectus.

Primary market Intermediaries

21st January 201921st January 2019 by stocksbaazigar

Capital Market intermediaries are the important link between the regulators, issuer, and investor. SEBI has issued regulations in respect of each intermediary to ensure proper services to be rendered by them to the investors and the capital market. In this post, we will learn about some primary market intermediaries. The following market intermediaries are involved in the primary market: Merchant Bankers/Lead Managers Registrars and Share Transfer Agents Underwriters Bankers to the Issue Debenture Trustees etc. Merchant Bankers Merchant Bankers play an important role in the issue management process. Merchant Bankers are mandated by SEBI to manage public issues (as lead managers) and open offers in take-overs. Apart from these, they have other diverse services and functions. These include organizing and extending finance for investment in projects, assistance in financial management, acceptance house business, raising Euro-dollar loans and issue of foreign currency bonds. Lead Managers (Category 1 merchant bankers) has to ensure correctness of the information furnished in the offer document. They have to ensure compliance with the SEBI Rules and regulations and also guidelines for Disclosure and Investor Protection. To this effect, they have are to submit to SEBI a Due Diligence Certificate confirming that disclosures made in the draft prospectus or letter of offer are true, fair and adequate to enable the prospective investors to make a well-informed investment decision. Regulation: Merchant Bankers are one of the major intermediaries between the issuer and the investors, hence their activities are regulated by SEBI (Merchant Bankers) Regulations, 1992 Guidelines of SEBI and Ministry of Finance Companies Act 1956. Securities Contracts (Regulation) Act, 1956. and so on. Criteria for Merchant Banker: Regulation 3 of SEBI (Merchant Bankers) Regulations, 1992 lays down that the application by a person desiring to become merchant banker shall be made to SEBI in the prescribed form seeking a grant of a certificate of registration along with a non-refundable application fee as specified. The applicant shall be a body corporate other than NBFC The applicant has the necessary infrastructure like adequate office space, equipment’s and manpower to effectively discharge his activities. the applicant has in his employment a minimum of two persons who have the experience to conduct the business of the merchant banker. The applicant shall be a net worth of not less than 5 Crore rupees. The applicant, his director, partners, or principal officer is not involved in any litigation connected to securities market the applicant, his director, partner, or principal officer has not any time been convicted for any offence involving moral turpitude or has been found guilty of any offence. the applicant has the professional qualification from an institution recognized by the Government of Finance, Law or Business Management. the applicant is fit and proper person grant of certificate to the applicant is in the interest of investors Registrars and transfer agents R & T agents form an important link between the investor and issuer in the Securities Market. R & T agent is appointed by the issuer to act on its behalf to service the investors in respect of all corporate actions like sending out notices and other communications to the investors as well as dispatch of dividends and other non-cash benefits. R & T agents perform an equally important role in the depository system as well. R & T agents are registered with SEBI in the terms of SEBI (Registrars to the Issue and Share Transfer Agents) Rules and Regulations, 1993. Underwriters Underwriting services are provided by some large specialists financial institutions such as banks, insurance or investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liability arising from such guarantee. Securities underwriting is the process by which investment banks raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equities and debt capital). The services are typically used during a public offering in the primary market. Underwriters are required to register with SEBI in terms of SEBI (Underwriters) Rules and Regulations, 1993. Bankers to the Issue Bankers to an Issue means a scheduled bank carrying on all of the following activities: acceptance of application and application money acceptance of allotment of call money refund of application money Payment of dividends or interest warrants etc. The activities of the Banker to an issue in the Indian Capital Market are regulated by SEBI (Bankers to an issue) Regulations, 1994 Debenture Trustees Debenture Trustee means a Trustee of a Trust deed for securing any issue of debentures. Debenture trustees call for periodical reports from the body corporate takes possession of trust property in accordance with the provisions of the trust deed enforce security in the interest of debenture holders do such acts as necessary in the event the security becomes enforceable carry out such acts as are necessary for the protection of debenture holders and to do all things necessary in order to resolve the grievances of the debenture holders. ascertain and specify that debenture certificates have been discharged within 30 days of registration of the charge with ROC ascertain and specify that debenture certificates have been discharged in accordance with the provisions of the Company Act ascertain and specify that interest warrants for interest due on the debentures have been dispatched to the debenture holders on or before the due date and so on. To inform SEBI in case of breach of Trust Deed and take measures accordingly. The activities of Debenture Trustee in the Indian Capital Market are regulated by SEBI (Debenture Trustees) Regulations, 1993.

Flow chart of IPO Process

19th January 2019 by stocksbaazigar

The process of offering shares in a private corporation to the public for the first time is called Initial Public Offering (IPO). Flow Chart of IPO Process Approval of Board: An approval of the Board of Directors of the company is required fo raising capital from the public. Appointment of Lead Managers: The Lead Manager is a Merchant banker who orchestrates the issue in consultation with the company. Appointment of other Intermediaries: Several intermediaries facilitate the IPO process. A company secretary, an underwriter, bankers, brokers, registrars etc. are selected. Filing of the Prospectus with SEBI: All the companies seeking to make a public issue have to file their offer document with SEBI. The Offer document or Prospectus communicates the information about the company and the proposed security issue to the investing public. Filing of the Prospectus with Registrar of Companies: Once the SEBI and Stock Exchanges gives approval to the prospectus, offer document, must be filed with the Registrar of Companies, along with required documents by the Companies Act, 1956 Filing of Initial Listing Application: Within 10 days of filing the prospectus, the initial listing application must be made to the concerned stock exchanges, along with the initial listing fees. Promotion of the Issue: To promote the issue the company holds conferences for brokers, press, and investors. Advertisements are also released in newspapers and periodicals to generate interest among potential investors. Statutory Announcement: The Statutory announcement of the issue must be made after seeking the approval of the lead stock exchanges. This must be published at least 10 days before the opening of the subscription list. Collection of Applications: During the period of subscription, the bankers to the issue collect application money on behalf of the company. While the managers of the issue, with the help of registrar, monitor the situation. Information is gathered about the number of application received in various categories, the number of shares applied for, and the amount received. Processing of Applications: The applications forms received by the bankers are transmitted to the registrars of the issue for processing. This mainly involves scrutinizing the applications, coding the applications, preparing a list of applications with all the relevant details. etc. Establishing the Liability of Underwriters: If the issue is undersubscribed, the liability of the underwriter has to be established. Allotment of Shares: According to SEBI guidelines, one-half of the net public offers have to be reserved for applications up to 1000 shares and the balance one-half for larger applications. For each of these segments, the proportionate system of allotment is followed. Listing of the issue: The detailed listing application should be submitted to the concerned stock exchanges along with the listing agreement and the listing fee. The allotment formalities should be completed within 30 days after the subscription list is closed or such extended period as permitted by the lead stock exchanges. STAGES OF THE IPO 1) Pre-issue Due Diligence Draft Offer document to be filed with SEBI Final Offer document to be filed with SEBI Application for listing with Stock Exchange Promoter’s Contribution to be brought in prior to the issue Appointment of Compliance Officer In-Principal approval from Stock Exchange to be obtained and filed with SEBI Issue Advertisement Book-building and Bidding processes to be followed 2) Issue Subscription list to be kept open for at least 3 days Issue open with in the time prescribed 3) Post-Issue Monitoring reports to be submitted to SEBI Final Post issue monitoring reports Post Issue Advertisements Dispatch of shares certificates etc. and allotment of the documents.

Primary Market

28th January 201915th January 2019 by stocksbaazigar

Capital Market can be broadly divided in Primary Market and Secondary Market. What is a Primary Market? The Primary Market is the part of Capital Market that deals with the issuance of new securities and then sold to investor directly by the issuer. It is also known as a New Issue Market. In this Market, Investors buy securities that were never traded before. New Issue Markets are facilitated by underwriting groups, consisting of investment banks that set a beginning price range for a given security and oversee its sale to investors. Once the initial sale is complete, further trading is conducted on the secondary market. Investors typically pay less for securities on the primary market than secondary market. What is the role of the ‘Primary Market’? It issues new securities on an exchange for companies, Government and other groups to obtain financing through debt-based or equity-based securities. It provides the channel for sale of new securities. It create long term instruments through which corporate entities raise funds from the capital market. It provides the issuers the opportunity to raise resources to meet their requirements of investment and/or discharge of some obligation. They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market. Ways of raising funds through Primary markets Corporate entities raise funds from New Issue Market in three ways. Public Issue: A stock exchange lists the securities and corporate raises funds through Initial Public Offering (IPO). Rights Issue: Existing shareholders are offered more shares at a discounted price and or a pro-rata basis. Private Allotment: A corporate issues shares at a price which may or may not be related to the current market price of the same security. Major Players of Primary Market There are several major players in the New Issue market. These include the merchant bankers, mutual funds, financial institutions, foreign institutional investors (FIIs) and individual investors.