Primary market, characterized by the presence of a set of all institutions , structures , people, procedures , services , and practices involved in raising of fresh capital funds by both new and existing companies
Methods of marketing securities
Pure Prospectus Method
Existing enterprises mops up capital fund from general public by issuing a prospectus
Excellent mode of disclosure of all the information pertaining to the issue
Wide diffusion of ownership of securities leading to reduction in concentration of economic power
High issue cost
Offer for sale method
Marketing of securities takes place in bulk quantity to intermediaries
Saves company from the hassles involved in selling the shares
Expensive for the investors
Private Placement method
Issuer makes the offer of sale to individuals and institutions privately without the issue of prospectus
Less troublesome for the issuer
Used when stock market is dull and public issue is doubtful
Concentration of securities in few hands
Depriving the common investors of an opportunity to subscribe to the issue
Initial Public Offer
Public issue made by a corporate entity for the first time
Often prompted by venture capitalists who wish to realize a cash return on their investment.
Founders of the firm may wish to go through an IPO to establish a value for their company.
There exists greater price uncertainty with an IPO than with other new public stock issues
Right Issue Method
Where the shares of an existing company are offered to the existing shareholders , it takes the form of ‘right issue’. Under this method, the existing company issues shares to its existing shareholders in proportions to the number of shares already held by them
Bonus Issue method
A method of marketing the securities of a company by converting its accumulated reserves and surplus profits, it takes the form of ‘bonus issue method’.
A method of marketing the shares of a company whereby the quantum and the bid price of the securities to be issued will be decided on the basis of the bids received from the prospective shareholders by the lead merchant bankers is known as book building method
Employees Stock Option Scheme
A method of marketing the securities of a company whereby its employees are encouraged to take up shares and subscribe to it is known as ‘Stock Option’.
Help to retain the most productive employees in an industry , which is known for its constant churning of personnel
Bought – out deals
A method of marketing of securities of a body corporate whereby the promoters of an unlisted company make an outright sale of a chunk of equity shares to a single sponsor or to the lead sponsor, is known as “bought –out deal”
A market for borrowing and lending long term capital funds required by business enterprises
Have long or indefinite maturity
The primal role of the capital market is to channelize investments from investors who have surplus funds to the ones who are running a deficit.
dealings are done through shares and debentures
prices are determined through the general laws of demand and supply.
prices depends upon
1) Yield on securities
2)Level of demand for funds
3)Extend of funds available from public savings
4) Flow of funds from the banking system
5) Price situation in general
- Block exchanges
- Mutual funds
- Venture capital funds
exists all over the country,where suppliers and users of capital get together and do business
- the current savings for a period are allocated amongst the various users and uses.
- also allocates and rations funds by a system of incentives and penalities.
-Provides a means where by buyers and sellers can exchange securities at mutually satisfactory prices .
- allows better securities for the securities that are traded
- Showing not only the progress, but also the economy as a whole through share price movements
Savings and Investment function
- Provides a means of quickly converting long- term investment into liquid funds, thereby generating confidence among investors and speeding up the process of saving and investment.
- facilitates the transfer of existing assets among individual economic units or groups
- encourages voluntary take-over mechanism
to put the management of inefficient companies into more competent hands
CONSTITUENTS OF INDIAN CAPITAL MARKET
The gilt-edged market
The industrial securities market
GILT EDGED MARKET
Also known as gov. securities market
Market for gov securities and semi-
Guaranteed return on investment
No speculation in securities
Institutional based investors which are compelled by low to invest a portion of their funds in these securities
Predominated by such institutions as LIC, GIC,etc.
Heavy volume of transactions necessitating negotiation of each transaction
INDUSTRIAL SECURITIES MARKET
Market for industrial securities such as bonds and equities
Has two segments
Also known as new issues market(NIM)
Market for raising fresh capital in the form of shares & debentures
Allows for the formation of capital in the country
MODES OF RAISING CAPITAL
Public issue : securities issued to the members of general public
Rights issue : issue of equity shares of a body corporate is made to the existing shareholders as a preemptive method
Private placement : shares of a body corporate are sold to a group of small investors
Market which deals in securities that have been already issued by companies.
Also called stock exchange or share market.
For efficient growth of primary market, a sound secondary market is necessary.
Its because secondary market offers the important facility of trading of securities
Integral part of secondary market in India
24 stock exchanges in India recognized by the gov.
A stock exchange operating at the national level is also there – Over the Counter Exchange of India (OTCEI)
a) it operates through electronically linked counters at different
b) helps small & start up companies to overcome the problem of raising capital
c) helps investors to overcome the problem of illequidity.