This document provides an overview of the primary and secondary markets for securities in India. It discusses the different types of issues that can occur in the primary market such as IPOs, rights issues, and private placements. It also describes the key segments that make up the secondary market such as the equity, debt, and derivatives markets. The document outlines various market indicators like indexes, market capitalization, and turnover. It concludes by discussing important terms related to securities issues like green shoe options, book building, and the roles of intermediaries in the IPO process like lead managers, registrars, and underwriters.

2. MARKET SEGMENTS
• PRIMARY MARKET :Securities, in the form of equity or debt,
can be issued in domestic /international markets at face
value, discount or premium
• Types of Issues ➢ Private Placements ➢ Public Issues
• -IPO – Initial Public Offering -FPO – Follow on / Further
Public Offering -Rights Issue
• SECONDARY MARKET :Secondary market refers to a market
where securities are traded after being offered to the
public in the primary market or listed on the Stock
Exchange

3. Segments in secondary markets
• Equity Market
• Debt Market
• Derivatives (Futures & Options) Market
• Currency Market
• Commodity Market

4. Key Indicators of Securities Market
Index - Index of NSE is S&P CNX Nifty.
Market Capitalization Market Capitalization =
Closing price of share x Number of outstanding shares
Market Capitalization Ratio :
Market capitalization of stocks divided by GDP
Turnover :
Traded quantity multiplied by the price at which the trade takes place
Turnover Ratio Turnover Ratio= Turnover at Exchange divided by Market
Capitalisation at Exchange

5. Products
• Debentures
• Equity shares
• IPO, FPO, Private Placements & Dealer
• Preference Shares
• Stock Exchanges

6. Market Participants
•Investors
•Issuers
•Intermediaries

7. Intermediaries to be Registered with
SEBI
• Broker
• Sub Broker
• Merchant Banker
• Underwriter
• Banker to the issue
• Registrar to the Issue
• Share transfer Agent
• Mutual fund
• Trustee of Trust Deed
• Portfolio Manager
• Investment Advisor
• Depository Participant
• Depository
• Credit rating agencies CRISIL / CARE
• Flls
• Custodians
• Collective Investment Vehicle / Chit fund
• Venture Capitalist

8. Reforms in Indian Securities Market
• Establishment of market regulator – SEBI
• Permitting foreign investments in equity markets ❑
• Demutualization
• Screen Based Trading
• Clearing Corporation
• Dematerialization
• Reduction in trading cycle
• Launch of Exchange Traded Funds
• Direct Market Access
• Launch of Securities Lending & Borrowing Scheme
• Launch of Currency Futures ❑ ASBA- Application Supported by Blocked
Amount ❑ Issue of Capital and Disclosure Requirements (ICDR)
• Regulations 2009

10. • IPO Process Pre Issue Marketing Post Issue
• Price Discovery
• Finalizing Basis of Allotment
• Documentation with Depositories
• Listing Approvals from the Stock Exchanges
• Post Issue Research
• Support for Sustained Coverage
• Long term value Creation
• Due Diligence , Drafting of Prospectus
• IPO Grading
• Statutory Approvals
• Appointing Intermediaries
• Valuation and Pricing
• Marketing Strategy
• Arranging Firm Allotments
• Circulating Quality Research Report
• Printing and Distribution of Stationery
• Timing of Issue
• Media Strategy for Wide Publicity
• Road shows
• Press
• Brokers
• Analyst
• One to One Meets
• Analyst Meets / Plant Visits
• NRI Investors
• Retail Distribution
• Advertising campaigns
• Positioning Marketing to Institutional Retail
• Investors

11. Eligibility Criteria for IPO
• Eligibility Criteria for Unlisted Companies
• Net Tangible Assets Rs. 3 Crores (3 Years)
• Track Record of Distributable Profits Sec 205 of Cos. Act (3 / 5 Years)
• Category I Net Tangible Assets, Profitability and Net Worth Track Record
• Net Worth Rs. 1 Crore (3 Years)
• IPO Size lt 5X Pre-issue Networth
• (b) Minimum Post Issued Capital Rs. 10 crores
• Category II (Companies Not Falling under CategoryI)
• (a) Issue through Book Building Route at least
• 50 Allotted to QIBs
• OR
• Compulsory Market Making for 2 years (Min 300 Shares) 10 Quote end 5
Inventory
• Participation by FIs / Banks for 15 of Project
• (10 from Appraisers)

12. Issue Size Minimum Issue Size
• Minimum 20 lakh securities to be offered
• Minimum Issue Size of Rs. 100 Crs
• Issue through Book Building
• Allocation of 60 of Issue Size to QIBs

13. Promoters Contribution
• Promoters Contribution and Lock-in Requirements
• Promoters Contribution Not less than 20 of Post Issue Capital Securities Ineligible for
Computation of Promoters Contribution Acquired for consideration other than Cash
and Revaluation of Assets or Capitalization of Intangible Assets in last 3 years Bonus
Issues out of Revaluation Reserves or Reserves without Accrual of Cash Resources in
last 3 years Issued to the Promoters at a Price Lower than the IPO Price during the
preceding One year from the date of SEBI filing, unless the difference in price is
brought in
• Lock-in Requirements (Unlisted Companies) Entire Pre-issue Capital locked-in for One
year from date of allotment in IPO or Commencement of Commercial Production,
whichever is later. Transfer of Locked-in shares among pre-issue shareholders allowed,
provided lock-in continues with transferee Promoters holding up to 20 of Post-issue
Capital Locked-in for Three years and excess Promoters Holding locked-in for One year
on LIFO basis
• Public Issue by Listed Companies No requirement for Promoters Contribution if
company listed for Three Years and has paid Dividends for last Three Years In case of
Excess over Minimum Promoter's Contribution, will attract Preferential Issue
Guidelines

14. IPO Grading (Unlisted Companies)
• IPO Grading Compulsory from May 1, 2007
• Five-point point scale
• Higher score indicating stronger Fundamentals and
• vice versa
• All the grades to be disclosed
• Activity to run parallel to the filing of draft
• offer document
• Price of the IPO not taken into account for
• Grading
• IPO Grade Price Matrix
• First IPO Grading
• CRISIL
• Kiri Dyes and Chemicals Ltd 2/5
• (Subscription 1.3 times)
• ICRA
• SRS Entertainment 2/5

15. IPO Grading (Unlisted Companies)
Factors Considered for IPO Grading
• Business Prospects and Competitive Position
• Industry Prospects
• Company Prospects
• Financial Position
• Management Quality
• Corporate Governance Practices
• Compliance and Litigation History
• New Projects Risks and Prospects
• Key Components of Investment Decision

18. PRIVATE PLACEMENT
•
• Small number of financial intermediaries (UTI,
• mutual funds, insurance companies, merchant
• banking subsidiaries of commercial banks)
• purchase the shares and sell them to investors
• at a later date at a suitable price.
•
• ADVANTAGES-
• 1.Cost effective- statutory and non-statutory
• expenses are avioded.
• 2.Time effective, structure effectiveness-
• flexible to suit all the financial
• intermediaries.
• 3.Access effective- issues of all sizes can be accomodated.

19. RIGHTS ISSUE
•
• Offers shares at first to the existing
• shareholders.
•
• In proportion to the shares held by them at
• the time of offer.
•
• Offered at an advantageous rate compared with
• the market rate.
•
• Certain conditions-
• 1.A notice should be issued to specify the
• number of shares issued.
• 2.The time given to accept should not be less
• than 15 days.
• 3.Right of the shareholders to renounce the
• offer in favor of others.

20. BOOK BUILDING
•
• Process of price discovery-
•
• Not a fixed price for its shares.
•
• Indicates a price band that mentions the lowest
• (referred to as floor) and the highest (cap)
• prices.
•
• The spread between the floor and the cap of the
• price band shall not be more than 20%. The cap
• should not be more than 120% of the floor price.
•
• Price is finalized by the book runner and the
• issuer company

21. •
• Malegam committee- introduction of book building
• process OCT 1995.
• •
• Originally, companies issuing more than Rs.100
• cr. Allowed; Later SEBI allowed for issue of any
• size.
•
• NIRMA offering a maximum of 100 lakh equity
• shares through this process, 1 st company to adopt the mechanism.
•
• An example of pricing securities- GOOGLE’s IPO
• offer-
• Google’s IPO offer on the Dutch auction
• basis, similar o the book building process.
• Target range between U.S.$105 and U.S.$ 135
• per share.
• Market response to offer not too good, final
• issue price U.S.$ 85.
• Enabled Google to find price that market was willing to pay for this issue.

22. RED HERRING PROSPECTUS
•
• Prospectus without details of either price or
• number of shares being offered or the amount
• of issue.
•
• A preliminary registration statement that must
• be filed with the SEBI describing a new issue
• of stock(IOP) and the prospectus of the
• issuing company.
•
• It is known as a RED HERRING because it
• contains a passage in red that states the
• company is not attempting to sell their shares
• before the registration is approved by SEBI.

23. PRICING OF ISSUE
•
• Prior to 1992, governed by Controller of Capital Issues Act 1947, fixation of a fair
price on the basis of the net asset calue per share.
•
• Era of free pricing in 1992, SEBI does not play
• any role in price fixation.
• Issuer in consultation with merchant banker
• shall decide the price.
• FIXED PRICE- company and LM fix a price.
• PRICE DISCOVERY THROUGH BOOK BUILDING-
• company and LM stipulate a floor price or a
• price band and leave it to market forces to
• determine the final price.
• AT PREMIUM- companies are permitted to price
• their issues at a premium.
• AT PAR VALUE- in certain cases companies are not
• permitted to fix their issue prices at premium.

24. INTERMEDIARIES TO THE
ISSUE
• INTERMEDIARIES TO THE ISSUE ARE-
• 1.Merchant bankers to the issue or Book
• running lead managers (BRLM).
• 2.Registrars to the issue.
• 3.Bankers to the issue.
• 4.Auditors of the company.
• 5.Underwriters to the issue.
• 6.Solicitors
• 7.Advertising agencies.
• 8.Financial institutions.
• 9.Government / statutory agencies

25. LEAD MANAGER
• Appointed by company to manage public issue programmes.
•
• BRLM-A merchant banker possessing valid SEBI
• registration.
•
• Main duties-
• 1.Drafting of prospectus.
• 2.Preparing the budget of expenses related to the issue.
• 3.Suggesting the appropriate timings of the public issue.
• 4.Assisting in marketing the public issues successfully.
• 5.Advising the company in the appointment of registrars
• to the issue, underwriters, brokers, bankers to the
• issue, advertising agents.
• 6.Detecting the various agencies involved in public
• issue.

26. • The merchant banking division of the
• financial institutions, subsidiaries of
• commercial banks, foreign banks, private
• sector banks and private agencies are
• available to act as lead managers.
•
• Some of them are SBI capital markets
• ltd. Bank of Baroda, Canara bank, DSP
• financial consultant ltd. ICICI
• securities and Finance company ltd. Etc.

27. REGISTRAR
•
• Finalizes the list of eligible allotees after deleting the invalid applications.
•
• Corporate action for crediting of shares to demat accounts of the
applicants.
•
• Dispatch of refund orders to those applicable.
•
• Receive the share application from various collection centres
•
• Recommend the basis of allotment in consultation with the regional
stock exchange
• for approval.
•
• Arrange for the dispatching of the share certificates.

28. BANKERS TO THE ISSUE
• Ensure that the funds are collected
• and transferred to the Escrow
• accounts.
•
• Estimates of collection and advising
• the issuer about the closure of the
• issue

29. UNDERWRITERS
•
• Underwriting means they will subscribe to the balance shares if all the shares offered
at the IPO are not picked up.
•
• Could be a banker, broker, merchant banker or financial institution.
•
• Insurance against the possibility of inadequate subscription.
•
• Done for a commission
• The aspects considered before appointing are-
• 1.Experience in the primary market.
• 2.Past underwriting performance and default.
• 3.Outstanding underwriting commitment.
• 4.The network of investor clientele of the
• underwriter.
• 5.His overall reputation.

30. KEY TERMS
• GREEN SHOE OPTION-
•
• An option of allocating shares in excess of
• the shares included in the public issue.
• Post-listing price stabilizing mechanism for
• a period not exceeding 30 days through a
• Stabilizing Agent.
• Issue would be over allotted to the extent of
• a maximum of 15% of the issue size.
• Provides an investor more probability of
• getting shares.
• Post-listing price may show relatively more
• stability as compared to market.
• QUALIFIED INSTITUTIONAL BUYERS (QIB’s)-
• Institutional buyers who are perceived to
• possess expertise and the financial muscle to evaluate and invest into capital markets.

31. What to look for before investing
in an IPO
• 1. Valuation: First thing to look at is how aggressively
• the IPO is Priced. The more aggressively it is priced the
• lesser the chances of price appreciation.
•
• 2. Promoter’s Goodwill: the Promoter’s Goodwill is an
• important parameter in analyzing an IPO as a goodwill
• creates trust in taking decision for applying for an IPO.
•
• 3. Broker’s Report: Brokers can provide an investor with
• all the info he needs on the co. so an investor must take
• advice from his stock broker before applying for an IPO.
•
• 4. Ratings: SEBI has now made it mandatory for every co.
• to get its IPO rated through any approved rating agencies
• like CRISIL, ICRA etc. but remember that it does not
• provide guarantee of success