An overview of management of financial services. short description on primary market and capital market.

2. Presented by:
Sandeep Bhat

3. › Introduction
› Services in primary market
› Role and function of merchant banker
› Book building
› Conclusion

4. Introduction

5. › A capital market is a financial market in which long-
term debt or equity-backed securities are bought and
sold. Capital markets are defined as markets in which
money is provided for periods longer than a year.
› TYPES
1. Primary market
2. Secondary market

6. › Primary market
The primary market is the part of the capital market that
deals with issuing of new securities.
Primary markets create long term instruments through
which corporate entities raise funds from the capital market.
In a primary market, companies, governments or public
sector institutions can raise funds through bond issues and
corporations can raise capital through the sale of
new stock through an initial public offering (IPO).

7. › The secondary market commonly referred to as the "stock
market." The defining characteristic of the secondary
market is that investors trade among themselves.
› In the secondary market, investors trade previously issued
securities without the issuing companies' involvement.
› For example, if you go to buy Microsoft stock, you are
dealing only with another investor who owns shares in
Microsoft. Microsoft is not directly involved with the
transaction.

8. › Merchant bank
A merchant bank is a company that deals mostly
in international finance, business loans for companies
and underwriting.
A merchant bank may perform some of the same services
as an investment bank, but it does not provide regular
banking services to the general public.
A merchant bank also provides advisory on corporate
matters to the firms in which they invest.

9. Services in
primary market

10. › Primary market facilitate capital growth.
› It facilitates companies to issue new stocks to raise money
directly from households for business expansion or to
meet financial obligations.
– To raise funds
– IPO
– Sale of Government Securities
– Primary Market Participants

11. › This is the market for new long term equity capital. The
primary market is the market where the securities are sold
for the first time. Therefore, it is also called the new issue
market (NIM).
› In a primary issue, the securities are issued by the
company directly to investors.
› The company receives the money and issues new security
certificates to the investors.

12. › Primary issues are used by companies for the purpose of
setting up new business or for expanding or modernizing
the existing business.
› The primary market performs the crucial function of
facilitating capital formation in the economy.
› The new issue market does not include certain other
sources of new long term external finance, such as loans
from financial institutions.

13. Role and function
Of
merchant banker

14. › Merchant Banking is a combination of Banking and
consultancy services. It provides consultancy to its clients
for financial, marketing, managerial and legal matters.
› It helps to raise (collect) finance.
› It helps to expand and modernize the business.
› It helps in restructuring of a business.
› It also helps companies to register, buy and sell shares at
the stock exchange.

16. › Raising Finance for Clients
› Broker in Stock Exchange
› Project Management
› Advice on Expansion and Modernization
› Managing Public Issue of Companies
› Handling Government Consent for Industrial Projects
› Special Assistance to Small Companies and Entrepreneurs

17. › Services to Public Sector Units
› Revival of Sick Industrial Units
› Portfolio Management
› Corporate Restructuring
› Money Market Operation
› Leasing Services
› Management of Interest and Dividend

19. › Book building is a systematic process of generating,
capturing, and recording investor demand for shares
during an initial public offering(IPO), or other securities
during their issuance process, in order to support
efficient price discovery.
› The issuer appoints a major investment bank to act as a
major securities underwriter or book runner.

20. › When a company wants to raise money, it plans on offering
its stock to the public. This typically takes place through
either an IPO or FPO.
› The book building process helps determine the value of the
security. Once a company determines it wants to have an
IPO, it will then contact a book runner or a lead manager.
› The book runner will determine the price range at which it
is willing to sell the stock. The book runner will then send
out the draft prospectus to potential investors.

21. › Public Offerings-both Initial Public Offers (IPOs) and
Follow-on Public Offers (FPOs) to aid price and demand
discovery.
› The issue price is determined after the bid closure based
on the demand generated in the process.
› The book normally remains open for a period of 5 days.
› Bids have to be entered within the specified price band.
› Bids can be revised by the bidders before the book closes.

22. › How is the Price Fixed?
All the applications received till the last dates are analysed
and a final offer price, known as the cutoff price is arrived
at. The final price is the equilibrium price or the highest
price at which all the shares on offer can be sold smoothly.
If the price quoted by an investor is less than the final price,
he will not get allotment.

23. › Book Building vs. Fixed Price Method
The main difference between the book building method
and the fixed price method is that in the former, the issue
price to not decided initially. The investors have to bid for
the shares within the price range given. The issue price is
fixed on the basis of demand and supply of the shares.

24. › Book Building vs. Reserve Book Building
While book building is used to raise capital for the
company’s business operations, reverse book building is
used for buyback of shares from the market. Reverse book
building is also a price discovery method, in which the bids
are taken from the current investors and the final price is
decided on the last day of the offer. Normally the price
fixed in reverse book building exceeds the market price.

25. Conclusion

26. › The important thing to understand about the primary market
is that securities are purchased directly from an issuing
company.
› The secondary market is where investors purchase securities or
assets from other investors, rather than from the issuing
companies themselves.
› A merchant bank is a company that deals mostly in
international finance, business loans for companies and
underwriting.
› Book building is actually a price discovery method. In this
method, the company doesn't fix up a particular price for the
shares, but instead gives a price range

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