PRIMARY MARKETS

• INTRODUCTION• MEANING• FEATURES• FUNCTIONS

• NEED OF PRIMARY MARKETS• IMPORTANCE OF PRIMARY MARKETS

• DIFFERENT KINDS OF ISSUE• DISTINGUISH BETWEEN PRIMARY AND SECONDAY MARKET• CONCLUSION

Topics Covered

Also known as “New Issue Market”

Success of the capital market depends on primary market

Is the market for new issuers

Can be directly bought from the shareholders

Small and medium scale business, enter the primary market to raise money from the public

Introduction

Meaning The primary market is the part

of the capital market that deals with issuing of new securities.

Companies, governments or public sector institutions can obtain funds through the sale of a new stock or bond issues through primary market.

This is typically done through an investment bank or finance syndicate of securities dealers.

Why do companies need to issue share in public ?

• Most companies are usually started privately by their promoters.

• The promoters’ capital and the borrowings from banks and financial.

• Institutions may not be sufficient for setting up or running the business over a long term. So companies invite the public to contribute towards the equity.

• The way to invite share capital from the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to subscribe to the share capital of a company.

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.

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

Features Of Primary Market

ᴥ Household Savings

ᴥ Global Investments

ᴥ Sale of Government Securities

ᴥ Primary Market Participants

ᴥ Market Risk

Functions

Different kinds of Issues

• Initial Public Offering (IPO)• Rights Issues• Preferential Issues

IPO• Meaning • E.g. 1.Wipro Suppose You Bought Wipro 100 share value Rs. 100 in 1980• 1981 ,1:1 Bonus =200 shares• 1985,1:1 Bonus =400 shares• 1986 split to Rs 10 =4000 shares• 1987,1 :1 Bonus =8000• 1989, 1:1 Bonus =16000• 1992 ,1:1 Bonus =32000• 1995 ,1:1 Bonus =64000• 1997 ,2:1 Bonus =1,92,000• 1999 Split to Rs 2 =9,60,000• 2004 2:1 Bonus =28,80,000• 2005 1:1 Bonus =57,60,000• 2010 3:2 Bonus =96,00,000• Today’s Rate Rs 431• You Earn Rs 413 Crore !!

IPO

• Reliance Power Ltd.Issued on 2008Issue Price 450Many Demat A/c were opened in 2008Current Market Price is 66.80.

company

Dilution of stakesHeld with owners

Intermediaries

• Merchant Bankers • Underwriters• RTA• Depository (CDSL &NSDL)• Brokers to issue• Consultants

⌂ To raise funds for certain purpose.

⌂ To create market for new issues of securities.

⌂ To establish the magnitude of the market.

⌂ To mobilize Resource in the economy.

⌂ For overall development of companies

Need For Primary Market

It studies needs, wants and expectations of the customers.

It finds out reactions of customers to products of the company.

It evaluates company's sales promotion measures for suitable adjustment and improvements.

It studies current marketing problems and opportunities for suitable follow up.

Importance Of Primary Markets

Securities market plays a pivotal role in mobilizing savings and channeling them in productive purposes and many more.

It provides the channel for sale of new securities.

It helps government and corporate to raise resources to meet their requirements of investment and/or discharge some obligation.

Finally, it is a vital part of the economy.

Conclusion