Post on 02-Dec-2014
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CAPITAL MARKET AND
PRIMARY MARKET
Presented by Aprameya JoshiIII BBM
CAPITAL MARKET
Markets for buying and selling equity and debt instruments. Capital markets channel savings and investment between suppliers of capital such as retail investors and institutional investors, and users of capital like businesses, government and individuals.
Capital markets are vital to the functioning of an economy, since capital is a critical component for generating economic output.
Capital markets include primary markets, where new stock and bond issues are sold to investors, and secondary markets, which trade existing securities.
Ctnd.Primary Market provides the channel for sale of new securities
and also for the new companies to enter into the share market and make their mark.
These shares are issued in both domestic and international markets and is a channel for the companies to meet their financial requirements.
FEATURES OF PRIMARY MARKETFeatures of primary markets include: The securities are issued by the company directly to the
investors. The company receives the money and issues new securities to
the investors. The primary markets are used by companies for the purpose
of setting up new ventures/ business or for expanding or modernizing the
existing business .Primary market performs the crucial function of facilitating
capital formation in the economy .
The need for primary market
To raise funds for certain purposes.To create market for new issues of
securities.To establish the magnitude of the
resources.To mobilize the resources in the economy.
PROSPECTUSA disclosure document that describes a
financial security for potential buyers. It commonly provides investors with material information about the securities being issued. As per the section 56 of the companies act all the contents of the prospectus should be disclosed in a fair and unbiased manner.
Role of SEBI in primary market: Entry norms for a company Promoters’ contribution Disclosure Book building Allocation of shares Market intermediaries
Players in new issue market• ISSUER: The corporation, municipality, government
agency or investment company offering securities for sale to investors.
• UNDERWRITER: An investment bank that serves as intermediary between the issuer and the investing public.
• SYNDICATE: A group of investment banks which jointly underwrite and distribute an offering.
• REGISTRARS: They maintain the dematerialised application for new issues,their cheques,stock invests etc., and work under the stipulations of SEBI and RBI rules
Types Of Issues
Types of issues in a capital marketPublic issue : when a company raises funds by
selling its shares to the public through issue of offer document it is called public issue.
– Initial public offering: when a unlisted company makes a public issue for the first time and gets its shares listed on stock exchange.
– Further public offering: when a listed company makes another public issue to raise capital through an offer document.
Right issue: when an existing company wants to raise additional capital, securities are offered to the existing shareholders on a pre-emptive basis.
Preferential issue: this is an issue of shares by listed companies to a selected group of persons(u/s 81 of companies act 1956)
Functions of primary market• The main function of a new issue market is to facilitate
transfer of resources from savers to the users. The savers
are individuals, commercial banks, insurance
companies etc. The users are public limited companies
and the government. It is not only a platform for raising
finance to establish new enterprises but also for
expansion/ diversification/ modernization of existing
units.
• In this basis the new issue market can be classified as:-– Initial public offering (for the first time)– Seasonal equity offering (raise additional capital)
Functions of new issue market
Origination: It refers to the work of investigation, analysis and processing
of new project proposals. It starts before an issue is actually floated in the
market. This function is done by merchant bankers who may be commercial
banks. At present, financial institutions and private firms also perform this
service. Though this service is highly important, the success of the issue
depends on the efficiency of the market
Underwriting: It is an agreement whereby the underwriter promises
to subscribe to a specified number of shares or debentures or a specified
amount of stock in the event of public not subscribing to the issue. If the issue is
fully subscribed, then there is no liability for the underwriter. If a part of share
issues remains unsold, the underwriter will buy the shares. Thus, underwriting is
a guarantee for marketability of shares. There are two types of underwriters in
India - Institutional ( LIC, UTI, IDBI, ICICI) and Non-institutional are brokers.
Distribution: It is the function of sale of securities to ultimate investors. This
service is performed by brokers and agents who maintain a regular and direct
contact with the ultimate investors.
-issue of prospectus to public
-providing liquidity to the stocks
Factors considered by an investors
• Promoter’s creditability
• Project information• Product• Financial data • Risk factors• Auditor’s report
How to buy shares in primary market?
ONLINE
OFFLINE
Online share buying Offline share buying
Capital market and primary marketPresented by
Aprameya joshiIII BBM