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Invest Met
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Transcript of Invest Met
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MEANING OF NEW ISSUE MARKET
It refers to the set-up which helps theindustry to raise the funds by issuing
different types of securities. These securities are issued directly to
the investors (both individuals as well asinstitutional) through the mechanismcalled primary market or new issuemarket.
The securities take birth in this market.
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Primary and secondary market
In order to obtain required
financing, new issues of shares,
debentures securities are sold inthe primary market.
Subsequent trading in these
securities occurs in other segmentof the capital market, known as
secondary market
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Features of primary markets
Market for new long term equity capital.
Securities are issued by the company directly to
investors
The company receives the money and issues newsecurity certificates to the investors
Primary issues are used by companies for the purpose
of setting up new business or for expanding or
modernizing the existing business.
The new issue market does not include certain other
sources of new long term external finance, such as
loans from financial institutions
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FUNCTIONS OF NEW ISSUE
MARKET
The main function of new issue market is tofacilitate transfer resources from savers to theusers.
It plays an important role in mobilizing the fundsfrom the savers and transferring them to theborrowers.
The main function of new issue market can be
divided into three service functions:1. Origination
2. Underwriting
3. Distribution
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Origination
It refers to the work of investigation, analysis
and processing of new project proposals.
Origination starts before an issue is actually
floated in the market. It includes a careful studyof the technical, economic and financial viability
to ensure the soundness of the project and
provides advisory services.
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Underwriting
It is an agreement whereby the underwriter
promises to subscribe to a specified number of
shares or debentures in the event of public not
subscribing to the issue. Thus it is a guaranteefor the marketability of shares.
Underwriters may be institutional and non-
institutional.
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Distribution
It is the function of sale of securities to ultimate
investors. Brokers and agents who maintain
regular and direct contract with the ultimate
investors, perform this service.
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METHODS OF FLOATING
NEW ISSUES
The various methods which are used in thefloating of securities in the new issue marketare:
Public issue through prospectus Offer for sale
Private Placement
Right issues Offer through book building process
Public offer through online system
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Public issues or Initial public
offering (IPO)
The issuing company directly offers to the general
public/institutions a fixed number of securities at a
stated price or price band through a document called
prospectus. This is the most common method followedby companies to raise capital through issue of the
securities.
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Offer of sale
It consists in outright sale of securities throughthe intermediary of issue houses or sharebrokers.
It consists of two stages: the first stage is a
direct sale by the issuing company to the issuehouse and brokers at an agreed price.
In the second stage, the intermediaries resellthe above securities to the ultimate investors.
The issue houses purchase the securities at anegotiated price and resell at a higher price.The difference in the purchase and sale price iscalled turn or spread.
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Private placement
It involves sale of securities to a limited number
of sophisticated investors such as financial
institutions, mutual funds, venture capital funds,
banks, and so on. It refers to sale of equity or equity related
instruments of an unlisted company or sale of
debentures of a listed or unlisted company.
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Right Issue
When a listed company proposes to issue
securities to its existing shareholders, whose
names appear in the register of members on
record date, in the proportion to their existingholding, through an offer document, such issues
are called Right Issue. This mode of raising
capital is the best suited when the dilution of
controlling interest is not intended.
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Book-Building/Price Band
It is a process used for marketing a public offerof equity shares of a company.
Book building is a process wherein the issue
price of a security is determined by the demandand supply forces in the capital market
The Price at which securities will be allotted isnot known in advance to the investor. Only an
indicative price range is known. (Also calledprice band and it should not be more than 20%of the floor price).
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E-IPO
The companies are now allowed to issue capital
to the public through the on-line system of the
stock exchanges. For making such on-line
issues, the companies should comply with theprovisions contained in Chapter 11A of SEBI(
Disclosure and Investor Protection) Guidelines,
2000.
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Listing of Securities
Listing means admission of the securities to
dealings on a recognized stock exchange. The
securities may be of any public limited
company, central or state government, quasigovernmental and other financial
institutions/corporations, municipalities etc.
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Objectives of listing
Providing liquidity to securities;
Mobilize savings for economic development;
Protect interest of investors by ensuring fulldisclosures.
The exchange has a separate Listing Dept. togrant approval for listing of securities ofcompanies in accordance with the various
provisions of the concerned laws, guidelinesissued by SEBI and rules, bye-laws andregulation of the exchange.
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Difference between money
market and capital market
Difference and demarcation between money market and
capital market is made on the basis of maturity period of
instruments and claims. short-term instruments maturing
within a period of one year are traded in money marketwhereas the capital market deals with longer maturity
financial assets and claims.
In capital market, the financial instruments being dealt
with are shares (equity as well as
preference),debentures (a large variety), public sector
bonds and units of mutual funds. On the other hand,
money market has different financial instruments such
as treasury bills, commercial papers, call money,
certificate of deposits, etc.
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