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Primary market

Capital Market
Capital market is a market where the firm or the companies can raise long term funds. The capital market consists of banks, insurance companies, stock exchangeswhich play a role in channelizing the long term funds for the commercial purpose. The capital market has two segments the first one is the primary market and the second one is the secondary market.

MEANING: the primary market in the simplest terms it is a market where the securities are sold in order to raise the funds or the capital required by the company. The securities can be in many forms such as equity shares, preference shares, debt instruments, bonds etc.

Features of primary markets are:

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.

 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. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."

Characteristics of Primary Market

He first characteristic is that the securities are being sold for the first time. These securities can be sold to individual investors or group of investors or to another company. This is a place where the company gets the long term capital.

IPO & FPO

The company could be issuing the share for the first or may be second or third time. If the issue of the share is being done for the first time by a company then it is called as IPO (Initial Public Offering) and if the company is issuing shares for the second or the third time then it is called as FPO (Follow-on Public Offering). Some of the companies which went for IPO in the year 2009 are Club Mahindra Holidays, Adani Power, NHPC, Indiabulls Power,

The functions of the primary market

a) Allocation of capital in the most attractive and efficient sectors of the economy; b) Development opportunities for businesses; c) Increasing competition in the financial market; d) Development of the securities market (new issues, new investors); e) Improved valuation of the issuer on the

Ways to raise Capital in the Primary Market

There are 4 ways in which a company can raise the capital in the primary marke: Public Issues Offer of Sale Rights Issue Private Placement

*Public Issues*
In Public Issues the company offers the shares directly to the public/institutions. The shares are allotted at a stated price. It is done through document called a prospectus. It is one of the most common methods followed all over the world.

*Offer of Sale*
In this type the company sells off all its securities to one issue houses or the share brokers. The share brokers sell these securities at higher price than the price at which they have purchased them from the company. The difference in the purchasing and selling price is called as turn or spread or Bought Out Deals (BOD).The advantage of this kind of sale is that the company need not print

*Rights Issue*
This is an FPO. In this type the company distributes the new shares or securities amongst the existing share holders. The distribution depends on the capital that has to be raised by the company and the number of the shares that the existing investors possess.

*Private Placement*
In this type the share brokers or issue houses purchase all the shares out-rightly from the company and issue them to their own clients at the same price or at the premium price.

Advantages and Disadvantages of Primary Market

There are certain advantages of primary market and as every coin undoubtedly has two sides there are certain disadvantages also. Lets have a look at some of these

Advantages
It provides a platform for a company to modernize or diversify its business.

Disadvantages
There are possibilities that the company is just making exaggerated claims aboutthe prospective projects so as to attract the investors The delay in the allotment of the shares may hamper the interest of the investors. Some of the investors are very much interested in investing in preference share capital as the income or the profits generated in the business vary and so that they can get a fixed amount of returns from the

The companies can get the capital easily for a long term. The investors get a good opportunity to invest in the business and get good returns in the form of interest, dividends. Even small investors can participate and buy the

What is the role of the 'Primary Market'?

The primary market provides the channel for sale of new securities. Primary market provides opportunity to issuers of securities; Government as well as corporates, to raise resources to meet their requirements of investment and/or discharge some obligation. They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market

*Market trend*
Amarket trendis a putative prevailing course or tendency of a financial market to move in a particular direction over time.These trends are classified asseculartrends for longterm time frames,primarytrends for mid-term periods, andsecondarytrends lasting short times.Traders identify market trends usingtechnical analysis, a framework which characterizes market trends as a predictable price response of the

Bull market
A bull market is associated with increasing investor confidence, and increased investing in anticipation of future price increasescapital gains. A bullish trend in the stock market often begins before the general economy shows clear signs of recovery.

Bear Market
A bear market is a general decline in the stock market over a period of time.It is a transition from high investor optimism to widespread investor fear and pessimism. According toThe Vanguard Group, "While theres no agreed-upon definition of a bear market, one generally accepted measure is a price decline of 20% or more over at least a

Market top
A market top is usually not a dramatic event. The market has simply reached the highest point that it will, for a few years, although of course people don't know that at the time. A decline then follows, usually gradually at first and later with more rapidity.

Market bottom
A market bottom is a trend reversal, the end of a market downturn, and precedes the beginning of an upward moving trend (bull market). It is very difficult to identify a bottom (referred to by investors as "bottom picking") while it is occurring. The upturn following a decline is often short-lived and prices might resume their decline. This would bring a loss for the investor who purchased stock(s)

Problems Of Indian Primary Market

There are several problems of the Indian primary market. But these problems can be overcome too by mere application of simple rules( end of the article). These remedies have been suggested by experts. Economists attribute these problems to various factors some of which are highlighted below. The function of the primary market with respect to the market for IPO or initial public offering is to see that various

Inappropriate allotment of shares:

There are many existing problems of the Indian primary market. Some of the instances include the inappropriate assignment of shares to the public as was the case of the ONGC public issues. Due to this there was a lot of confusion among the investors.

Withdrawal of IPOs:
Another problem lies in the fact that these days, IPOs are increasingly being withdrawn. An expert has rightly said that there is no point expressing disappointment in the withdrawal of the IPOs because it may be taken not as an indication of failure of the company and hence the primary market but it may be considered as a disagreement of price between the seller and the buyer. The primary

 The incidents occurring in the primary markets are reflections of what is actually happening in the secondary markets. It was fathomed that the IPOs, which were lately taken back had very "aggressive" price bands. The price bands could have been aligned as per existing conditions of the market. The lead managers responsible for the IPOs may also be blamed for the catastrophe. Few are of the opinion that lack of judgment may have led to the withdrawal.

"Cornering" of shares:
Recently, there was an instance when investors "cornered" shares, which were to be alloted to the public. The investor was actually a big investor who camouflaged as a small investor cornered many shares.

Grey markets and manipulation:

Other problems of Indian primary markets include over subscription of shares. There are instances when the grey markets usually have high premia, which collapse as soon as the issues are listed. These indicate that for vested interests manipulation in the markets are rampant.

Causes:
Owing to the subprime mortgage crisis in the United States of America, economies around the globe became sluggish and there were fears of recurring recession in the US. The other primary markets of the world were already affected long ago. In fact the Indian primary market has been impacted rather late. Few economists feel that this delay may be attributed to the "decoupling theory" followed in

Karan . A . Dedhia-------010 Amey . N . Kambli------019 Pradeep. J . Sharma-----050 Ankit. P . Malde---------029 Sagar . J . Shah-----------048 Rahul . J . Darji ----------009