project on primary mkt

8/4/2019 Project on Primary Mkt

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Project On:-

Primary

market


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Capital Market

Capital market is a market where thefirm or the companies can raise longterm funds. The capital market consists

ofbanks, insurance companies, stockexchanges which play a role inchannelizing the long term funds for

the commercial purpose. The capitalmarket has two segments the first oneis the primary market and the secondone is the secondary market.


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MEANING:-

the primary market in the simplest

terms it is a market where thesecurities are sold in order to raisethe funds or the capital required bythe company. The securities can be

in many forms such as equity shares,preference shares, debt instruments,bonds etc.


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Features of primarymarkets are:

This is the market for new long termequity capital. The primary market is themarket where the securities are sold for

the first time. Therefore it is also calledthe new issue market (NIM).

In a primary issue, the securities areissued by the company directly toinvestors.


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Primary issues are used by companies for thepurpose of setting up new business or forexpanding or modernizing the existing

business.

The primary market performs the crucialfunction of facilitating capital formation in the

economy.

The new issue market does not include certainother sources of new long term external

finance, such as loans from financialinstitutions. Borrowers in the new issue marketmay be raising capital for converting privatecapital into public capital; this is known as

"going public."


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Characteristics of PrimaryMarket

He first characteristic is that thesecurities are being sold for the firsttime.

These securities can be sold toindividual investors or group ofinvestors or to another company.

This is a place where the company getsthe lon term ca ital.


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IPO & FPO

The company could be issuing theshare for the first or may be second orthird time. If the issue of the share isbeing done for the first time by a

company then it is called as IPO (InitialPublic Offering) and if the company isissuing shares for the second or the

third time then it is called as FPO(Follow-on Public Offering). Some of thecompanies which went for IPO in theyear 2009 are Club Mahindra Holidays,

Adani Power, NHPC, Indiabulls Power,


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The functions of theprimary market

a) Allocation of capital in the most attractive andefficient sectors of the economy;

b) Development opportunities for businesses;

c) Increasing competition in the financialmarket;

d) Development of the securities market (new

issues, new investors);

e) Improved valuation of the issuer on the


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Ways to raise Capital in thePrimary Market

There are 4 ways in which a companycan raise the capital in the primarymarke:

Public Issues

Offer of Sale

Rights Issue

Private Placement


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*Public Issues*

In Public Issues the company offersthe shares directly to thepublic/institutions. The shares are

allotted at a stated price. It is donethrough document called aprospectus. It is one of the most

common methods followed all overthe world.


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*Offer of Sale*

In this type the company sells off all itssecurities to one issue houses or theshare brokers. The share brokers sell

these securities at higher price thanthe price at which they havepurchased them from the company.

The difference in the purchasing andselling price is called as turn orspread or Bought Out Deals(BOD). The advantage of this kind of

sale is that the company need not print


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*Rights Issue*

This is an FPO. In this type thecompany distributes the new sharesor securities amongst the existing

share holders. The distributiondepends on the capital that has to beraised by the company and the

number of the shares that theexisting investors possess.


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*Private Placement*

In this type the share brokers orissue houses purchase all the sharesout-rightly from the company and

issue them to their own clients at thesame price or at the premium price.


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Advantages andDisadvantages of Primary

Market

There are certain advantages ofprimary market and as every

coin undoubtedly has two sidesthere are certain disadvantagesalso. Lets have a look at some

of these


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Advantages

It provides a platform for acompany to modernize ordiversify its business.

The companies can get thecapital easily for a long term.

The investors get a good

opportunity to invest in thebusiness and get goodreturns in the form ofinterest, dividends.

Even small investors canparticipate and buy the

Disadvantages

There are possibilities thatthe company is just makingexaggerated claimsabout the prospectiveprojects so as to attract the

investors The delay in the allotment of

the shares may hamper theinterest of the investors.

Some of the investors arevery much interested ininvesting in preference sharecapital as the income or theprofits generated in thebusiness vary and so that

they can get a fixed amountof returns from the


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What is the role of the'Primary Market'?

The primary market provides thechannel for sale of new securities.Primary market provides opportunity to

issuers of securities; Government aswell as corporates, to raise resources tomeet their requirements of investmentand/or discharge some obligation. They

may issue the securities at face value,or at a discount/premium and thesesecurities may take a variety of forms

such as equity, debt etc. They mayissue the securities in domestic market


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*Market trend*

A market trend is a putativeprevailing course or tendency of afinancial market to move in a particulardirection over time.These trends areclassified as secular trends for long-term time frames, primary trends formid-term periods,

and secondary trends lasting shorttimes.Traders identify market trendsusing technical analysis, a frameworkwhich characterizes market trends as a

predictable price response of the


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Bull market

A bull market is associated withincreasing investor confidence, andincreased investing in anticipation of

future price increases capital gains.A bullish trend in the stock marketoften begins before the general

economy shows clear signs ofrecovery.


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Bear Market

A bear market is a general decline inthe stock market over a period oftime.It is a transition from high investor

optimism to widespread investor fearand pessimism.

According toThe Vanguard Group,

"While theres no agreed-upondefinition of a bear market, onegenerally accepted measure is a price

decline of 20% or more over at least a"


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Market top

A market top is usually not adramatic event. The market has

simply reached the highest pointthat it will, for a few years,although of course people don't

know that at the time. A declinethen follows, usually gradually atfirst and later with more rapidity.


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Market bottom

A market bottom is a trend reversal,the end of a market downturn, andprecedes 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. Theupturn following a decline is oftenshort-lived and prices might resumetheir decline. This would bring a loss for

the investor who purchased stock(s)


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Problems Of Indian PrimaryMarket

There are several problems of the Indianprimary market. But these problems can beovercome too by mere application of

simple rules( end of the article). Theseremedies have been suggested by experts.Economists attribute these problems tovarious factors some of which are

highlighted below.

The function of the primary market withrespect to the market for IPO or initial

public offering is to see that various


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Inappropriate allotment ofshares:

There are many existing problems ofthe Indian primary market. Some of theinstances include the inappropriate

assignment of shares to the public aswas the case of the ONGC publicissues. Due to this there was a lot of

confusion among the investors.


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Withdrawal of IPOs:

Another problem lies in the fact thatthese days, IPOs are increasingly beingwithdrawn. An expert has rightly saidthat there is no point expressing

disappointment in the withdrawal ofthe IPOs because it may be taken notas an indication of failure of the

company and hence the primarymarket but it may be considered as adisagreement of price between the

seller and the buyer. The primary


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The incidents occurring in the primarymarkets are reflections of what is

actually happening in the secondarymarkets. It was fathomed that theIPOs, which were lately taken back

had very "aggressive" price bands.The price bands could have beenaligned as per existing conditions ofthe market. The lead managers

responsible for the IPOs may also beblamed for the catastrophe. Few areof the opinion that lack of judgment

may have led to the withdrawal.


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"Cornering" of shares:

Recently, there was an instancewhen investors "cornered"

shares, which were to be allotedto the public. The investor wasactually a big investor who

camouflaged as a small investorcornered many shares.


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Grey markets andmanipulation:

Other problems of Indian primarymarkets include over subscription of

shares. There are instances when thegrey markets usually have highpremia, which collapse as soon as theissues are listed. These indicate that

for vested interests manipulation inthe markets are rampant.


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Causes:

Owing to the subprime mortgage crisisin the United States of America,economies around the globe becamesluggish and there were fears ofrecurring recession in the US. The otherprimary markets of the world werealready affected long ago. In fact the

Indian primary market has beenimpacted rather late. Few economistsfeel that this delay may be attributed

to the "decoupling theory" followed in


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Karan . A . Dedhia-------010 Amey . N . Kambli------019

Pradeep. J . Sharma-----050

Ankit. P . Malde---------029

Sagar . J . Shah-----------048

Rahul . J . Darji ----------009

project on primary mkt

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