Ajith S

New Issue MarketPrimary market, characterized by the

presence of a set of all institutions , structures , people, procedures , services , and practices involved in raising of fresh capital funds by both new and existing companies

Methods of marketing securities• Pure Prospectus Method Existing enterprises mops up capital fund

from general public by issuing a prospectusAdvantageso Excellent mode of disclosure of all the

information pertaining to the issueo Wide diffusion of ownership of securities

leading to reduction in concentration of economic power

Disadvantageso High issue costo Time consuming

Offer for sale methodMarketing of securities takes place in bulk

quantity to intermediariesAdvantageo Saves company from the hassles involved in

selling the sharesDisadvantageo Expensive for the investors

Private Placement methodIssuer makes the offer of sale to individuals

and institutions privately without the issue of prospectus

Advantageo Less expensiveo Less troublesome for the issuero Used when stock market is dull and public

issue is doubtful

Disadvantageo Concentration of securities in few handso Depriving the common investors of an

opportunity to subscribe to the issue

Initial Public OfferPublic issue made by a corporate entity for

the first timeOften prompted by venture capitalists who

wish to realize a cash return on their investment.

Founders of the firm may wish to go through an IPO to establish a value for their company.

There exists greater price uncertainty with an IPO than with other new public stock issues

Right Issue MethodWhere the shares of an existing company are

offered to the existing shareholders , it takes the form of ‘right issue’. Under this method, the existing company issues shares to its existing shareholders in proportions to the number of shares already held by them

Bonus Issue methodA method of marketing the securities of a

company by converting its accumulated reserves and surplus profits, it takes the form of ‘bonus issue method’.

Book-building methodA method of marketing the shares of a company whereby the quantum and the bid price of the securities to be issued will be decided on the basis of the bids received from the prospective shareholders by the lead merchant bankers is known as book building method

Employees Stock Option SchemeA method of marketing the securities of a

company whereby its employees are encouraged to take up shares and subscribe to it is known as ‘Stock Option’.

Help to retain the most productive employees in an industry , which is known for its constant churning of personnel

Bought – out dealsA method of marketing of securities of a body

corporate whereby the promoters of an unlisted company make an outright sale of a chunk of equity shares to a single sponsor or to the lead sponsor, is known as “bought –out deal”

CAPITAL MARKET

Definition A market for borrowing and lending long

term capital funds required by business enterprises

Have long or indefinite maturityThe primal role of the capital market is to

channelize investments from investors who have surplus funds to the ones who are running a deficit.

Characteristics• Securities market

dealings are done through shares and debentures

• Security pricesprices are determined through the general laws of demand and supply.

• prices depends upon 1) Yield on securities2)Level of demand for funds3)Extend of funds available from public savings

4) Flow of funds from the banking system5) Price situation in generalParticipants-Brokers -FII - Block exchanges - Depositories - Underwriters

-Mutual funds - Venture capital funds - RegulatorsLocation

exists all over the country,where suppliers and users of capital get together and do business

FUNCTIONS• Allocation function

- the current savings for a period are allocated amongst the various users and uses.- also allocates and rations funds by a system of incentives and penalities.

• Liquidity function-Provides a means where by buyers and sellers can exchange securities at mutually satisfactory prices.-allows better securities for the securities that are traded

Indicative function- Showing not only the progress, but also the economy as a whole through share price movements

Savings and Investment function- Provides a means of quickly converting long- term investment into liquid funds, thereby generating confidence among investors and speeding up the process of saving and investment.

Transfer function- facilitates the transfer of existing assets among individual economic units or groups

Merger function- encourages voluntary take-over mechanismto put the management of inefficient companies into more competent hands

CONSTITUENTS OF INDIAN CAPITAL MARKET

1. The gilt-edged market2. The industrial securities market

GILT EDGED MARKET Also known as gov. securities market Market for gov securities and semi-

gov. securitiesFEATURES:1. Guaranteed return on investment2. No speculation in securities3. Institutional based investors which are

compelled by low to invest a portion of their funds in these securities

4. Predominated by such institutions as LIC, GIC,etc.

5. Heavy volume of transactions necessitating negotiation of each transaction

INDUSTRIAL SECURITIES MARKET Market for industrial securities such as

bonds and equities Has two segments1. Primary market2. Secondary market

PRIMARY MARKET Also known as new issues market(NIM) Market for raising fresh capital in the form of

shares & debentures Allows for the formation of capital in the country MODES OF RAISING CAPITAL1. Public issue : securities issued to the members

of general public2. Rights issue : issue of equity shares of a body

corporate is made to the existing shareholders as a preemptive method

3. Private placement : shares of a body corporate are sold to a group of small investors

SECONDARY MARKETMarket which deals in securities that have

been already issued by companies.Also called stock exchange or share

market.IMPORTANCE:For efficient growth of primary market, a

sound secondary market is necessary.Its because secondary market offers the

important facility of trading of securities

STOCK EXCHANGESIntegral part of secondary market in India24 stock exchanges in India recognized by the

gov.A stock exchange operating at the national level

is also there – Over the Counter Exchange of India (OTCEI)

a) it operates through electronically linked counters at different

locationsb) helps small & start up companies to

overcome the problem of raising capitalc) helps investors to overcome the

problem of illequidity.