Scribd
Upload
37 views21 pages

Sapm PPT 1

The primary market is where new stock and bond issues are first sold to investors. It provides companies with capital to grow and expand their operations. In the primary market, intermediaries like merchant bankers, underwriters, and stock brokers facilitate the issuance and distribution of new securities. Some key functions of the primary market include origination, underwriting, and distribution of new stock or bond offerings. There are advantages like opportunity for new investment and expansion, as well as disadvantages like long lock-up periods for investors' money.

Uploaded by

Gitanjali Subbaraaj
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
37 views21 pages

Sapm PPT 1

The primary market is where new stock and bond issues are first sold to investors. It provides companies with capital to grow and expand their operations. In the primary market, intermediaries like merchant bankers, underwriters, and stock brokers facilitate the issuance and distribution of new securities. Some key functions of the primary market include origination, underwriting, and distribution of new stock or bond offerings. There are advantages like opportunity for new investment and expansion, as well as disadvantages like long lock-up periods for investors' money.

Uploaded by

Gitanjali Subbaraaj
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 21

SECURITY ANALYSIS AND

PORTFOLIO MANAGEMENT

UNIT 2
PRIMARY MARKET

CLASS : III BBA


TEAM : 4
AGENDA
 Securities markets
 Primary market - Introduction
 Functions
 Advantages of primary market
 Disadvantages of primary market
 Players in the primary market [3 I’s]
 Types of issues
 Types of investors
FINANCIAL MARKET
 Financial Market  refers to a marketplace, where creation and trading
of financial assets, such as shares, debentures, bonds, derivatives,
currencies, etc. take place. It plays a crucial role in allocating limited
resources, in the country's economy.
 The trading of stocks and bonds in the financial market can take directly
between buyers and sellers or by medium of stock exchange.
 Financial market can be domestic or international.
Securities market
 Security market is a component of the wider financial market where
securities can be bought and sold between subjects of the economy, on
the basis of demand and supply.
 Securities are issued by corporation to raise money.
 Securities market is divided into two levels
Primary market – where new securities are issued.
Secondary market – where existing securities can be bought are sold.
Primary market - Introduction
 The primary market is where securities are created. It's in
this market that firms sell (float) new stocks and bonds to the
public for the first time. An initial public offering, or IPO, is an
example of a primary market.

 A primary market is a market where buyers and sellers negotiate


and transact directly without any intermediaries or resellers.

 Regarding financial markets, the primary market is also often


referred to as the new issue market as it is the place where the
issuing of new securities transpires.
Functions of primary market
1. Origination
• In primary market, origination means to investigate,
evaluate and procedure new project proposals. It
initiates before an issue is present in the market. It is
done with the help of merchant bankers.
The merchant bankers can be
• banks,
• financial institutions,
• private investment firms, etc.

2. Underwriting
In primary market, to ensure success of new issue, there is a
need for underwriting firms. The company needs to appoint
underwriters. They can be banks or financial institutions or
specialized underwriting firms.
Functions.,
3. Distribution

In primary market, the success of any grand new


issue is hinges on the issue is being subscribed
by the people. The sale of the securities to the
supreme or highest investors is termed as
distribution.

 Distribution Job is given to brokers and dealers.


The brokers or agents maintain direct contact
with the supreme investors.
Advantages of primary marketing:
  It provides opportunity for new investors to start new
enterprises.
 Existing companies will be in a position to expand their activities.

 Promotion of partnership firm into Public Limited companies or


merger of companies or facilitates buy-back of shares.
 There ‘s no brokerage, transaction fees and stamp duty.

Disadvantages of primary market:

 In case of oversubscription, small investors don’t get an


allocation

 Money gets locked in for long time.


Players in the primary market [3 I’s]
Three I’s are.,
 Issuers
 Intermediaries
 Investors

Two main types of issuers:


 Corporate’s issue both debt and equity securities.
 Government issue debt securities.

Investors:
 Individual investors
 Corporate investors [DLLS & FLLS]
(domestic institutional investors - DLLS)
(foreign institutional investors - FLLS)
Intermediaries
SEBI – REGULATOR:
 Securities and Exchange Board of India (SEBI) is a statutory
regulatory body entrusted with the responsibility to regulate the
Indian capital markets.
 It monitors and regulates the securities market and protects the
interests of the investors by enforcing certain rules and regulations.

SEBI Guidelines for Primary Market


 New Company Set up by Existing Company: Any old company with a
good track record in terms of profit for at least 5 years if promoting
any new company, then the new company is allowed to price its
issue.
 This prices will be determined by the issuer by consulting with the
lead manager.
MERCHANT BANKERS

 Merchant bankers play an important role in issue management


process. Lead managers (category I merchant bankers) have to
ensure correctness of the information furnished in the offer
document.
 The role of merchant bankers in performing their due diligence
functions has become even more important with the
strengthening of disclosure requirements and with SEBI giving up
the vetting of prospectuses.
 SEBI's various operational guidelines issued during the year to
merchant bankers primarily addressed the need to enhance the
standard of disclosures.
Credit rating agencies:
 IPO grading is the professional assessment of ta Credit Rating Agency
(CRAs) on the fundamentals of accompany in relation to the other listed
equity shares in India.

 It is mandatory for the issuer company coming with initial public offer
(IPO) to obtain IPO grading from a Credit rating Agency and disclose the
same on the cover of offer document and application form.

 The grades are allocated on a 5 point scale as below:


 IPO grade 1 :Poor fundamentals
 IPO grade 2: Below average fundamentals
 IPO grade 3: Average fundamentals
 IPO grade 4: Above average fundamentals
 IPO grade 5: Strong fundamentals.
Depositories – NSDL & CDSL

National securities depository limited and Central depository services limited are depositories

 A DP (depository participants is like an agent of these depositories.


 Depositories hold securities like shares in a electrical form.
 Investor open their account with depositories via depository
participants .They don’t deal directly with the depositories.

Stock exchanges:
 Stock exchange provides a platform to trade company stock and other
securities.
 A stock may be bought or sold only if it is listed on exchange.
 The two major stock exchange in India are BSE & NSE regulated by
SEBI.
Stock brokers:
 A stock broker is also called a registered representatives,
investment advisor or simply, broker is a professional
individual who executes buy and sell orders for stocks and
other securities through a stock market for a fee or
commission (brokerage).
 Example for stock brokers:
Kotak securities
India bulls
India Infoline
TYPES OF ISSUES

IPO:

 Initial Public Offer (IPO), is the first sale of shares by the privately
owned company to the public.
 An initial public offering, or IPO, is an example of a primary market.
These trades provide an opportunity for investors to buy securities
from the bank that did the initial underwriting for a particular stock.
 An IPO occurs when a private company issues stock to the public
for the first time.

Right Issue:
 A rights offering (rights issue) is a group of rights offered to existing
shareholders to purchase additional stock shares, known as
subscription warrants, in proportion to their existing holdings.
 Rights are often transferable, allowing the holder to sell them in the
open market
BONUS ISSUE
 A bonus issue, also known as a scrip issue or a capitalization issue, is
an offer of free additional shares to existing shareholders.
 A company may decide to distribute further shares as an alternative to
increasing the dividend payout.
 For example, a company may give one bonus share for every five
shares held.

PRIVATE PLACEMENT METHOD


 A private placement is a sale of stock shares or bonds to pre-selected
investors and institutions rather than on the open market. It is an
alternative to an initial public offering (IPO) for a company seeking to
raise capital for expansion.
 Private placements can be done by either private companies wishing
to acquire a few select investors or by publicly traded companies as a
secondary stock offering.
BOUGHT OUT DEALS

 A 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 the lead sponsor is known as
bought-out deals.

ESOP
 An employee stock ownership plan (ESOP) is an employee benefit
plan that gives workers ownership interest in the company.
 ESOPs give the sponsoring company, the selling shareholder, and
participants receive various tax benefits, making them qualified
plans.
 Companies often use ESOPs as a corporate-finance strategy to
align the interests of their employees with those of their
shareholders.
IDR
 Indian Depository Receipt (IDR) is a financial instrument
denominated in Indian Rupees in the form of a depository receipt.
The IDR is a specific Indian version of the similar global depository
receipts.
 It is created by a Domestic Depository against the underlying
equity of issuing company to enable foreign companies to raise
funds from the Indian securities Markets.
ADR
 An American depository receipt (ADR) is a negotiable certificate
issue by a U.S. bank representing a specified number of share in a
foreign (i.e. non U.S. stock that is trade on a U.S. exchange.
 ADRs are denominated in U.S. dollars with the underlying security
held by a U.S. financial institution overseas.
Summary
 Introduction of primary market – functions, advantages &
disadvantages.
 Types of issues – IPO, right issue, bonus issue .. Etc.
 Intermediaries
 Investors
 IDR & ADR.
Presented by – Team 4

 Devamathi – 18BBA015
 Gitanjali – 18BBAO20
 Gobinath – 18BBA021
 Gokulakrishna - 18 BBAO22
 Kavya - 18BBAO26
 Amrutha Chandran – 18BBA058
 Rufsona Khatun – 18BBA061
THANK YOU

You might also like