Primary Market and

Secondary Market
 Primary Market
• Primary market refers to the initial issuance
and sale of stocks or securities by companies
directly to investors or institutions.
• It is where newly issued securities are bought
and sold for the first time, allowing companies
to raise capital to fund their operations,
expansion, or other financial needs.
• The price at which a company‘s shares are
offered initially in the primary market is called
as the Issue price
• The face value of a share or debenture is its
nominal value, typically set by the issuing
company. It represents the initial cost of the
security when first issued
• When a security is sold above its face value, it
is said to be issued at a Premium and if it is
sold at less than its face value, then it is said
to be issued at a Discount
 Reasons for Issue of Shares
• Raising Capital: Capital can be used for various purposes
such as expanding operations, funding research and
development, acquiring other businesses, or paying down
debt.
• Spreading Risk: Companies distribute the financial risk
among a larger number of shareholders rather than relying
on a few large investors or creditors.
• Improving Liquidity: Publicly traded shares provide
liquidity to existing shareholders, allowing them to buy and
sell shares in the open market. This can make the
company's stock more attractive to investors.
• Increasing Visibility and Credibility: Being publicly listed
often increases a company’s visibility and credibility. It can
enhance the company's profile, making it easier to attract
customers, business partners, and employees.
 Different Kinds of Issue
• Initial Public Offering (IPO): It’s when a
company first sells its shares to the public to
raise money.

• FPO: FPO stands for Follow-on Public

Offering. It’s when a company that’s already
publicly traded issues additional shares to
raise more money.
• Rights Issue :A Right Issue is when a company
offers its existing shareholders the chance to
buy additional shares at a discounted price
before offering them to the public. It helps the
company raise more capital while giving
current shareholders the opportunity to
maintain their ownership percentage.

• Preferential issue: A Preferential Issue is when

a company issues shares to select individuals
or groups, such as institutional investors or
strategic partners, at a special price or on
favorable terms. This is typically done to raise
funds quickly or attract specific investors.
• Market capitalization (market cap) represents
the total value of a company's outstanding
shares, calculated by multiplying the current
market price per share by the total number of
outstanding shares.

• Primarily, the issuing company, in consultation

with its investment banker, decides the initial
price of an issue. This is especially true for
Initial Public Offerings (IPOs).
 Book Building Process
• The book building process is a method used to
determine the price of shares during an IPO or FPO.
• It begins with appointing lead managers or
underwriters to oversee the offering and prepare a
prospectus with details of the company and offering.
• A price band is then set, defining the range of
potential prices for the shares.
• Investors submit bids within the price band, and bids
are compiled into a “book” to assess demand. Based
on this final issue price is determined.
• Shares are then allocated to investors at this price,
and listed on the stock exchange for trading.
• Cut-off price is the final price at which shares are
allotted to investors.
• In an Initial Public Offering (IPO), the price band
refers to the range within which the shares are
offered to investors. It consists of two components:
A) Floor Price (Lower Band): This is the minimum price
at which shares can be offered to investors. Bids
below this price are not considered during the IPO
B) Cap Price (Upper Band): This is the maximum price
at which shares can be offered. Bids above this
price are not considered.
• The spread between the floor and the cap of the
price band shall not be more than 20%. The Book
should remain open for a minimum of 3 days.
 ASBA
• ASBA (Applications Supported by Blocked Amount) is
a process used in IPOs where the application amount
is blocked in the investor's bank account instead of
being immediately debited.
• Funds are only debited once the shares are allotted.
If the application is unsuccessful or fewer shares are
allotted, the blocked amount is released back to the
investor.
• This method simplifies the application process,
reduces the risk of fraud, and ensures funds are
available only when needed.
• A prospectus is a formal document issued by a
company planning to raise capital through an
• It provides a comprehensive overview of the
company, including its history, business model, and
management team. The document contains detailed
financial statements. It also outlines the risks
associated and how the funds raised will be used.
• It specifics about the offering, such as the number of
shares, price range, underwriting details, as well as
information about legal and regulatory compliance.
• An abridged prospectus is a summary of a securities
offering, highlighting essential details like the
company’s profile, risk factors, financial highlights,
and offering terms, while omitting detailed financial
statements and extensive disclosures.
 Listing and Delisting
• Listing means admission of securities of an issuer
to trading privileges (dealings) on a stock
exchange through a formal agreement. At the
time of listing securities of a company on a stock
exchange, the company is required to enter into a
listing agreement with the exchange
• The term ―Delisting of securities‘ means
permanent removal of securities of a listed
company from a stock exchange.
 SEBI ROLE IN AN ISSUE
• Any company making a public issue or a listed
company making a rights issue of value of more
than Rs. 50 lakhs is required to file a draft offer
document with SEBI for its observations.
• The company has to open its issue within three
months period after the observations are issued
by SEBI. SEBI does not associate itself with any
issue/issuer and should in no way be construed
as a guarantee for the funds that the investor
proposes to invest through the issue.
 ADR and GDR
• ADR stands for American Depository Receipts, which are a
kind of negotiable security instrument that is issued by a US
Bank representing a specific number of shares in a foreign
company that trades in US markets.
• GDR stands for Global Depositary receipts. It is a mechanism
by which a company can raise equity from the international
market. GDR is issued by a depository bank which is located
outside the domestic boundaries of the company to the
residents of that country.
• A Foreign Currency Convertible Bond (FCCB) is a debt
instrument issued by a company in a currency different from
its home currency. The unique feature of an FCCB is that it
offers the bondholder the option to convert the bond into the
issuer's equity shares at a predetermined conversion price
and on or after a specified date.
 Secondary Market
• The secondary market is where previously issued
securities, such as stocks, bonds, and derivatives, are
bought and sold between investors.
• Stock exchanges like the New York Stock Exchange
(NYSE), Nasdaq, and the Bombay Stock Exchange
(BSE) are prominent examples of secondary markets.
• The market forces of supply and demand determine
the prices of securities in the secondary market.
• The secondary market promotes efficient allocation
of capital by enabling the transfer of securities from
those who want to sell to those who want to buy.
 Key Differences
• Purpose: The primary market is for raising capital,
while the secondary market is for trading securities
among investors.
• Participants: In the primary market, the issuer is
involved in the transaction. In the secondary market,
the issuer is not involved; only investors are.
• Price Setting: In the primary market, prices are set by
the issuer and underwriters. In the secondary
market, prices fluctuate based on market dynamics.
 Role of Stock Exchange
• A stock exchange serves as a regulated marketplace
where shares are bought and sold, providing a platform
for investors to trade securities efficiently.
• It ensures liquidity by allowing investors to quickly
convert shares into cash and facilitates price discovery
through the interaction of supply and demand.
• The exchange also ensures transparency and fairness in
transactions, offering a secure environment where
buyers and sellers can engage in trading with
confidence. This central role makes the stock exchange
vital for the smooth functioning of financial markets.
 Demutualisation
• Demutualisation of a stock exchange is when
the exchange changes from being owned by
its members (like brokers) to being owned by
shareholders, like a regular company.
• For example, if a stock exchange was originally
owned and run by the brokers who traded on
it, after demutualisation, it would become a
company where anyone can buy shares and
own a part of it.
 DEPOSITORY
• Depositories play a key role in the financial
markets by holding securities like shares and
bonds in electronic form, eliminating the need for
physical certificates.
• They facilitate the smooth and secure transfer of
ownership when trading, ensure timely
settlement of transactions, and handle corporate
actions like dividends and stock splits.
• There are two depositories in India which provide
dematerialization of securities. The National
Securities Depository Limited (NSDL) and Central
Depository Services (India) Limited (CDSL)
 Benefits of Depository
• Immediate transfer of securities
• No stamp duty on transfer of securities
• Elimination of risks associated with physical
certificates such as bad delivery, fake securities,
etc.
• Reduction in paperwork involved in securities
• Reduction in transaction cost
• Ease of nomination facility
• investor holds securities eliminating the need to
correspond with each of them separately
• Transmission of securities is done directly by the
DP eliminating correspondence with companies
 Depository Participant
• Depository Participants (DPs) are intermediaries
between investors and the depositories. They are
authorized entities, like banks, brokerage firms, or
financial institutions, through which investors can open
and manage their Demat accounts.
• When investors want to buy, sell, or hold securities in
electronic form, they do so through their DP, who
handles all transactions and interactions with the
depository on the investor's behalf.
• Essentially, DPs provide the interface for investors to
access the services offered by the depository.
• The International Securities Identification Number
(ISIN) is a unique code that identifies a specific security,
such as a stock, bond, or mutual fund, globally. The
ISIN is a 12-character alphanumeric code that helps
standardize and streamline the identification of
securities across different countries and markets.
Reliance Industries Limited: ISIN: INE002A01018
• A custodian is a financial institution responsible for
safeguarding and managing investors' securities and
assets. They securely hold physical or electronic
securities, handle the settlement of transactions, and
maintain detailed records of all holdings. Custodians
also manage corporate actions like dividend payments
and stock splits, and provide regular reports to
investors on their investments.
 Screen Based Trading
• Screen-based trading is a modern method of buying and
selling securities through electronic trading systems rather
than traditional floor trading.
• Traders use computer terminals to access these systems,
which display real-time market data, including prices and
trading volumes. Orders to buy or sell securities are
entered directly into the system via the screen, and the
platform automatically matches and executes these orders
based on set criteria like price and quantity. This method
allows traders to manage their trades and monitor market
activity from anywhere with internet access, offering
significantly faster execution and greater efficiency
compared to traditional trading methods.
• For example, a trader in Mumbai can purchase shares listed
on the Bombay Stock Exchange (BSE) by simply logging into
an online trading platform, placing an order, and having it
processed instantly, all from their computer screen.
 NEAT
• NEAT (National Exchange for Automated Trading) is an
advanced electronic trading platform used by the National
Stock Exchange (NSE) of India. It allows traders to buy and sell
stocks and other financial instruments quickly and efficiently.
• NEAT automates the trading process, meaning trades are
executed electronically without manual input. The system
matches buy and sell orders based on the best available
prices and the order in which they are received.
• NEAT provides real-time market data and trade management
tools, making it easier for traders to make decisions and
manage their investments. Additionally, NEAT includes
features to monitor and manage trading risks, helping to
ensure trades meet regulatory requirements.
 SEBI SCORES
• SEBI SCORES (SEBI Complaints Redress System) is an
online platform developed by the Securities and
Exchange Board of India (SEBI) for investors to lodge
complaints related to securities markets.
• It facilitates the resolution of grievances against listed
companies, market intermediaries, and other regulated
entities. Through this platform, investors can track the
status of their complaints in real-time, ensuring
transparency and accountability.
• SCORES aims to provide a speedy and efficient
redressal mechanism, helping maintain investor
confidence in the Indian securities market.
 PRODUCTS IN THE SECONDARY
MARKETS
• Equity shares, also known as ordinary shares, represent fractional
ownership in a business venture, giving shareholders voting rights
and a share in the company's profits.
• Rights shares are new securities offered to existing shareholders at
a specific ratio and price, such as a 2:3 rights issue at Rs. 125,
allowing the purchase of 2 shares for every 3 held.
• Bonus shares are additional shares issued to shareholders at no
cost, proportional to their existing holdings.
• Preference shares entitle holders to a fixed dividend, which must
be paid out before dividends on equity shares, and they have
priority in receiving payments upon liquidation, though they rank
below creditors and bondholders.
• Cumulative preference shares accumulate unpaid dividends, which
must be cleared before equity dividends, while cumulative
convertible preference shares also accumulate dividends but will
convert into equity shares after a specified date.
 Bonds
• Bonds are debt securities issued by companies, municipalities, or
government agencies, representing a loan made by the bondholder
to the issuer.
• The issuer promises to repay the principal on a specified maturity
date, with periodic interest payments made over the bond's life.
• Zero coupon bonds are issued at a discount and repaid at face
value, with no periodic interest; the return is the difference
between the issue and redemption prices. Convertible bonds offer
the option to convert the bond into equity at a fixed conversion
price.
• Treasury bills are short-term, discount securities issued by the
government to meet its short-term financial needs, typically
maturing within one year.
What is meant by ‘Dividend’ declared
by companies?
• A dividend is a portion of a company's profits that is
distributed to its shareholders as a reward for their
investment. When a company generates profits, it can
either reinvest them into the business or share a part of
them with its shareholders in the form of dividends.
• These payments are typically declared by the company's
board of directors Dividends can be issued in cash or in the
form of additional shares of stock.
• The process involves key dates such as the declaration
date, when the dividend is announced, the record date,
when the company identifies eligible shareholders, and the
payment date, when the dividend is actually distributed..
 Dividend yield
• Dividend yield is a percentage that shows how
much a company pays in dividends each year
compared to its current stock price. It helps
investors understand the income they earn
from dividends relative to what they paid for
the stock.
 What is a Stock Split?
• A stock split is a corporate action in which a
company divides its existing shares into multiple
shares to increase the number of shares available
in the market. Although the number of shares
increases, the overall value of the company
(market capitalization) remains the same because
the price per share is adjusted accordingly.
• Stock splits are typically done to make shares
more affordable to a broader range of investors
by lowering the price per share.
 What is Stock Consolidation?
• Stock consolidation (also known as a reverse
stock split) is a corporate action where a
company reduces the number of its outstanding
shares by merging multiple existing shares into a
single share. This process increases the price per
share but keeps the overall value of the company
(market capitalization) the same.
• Stock consolidation is often done by companies
to boost their stock price and meet exchange
listing requirements or to make the stock more
attractive to investors.
 Buyback of Shares
• Buyback of Shares is when a company
repurchases its own shares from existing
shareholders, either through the open market
or a tender offer.
• This process reduces the number of
outstanding shares, which can increase
earnings per share (EPS) and potentially boost
the market value of the remaining shares.
 Why should one invest in equities in
particular?
• Investing in equities, or shares, allows you to become a
part-owner of a company, with the potential for
significant value appreciation over time.
• Research shows that equities have outperformed most
other investments in the long term, making them a
rewarding option if held for an extended period. For
instance, the Nifty index rose by 421% between 1999
and 2016, demonstrating the potential for substantial
gains.
• However, it's important to note that equities are high-
risk investments, with the possibility of losing some or
all of the invested amount if prices move unfavorably.
Therefore, careful study of the equity markets and
specific stocks is crucial before investing.
 Growth and Value Stocks
• Growth Stocks are shares in companies expected to
grow at an above-average rate compared to other
companies. These companies typically reinvest their
earnings to fuel further growth, rather than paying
dividends. Investors buy growth stocks with the
expectation that the value of the shares will increase
significantly over time, leading to capital gains.
• Value Stocks, on the other hand, are shares of
companies that are considered undervalued in the
market. These stocks are often traded at a lower price
relative to their fundamentals, such as earnings,
dividends, or book value. Investors buy value stocks
with the belief that the market will eventually recognize
the company’s true value, leading to an increase in the
stock price.
 Bid and Ask Price
• The Bid Price is the highest price that a buyer is
willing to pay for a security, while the Ask Price (or
Offer Price) is the lowest price at which a seller is
willing to sell the security. The difference between
the bid and ask prices is known as the spread.
• The bid-ask spread reflects the liquidity of the asset;
a smaller spread typically indicates higher liquidity,
meaning the security can be bought or sold quickly
without significantly affecting its price.
 Portfolio
• A Portfolio is a collection of financial assets such as
stocks, bonds, mutual funds, and other investments
owned by an individual or institution. The purpose
of a portfolio is to diversify investments, balancing
the risk and return to achieve specific financial
goals.
• A well-constructed portfolio will typically include a
mix of asset types, allowing for the potential growth
of wealth while managing the level of risk according
to the investor's risk tolerance, investment horizon,
and financial objectives.
 Debt Instruments
• A Debt Instrument is a financial asset that represents a
loan made by an investor to a borrower, typically a
corporation or government. It is a formalized method
of raising funds, where the borrower agrees to repay
the principal amount along with interest at specified
intervals.
• Common types of debt instruments include bonds,
debentures, certificates of deposit (CDs), and treasury
bills.
• These instruments are generally considered safer
investments than equities, as they offer fixed returns
and have priority over equity holders in case of
liquidation.
 Investor Protection Fund (IPF)
• An Investor Protection Fund (IPF) is a financial safety
net established by stock exchanges or regulatory
authorities to protect investors against losses that
might arise due to the default or bankruptcy of a
trading member (like a broker) in the stock market.
• If a broker fails to meet their obligations or misuses an
investor's funds or securities, the IPF provides
compensation to the affected investors, ensuring that
they don't lose their entire investment. The fund is
typically financed by contributions from stock
exchanges, brokers, and other market participants.
• Rolling Settlement is a system in the stock
market where trades are settled on a
continuous, or "rolling," basis. Under this
system, transactions are settled a fixed
number of days after the trade date, known as
the settlement cycle. For example, in a T+2
rolling settlement system, if you buy or sell a
stock, the settlement (transfer of funds and
securities) occurs two business days after the
trade date.
• Arbitration in the context of a stock exchange
is a mechanism used to resolve disputes
between investors and brokers, or between
brokers themselves, without resorting to the
traditional court system. The process involves
appointing a neutral arbitrator or a panel of
arbitrators who are knowledgeable in financial
markets. They review the evidence, listen to
both parties, and then issue a binding
decision.
• Record Date: This is the cut-off date set by a company
to determine which shareholders are eligible to receive
dividends or participate in other corporate actions.
Only those who are listed as shareholders in the
company's records on the Record Date will be entitled
to these benefits.
• Book Closure: This is the period during which a
company temporarily closes its books for the transfer
of shares. During this time, no transfer of shares is
recorded. The purpose of book closure is to finalize the
list of shareholders as of the Record Date, ensuring
that the correct individuals receive the benefits.
 Clearing Corporation
• A Clearing Corporation plays a critical role in
financial markets by ensuring the secure and
efficient settlement of trades. It acts as a
middleman between buyers and sellers, first
confirming trade details and then calculating the
exact obligations of each party, such as the
amount of money to be paid and the securities to
be delivered. By serving as the central
counterparty, the Clearing Corporation
guarantees the completion of trades, even if one
party defaults, thereby significantly reducing
counterparty risk.
 What is the Nifty 50 index?
• The Nifty 50 is a stock market index representing
the performance of the top 50 companies listed
on the National Stock Exchange of India (NSE).
These companies are selected from various
sectors, and the index reflects the overall market
trends and the performance of the Indian
economy.
• The Nifty 50 is a market capitalization-weighted
index, meaning the weight of each company is
based on its market capitalization, with larger
companies having more influence on the index.