8.0 8.1 8.2 8.3
Objectives Introduction ,Primary Market and Secondary Market 'Idethods of Floatation of New Issues 8.3.1 Public Issue 8.3.2 Rights Issue 8.3.3 Private Placement
8.4 Entry Norms for New Issues 8.5 Fixation of Premium
8.5.1 Book Building Process
8.6 Reforms in Primary Capital Market 8.7 Recent Trends in New Issues Market in India 8.8 Let U s Sum Up 8.9 Key Words 8.10 Some Useful Books 8.1 1 Answers/Hints to Check Your Progress
After going through this unit you will be able to : explain the concept of capital market and its segments, '
describe the various means to raise the capital in the primary market, describe the reforms in primary capital market, and state the recent trends in new issues market in India.
We know that Financial markets are broadly categorized into M.). --;- --'-et and Capital market. In the previous Unit, we have studied the functioning of money market and its various instruments. In this Unit, we will deal with the capital market.
he process of industrial growth ,requires the development of the capital market, Which provides ,long-term finance to entrepreneurs. The capital market is a wide term and includes all transactions involving long-term funds. The development banks, commercial banks, financial .institutions and stock exchanges, are its important components. The Securities and Exchange Board of India (SEBI) is the regulator over the Capital Market, Capital market is an organized market for effective and efficient mobilization of funds from the
rlrxrlerous savers and transfers thc funds toethose who are in need of money to finance business operations either in the private sector or in the public sector. In other words, capital market brings together the parties who demand the funds (Industry and Business) and who supply the funds (Investors). Capital Market, therefore, is a link between savings surplus sector (Household) and saving deficit sector (Industryj. In the Cspital Market, we largely deals with the securities such 3.s equity shares, pleference shares, bonds a n d d e b e n t u r e s issued by c o r p o r a t e s , semi-Government organizations and Governments.
8-52 PRIMARY MARKET AND SECONDARY Krn
The Securities Market is divided into two segments--the Primary Market a n d the Secondary Market. The main difference between these two lies in the fact that while the fc~rrner deals with the securities, which the issuer issues for the first time, the latter deals in the existing securities. Tllas, the primary market facilitates the transfer of investible funds of the savers to the corporates, which need them for productive purposes. In the Secondary Market, no new securities come into existence, rather the existing securities change hands-one set of persons invest in them, while the ottxer group disinvests. The Primary Market, also called the Nen7Isse?es Market, is of vital importance in the economv of a country, a s it leads to better utilisation of otherwise inactive us dormant monetary resources in the economy, '
Tlnese two markets are not isolated from each other, rather they are very much inter-dependent. Activities in the new the investors to the near issues market and the response r ~ f issues of securities depend upon the prevailing conditions in the Secondary Market. If the secondary market is vibrant and booming, issues of new securities in the Primary Market will be easily able to rnobilise support of a large number of investors and vice-versa. We shall study in this Unit the existing practices for floating new issues in the Securities Market.
8 3 METHODS OF FLOATATION OF NEW .
There are three ways in which a company may raise capital in the prjixlaty market. i) P~a,h!ic Issue
ii: i3ights Issue iii)Private Placement
Capital Market (I) : New Issues Market
The most important mode of issuing...