What is Primary market
It is also known as the New Issue Market which is a part of the capital market that deals with the issue of new securities to investors directly by the issuers. Here, the investors buy securities that were never traded before.
The securities are issued for the first time by the companies in order to raise capital, also known as Initial Public Offering. Companies, government or public sector institutions can obtain funds through the sale of a new stock or bond issues through the primary market. The primary market creates new securities and offers them for sale to the public.
The issue can be in the form of a public issue, private placement, preferential issue, rights, and bonus issue.
A public issue does not limit anyone (individual, organization, or corporate) in investing, while in private placement, the issuance is done to select a number of people.
- Allotment done to more than 200 people, becomes public allotment
- Allotment done to less than 200 people, becomes private allotment
Since the securities are directly issued by the companies to its investors, the company receives the money and issues certificate of security to the investor.
The securities issued to the investors in the primary market in:
- Face value
- Premium value
- Par value
When the issue of securities closes, then the securities are traded on the secondary market such as stock exchange, bonds market, derivative exchange.
Types of issues in Primary Market
When a company raises funds by selling its securities through an issue of the offer document. It is further classified into:
- IPO: IPO is an abbreviation of Initial Public Offer; it is when a company makes a fresh issue of securities to the general public for the first time.
- FPO: FPO is an abbreviation of Follow on Public offer, it is when a public limited company that is already listed on exchanges issue additional shares to the general public.
When a listed company makes an issue of fresh securities only to its existing shareholders it is known as the right issue.
When a listed company issues securities to a selected group of individuals in order to raise additional funds, it is known as a preferential issue.
Why companies issue shares to the public?
Companies come to the primary market to raise money for expansion. As each and every company requires capital for expansion and growth.
The capital can be in the form of:
- Equity: It is termed as the stock capital of the company, also known as share capital.
- Debt: it is termed as the loans taken by the business
The money raised in the primary market goes directly to issuing company. It is a place where capital formation takes place.
Keywords and Glossary relating to primary market:
In the above sections, we have well understood what is primary market referred to as. Now let us understand a few related terms in the primary market:
- Offer Document: This consists of all the relevant information about the company. This includes companies promoters, projects undertook, financial condition, the objective of raising money, etc. it is used for inviting subscriptions.
- Price Band: It is a range of price within which an investor can bid for securities.
- Cut-off price: The price decided by the issuer in consultation with the merchant banker at which the securities will be offered.
- Floor price: The minimum price at which bids can be made for an IPO.
- Face value: It is the minimum value below which the price of the stocks won’t fall.
How to apply for an IPO
- 1. Visit https://portfolio.karvyonline.com/ and mention the required details.
- 2. Click on profile request, then on IPO prefilled form.
- 3. Capture the bid details.
- 4. Check the total amount and download the form.
- 5. Visit your nearest Karvy branch and ask for the bidding number.
- 6. Submit the form to the branch.
- 7. After 15 days the shares get allotted to the investors and the amount get deducted. Incase the shares are not allotted then the amount blocked will be released back to the investors.