Page 8 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 1: Introduction to Capital Market

These activities may be conducted by both companies and governments. Notes
Capital Market consists of primary market and secondary market. In primary market newly
issued bonds and stocks are exchanged and in secondary market buying and selling of already
existing bonds and stocks take place.

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Caution Many people divide the Capital Market into Bond Market and Stock Market.
Bond Market provides financing by bond issuance and bond trading.
Stock Market provides financing by shares or stock issuance and by share
trading.

As a whole, Capital Market facilitates raising of capital through the trading of long-term
financial assets.

1.2 New Issue Market

The New Issue Market or NIM is also called the primary capital market. The securities which are
introduced in the market are sold for first time to the general public in this market. This market
is also known as the long-term debt market as the fund raised from this market provides
long-term capital.
Corporate entities may raise capital in the primary market by way of an initial public offer,
rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the
public in the primary market. This Initial Public Offering can be made through the fixed price
method, book-building method or a combination of both.
In case the issuer chooses to issue securities through the book-building route, then as per SEBI
guidelines, an issuer company can issue securities in the following manner:
1. 100% of the net offer to the public through the book-building route.
2. 75% of the net offer to the public through the book-building process and 25% through the
fixed price portion.
The industrial securities markets in India consist of new issue market and stock exchange. The
new issue market deals with the new securities, which were not previously available to the
investing public, i.e. the securities that are offered to the investing public for the first time. The
market, therefore, makes available a new block of securities for public subscription. The other
words, new issue market deals with the raising of fresh capital by companies either for cash or
for consideration other than cash.

The new issue market encompasses all institution dealing in fresh claim. The forms in which
these claims are created are equity shares, preference shares, debentures, rights issues, deposits
etc. All financial institutions, which contribute, underwrite and directly subscribe to the securities,
are part of new issue markets.

1.2.1 Functions of New Issue Market

The main function of new issue market is to facilitate transfer resources from savers to the users.
The savers are individuals, commercial banks, insurance company etc. the users are public
limited companies and the government. The new issue market plays an important role in
mobilizing the funds from the savers and transferring them to borrowers for production purposes,
an important requisite of economic growth. It is not only a platform for raising finance to

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