Q.'Tech Work' an Artificial Intelligence (AI) startup started in 2024. It was earning good profits. It wanted to expand its business and for its research and development, it required ₹ 100 crores. The Chief Executive Officer of 'Tech Work' consulted the Finance Manager who suggested that there is a market which facilitates transfer of investible funds from savers to entrepreneurs seeking to establish new enterprises or expand existing ones through the issue of securities. The management of 'Tech Work' decided to raise funds from the investors by issuing equity shares @ ₹ 200 per share for the first time.
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Start your 14-day free trial to unlock the full solution →Tech Work is raising funds by issuing equity shares to the public for the first time, which places it in the primary market — the segment of the capital market where new securities are issued directly to investors.
The question is about a real business situation: a startup called Tech Work needs ₹100 crores for expansion and R&D. Its finance manager points to a market where savers (people with money to invest) can transfer their funds to entrepreneurs who need capital to start or grow a business. This is the capital market — the part of the financial system that channels long-term funds from those who have surplus savings to those who need investment.
Within the capital market, there are two broad segments: the primary market and the secondary market. The primary market deals with new issues of securities — that is, when a company raises money for the first time by selling shares or debentures directly to investors. The secondary market is where already-issued securities are traded among investors (like on a stock exchange).
Tech Work is issuing equity shares at ₹200 per share for the first time. This is a classic example of a company going public through an Initial Public Offering (IPO). The money raised goes directly to the company, not to any other investor. So the market they are using is the primary market.
The primary market is also called the new issue market. It does not have a fixed physical location like a stock exchange floor; it operates through a network of intermediaries — merchant bankers, underwriters, registrars — who help the company design and sell the issue to the public.
Now, the second part of the question asks for three features of this market. Let us look at the key features of the primary market.
First feature: It is the market for new securities. Only securities that are being issued for the very first time are sold here. In Tech Work’s case, these equity shares have never been offered to the public before. Once they are sold, they will later be traded in the secondary market, but the initial sale happens only in the primary market.
Second feature: The company directly receives the funds. When an investor buys a share in the primary market, the money goes to the issuing company (Tech Work). This is different from the secondary market, where buying and selling happens between investors and the company gets no additional money. For Tech Work, the ₹100 crores raised will go straight into its bank account for expansion and R&D. …
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