Primary Market

The primary market, also known as the new issues market, deals with new securities being issued for the first time. Its essential function is to facilitate the transfer of investible funds from savers to entrepreneurs who want to set up new enterprises or expand existing ones, through the issue of securities for the first time. The investors in this market are banks, financial institutions, insurance companies, mutual funds and individuals. A company can raise capital in the primary market in the form of equity shares, preference shares, debentures, loans and deposits, for purposes such as setting up new projects, expansion, diversification, modernisation, mergers and takeovers.

Methods of Floatation

There are various methods of floating new issues in the primary market:

1. Offer through Prospectus. This is the most popular method. The company invites the public to subscribe by issuing a prospectus — a direct appeal to investors, made through advertisements in newspapers and magazines. The issue may be underwritten and must be listed on at least one stock exchange, and the contents of the prospectus must comply with the Companies Act and SEBI's disclosure and investor-protection guidelines.
2. Offer for Sale. Securities are not issued directly to the public but are offered for sale through intermediaries such as issuing houses or stock brokers. The company sells the securities en bloc at an agreed price to brokers, who then resell them to the investing public.
3. Private Placement. This is the allotment of securities by a company to institutional investors and some selected individuals. It helps raise capital more quickly than a public issue and avoids the mandatory and non-mandatory expenses of accessing the primary market, which some companies cannot afford.
4. Rights Issue. This is a privilege given to existing shareholders to subscribe to a new issue of shares in proportion to the number of shares they already hold, according to the company's terms and conditions. …