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Ipo in India

Ipo in India

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Published by satbirpurcitm

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Published by: satbirpurcitm on Apr 05, 2010
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Capital market in any country plays an important role in supporting technological progressand in economic development by channeling funds for investment in productive assets,contributing to long term growth prospects of the economy. The direct influence of capitalmarket is seen in the growth of corporate sector, that have reduced the dependent on bank as a source of finance to raise in the capital market.It consists of primary and secondary markets. The primary market deals with the issue of new instruments by the corporate sector such as equity shares, preference shares and debtinstruments. Central and State governments, various public sector industrial units (PSUs),statutory and other authorities such as state electricity boards and port trusts also issue bonds/debt instruments.The primary market in which public issue of securities is made through a prospectus is aretail market and there is no physical location. Offer for subscription to securities is madeto investing community. The secondary market or stock exchange is a market for tradingand settlement of securities that have already been issued. The investors holding securitiessell securities through registered brokers/sub-brokers of the stock exchange. Investors whoare desirous of buying securities purchase securities through registered brokers/sub-brokersof the stock exchange. It may have a physical location like a stock exchange or a trading1
floor. Since 1995, trading in securities is screen-based and Internet-based trading has alsomade an appearance in India.The secondary market consists of 23 stock exchanges including the National Stock Exchange, Over-the-Counter Exchange of India (OTCEI) and Inter Connected Stock Exchange of India Ltd. The secondary market provides a trading place for the securitiesalready issued, to be bought and sold. It also provides liquidity to the initial buyers in the primary market to re-offer the securities to any interested buyer at any price, if mutuallyaccepted. An active secondary market actually promotes the growth of the primary marketand capital formation because investors in the primary market are assured of a continuousmarket and they can liquidate their investments. The securities market moved from T+3settlement period to T+2 rolling settlement with effect from April 1, 2003
There are several major players in the primary market. These include the merchant bankers,mutual funds, financial institutions, foreign institutional investors (FIIs) and individualinvestors. In the secondary market, there are the stock brokers (who are members of thestock exchanges), the mutual funds, financial institutions, foreign institutional investors(FIIs), and individual investors. Registrars and Transfer Agents, Custodians andDepositories are capital market intermediaries that provide important infrastructureservices for both primary and secondary markets.2
It is important to ensure smooth working of capital market, as it is the arena where the players in the economic growth of the country come together. Various laws have been passed from time to time to meet this objective.The financial market in India was highly segmented until the initiation of reforms in 1992-93 on account of a variety of regulations and administered prices including barriers toentry. The reform process was initiated with the establishment of Securities and ExchangeBoard of India (SEBI).The legislative framework before SEBI came into being consisted of three major Actsgoverning the capital markets:1. The Capital Issues Control Act 1947, which restricted access to the securities market andcontrolled the pricing of issues.2. The Companies Act, 1956, which sets out the code of conduct for the corporate sector inrelation to issue, allotment and transfer of securities, and disclosures to be made in publicissues.3. The Securities Contracts (Regulation) Act, 1956, which regulates transactions insecurities through control over stock exchanges. In addition, a number of other Acts, e.g.,the Public Debt Act, 1942, the Income Tax Act, 1961, the Banking Regulation Act, 1949,have substantial bearing on the working of the securities market.3

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