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PRIMARY MARKET ISSUES

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By Anu Bansal Swati Girotra Jagduman Singh Umakant Mishra


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Financial Market

A place in which financial assets are created or transferred. of financial market money market Capital market government securities market Foreign exchange market
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Types

CAPITAL MARKET
Organized Market Raising

mechanism

for Long term funds the capital of capital market

Functions

mobilize the financial resources secure foreign capital ensure effective allocation of resources 4/14/12

Classification of capital market


Capital

market is classified into two categories

Primary

market

secondary market

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Primary market

Known Deals

as new issue market

with new securities

Provides Does

funds directly to the companies not have any tangible form


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Functions of primary market


Function Transfer

is to facilitate transfer of resources can be done is two ways


new companies- initial issues old companies- further issues

From

operational standpoint

origination Underwriting Distribution


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Operators in the New Issue Market


Brokers

to the Issue to the Issue to the Issue

Managers Bankers

Registrars Underwriters

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Methods of floatation of new issues


Company

can raise required capital in the primary market by following methods


public issue Rights issue Bonus shares Private placements Offer to the employee
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New Public Issue/ Offer


Most

popular method of raising capital from public issue through prospectus

Raising Public

Steps to be taken What is prospectus? Content of prospectus Minimum subscription Allotment of shares
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Disadvantages of an IPO
Marketing Require

and legal cost

to disclose financial information of senior management required

Attention

Publicizing

information can be useful to competitors


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Rights Issue
Method

of raising funds from existing shareholders new shares to shareholders be at par or premium at price much lower than market price letter of offer along with application form consist of four 4/14/12

Offering Can

Offered Issue

Characteristics of right issue


Issue

price is left to discretion of company are negotiable be exercised during fixed

Rights Should

period
Number

of shares to be issued depends upon issuing company method


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Inexpensive

BONUS ISSUES
Issued Issued

to share holders out of accumulate profits in the ratio of existing shares held

Also

known as stock dividend

Other

two sources of raising bonus shares are


Share premium account Capital redemption reserve4/14/12 account

Characteristics..

Issued

on particular date be renounced

Cannot No

question of delays free of cost


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Issued Do

not change pattern of ownership

Advantages of bonus shares


Tax

benefit in future dividends of bright future value cash investment


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Increase

Indication

Psychological Conserve

Encourage Indicator

of higher future profits

Limitations
Do

not effect shareholders wealth

Does

not give and special or extra benefits to administer

Costlier

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Private Placement
Direct

sale by company to selective investors can be both public and private companies investors includes
Unit trust of India Life insurance corporation General insurance corporation of India Army group insurance
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Issuers The

Contd..
Instruments

offered

Equity shares Preference shares Cumulative convertible shares Convertible and non-convertible

debentures

Accommodates

smaller debt financing than public market


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Offer to Employee
Enables

employee to become shareholders and hereby share the profits to better


industrial relations Wider distribution of shares Lower labor turnover Higher efficiency
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Lead

Abuses in The New Issue Market


Projected

figures of turnover, profits ec of future years claims about growth were used to be made prospects

Exaggerated

Advertisement

falsely
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Problems in Issue Market


Not

able to mobilize adequate savings from public and institutional gap aversion in new market cost

Functional Risk

Incur

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YOU

THANK

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