What is Primary Market?

What is Primary Market?

We have written many articles on capital market to educate our visitors. Capital market includes both Primary market and secondary market. Even though primary and secondary markets are dealing with securities there is a huge difference in the structure and fundamentals of these two. Primary market is used by companies to raise capital by issuing IPOs but secondary market is for the further trading of the shares. In this article we are giving you a brief about Primary market.

A company needs capital if it wants to expand its business or diversify its business or in order to modernize its whole structure no matter if it is a public company or public sector undertaking. To get the capital that is required by the company it usually goes for the issue of shares and the process of issuing of shares is done in the primary market.

To define the primary market in the simplest terms it is a market where the securities are sold in order to raise the funds or the capital required by the company. The securities can be in many forms such as equity shares, preference shares, debt instruments, bonds etc.

Capital market is a market where the firm or the companies can raise long term funds. The capital market consists of banks, insurance companies, stock exchanges which play a role in channelizing the long term funds for the commercial purpose. The capital market has two segments the first one is the primary market and the second one is the secondary market.

Features of Primary Market

IPO and FPO

The company could be issuing the share for the first or may be second or third time. If the issue of the share is being done for the first time by a company then it is called as IPO (Initial Public Offering) and if the company is issuing shares for the second or the third time then it is called as FPO (Follow-on Public Offering). Some of the companies which went for IPO in the year 2009 are Club Mahindra Holidays, Adani Power, NHPC, Indiabulls Power, etc. and some of the companies which had done the FPO’s are ICICI, ONGC etc.

See Also: Government Securities Market

Methods of raising funds from primary market

There are 4 methods in which a company can raise the capital in the primary market

Advantages and Disadvantages of Primary Market

There are certain advantages of primary market and as every coin undoubtedly has two sides there are certain disadvantages also. Let’s have a look at some of these

Advantages of Primary Market

Disadvantages of Primary Market

Regulatory body

SEBI is the regulatory body for the primary and secondary market. SEBI along with the government of India have been making new reforms and measures so as to boost the primary market. Each and every movement in the Primary and secondary markets are monitored by SEBI.