📘 6.1 Primary Markets
🔧 6.1.1 Functions of the Primary Market
🌐 Access to Wider Markets
Primary markets allow companies to reach new investors beyond private funding sources, enabling scale and independence from restrictive borrowing.
💸 Transparent Pricing
Public issues use auction/book-building methods for fair price discovery based on demand, fundamentals, and investor confidence.
📊 Ownership Diversification
Brings in broad-based public investors, separates management from ownership, and improves governance standards.
🔍 Better Disclosures
Issuers must provide accurate, updated disclosures as per SEBI norms — enabling informed investment decisions.
🧠 Investor Evaluation
Market scrutiny from analysts, media, and investors adds credibility and accountability to the issuer.
🚪 Exit for Early Investors
Founders and early-stage VCs can exit partially via IPOs, unlocking value and providing liquidity.
💧 Liquidity for Securities
Post-listing, securities can be freely traded — improving liquidity and market access for all investors.
🛡️ Regulatory Supervision
Primary market activity is governed by SEBI, Companies Act, and listing rules — ensuring investor protection and transparency.
📦 6.1.2 Types of Issues
🌍 Public Issue
Open to all investors; includes IPOs and FPOs.
🔐 Private Placement
Issued to select institutional investors; faster but less liquid.
🎯 Preferential Issue
Listed companies offer shares to select persons; SEBI regulated.
🏦 QIP
Qualified Institutional Placement to QIBs — institutional route under SEBI ICDR.
🎁 Rights & Bonus
Rights: issued at discount to existing holders. Bonus: free shares from reserves.
🏢 6.1.3 Types of Issuers
🏛️ Governments
Issue G-Secs, T-Bills, SDLs for funding expenditure.
🏗️ PSUs
Disinvestment or bond issuance for infra/project funding.
🏢 Private Companies
Issue equity, preference shares, or bonds for growth capital.
🏦 Banks & NBFCs
Raise funds via debt and equity for lending operations.
📊 Mutual Funds
Issue NFOs to raise corpus for schemes.
🏬 REITs & InvITs
Raise capital via unit offerings for real estate/infrastructure.
🧳 AIFs
Privately pooled investment vehicles — no public invitation allowed.
👥 6.1.4 Types of Investors
- Retail Individuals & HUFs
- NRIs, PIOs, Trusts, Companies
- Banks, FIs, LLPs, FPIs
- Partnership Firms, Societies
📘 6.2 Role and Function of the Secondary Market
🔄 6.2.1 Functions of Secondary Markets
💧 Liquidity
Enables investors to buy/sell previously issued securities. Ensures marketability, timely exit, and flexibility in portfolio management.
📈 Price Discovery
Prices reflect demand-supply and investor perception. Aids fair valuation for future issues and corporate actions.
📡 Information Signalling
Market prices instantly reflect new information, forcing companies to stay efficient and transparent.
📊 Economic Indicator
Indices and trading trends reflect the overall economy’s strength or slowdown — acting as financial barometers.
🏛️ Corporate Control
Low market valuation may invite takeovers — ensuring better governance and accountability by management.
🏗️ 6.2.2 Market Structure & Participants
- Market Infrastructure: Stock exchanges, clearing corporations, depositories
- Investors: Individuals, institutions, FPIs
- Issuers: Listed companies
- Intermediaries: Brokers, banks, custodians
- Regulators: SEBI and exchange compliance teams
📊 6.2.3 Market Information
🏷️ Market Capitalisation
Total value = share price × outstanding shares. Used to classify stocks (large, mid, small cap) and track market-to-GDP ratio.
💹 Market Turnover
Total trading volume/value. Indicates liquidity. Higher turnover = more active and efficient market.
📈 Market Indices
Representative benchmarks (Sensex, Nifty) track price movement of key stocks or sectors. Used for tracking, benchmarking, and forecasting.
🛡️ 6.2.4 Risk Management in Secondary Markets
📊 Capital Adequacy
Members must maintain minimum capital and net worth to absorb risks and meet obligations.
💼 Margins
Upfront payment by traders to reduce default risk. Collected on both buy and sell orders based on volatility.
🚦 Circuit Breakers
Auto-trading halts on abnormal index movements. Prevents panic and extreme volatility.
🔐 Settlement Guarantee
Clearing corporations ensure every trade settles — even if one party defaults.
🖥️ Online Monitoring
Real-time surveillance systems flag suspicious trades, large exposures, and unusual price/volume behavior.
📉 Price Monitoring
Exchanges monitor order books, unusual bids, and act against manipulation attempts.
📚 Book Inspection
Exchange/SEBI audits of brokers and trading firms to ensure compliance with all norms and investor protection rules.
📘 6.3 Corporate Actions
Corporate actions are decisions taken by a company that affect its shareholders — such as bonus issues, dividends, buybacks, and mergers. They impact stock price, capital structure, or ownership, and are regulated by SEBI and the Companies Act【225:0†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.
📝 6.3.1 Rights Issue
New shares offered to existing shareholders at a fixed ratio and price. Avoids dilution of holding. Traded as RE in demat form【225:1†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.
🎁 6.3.2 Bonus Issue
Free shares issued from company’s reserves. Increases number of shares, no cash flow involved. Improves market perception and liquidity【225:3†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.
💰 6.3.3 Dividend
Share of profits paid to shareholders. Can be interim or final. Must be declared from earned profits; not allowed if company is in loss or has defaulted【225:3†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.
📉 6.3.4 Stock Split
Face value of shares reduced, increasing number of shares held. Makes high-priced shares more affordable and increases market liquidity【225:3†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.
🔙 6.3.5 Share Buyback
Company repurchases its own shares from open market using surplus funds. Reduces share capital, boosts EPS, and signals financial health【225:3†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.
🚫 6.3.6 Delisting
Permanent removal of shares from stock exchange. Can be voluntary (reverse book building) or compulsory (non-compliance)【225:3†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.
🔗 6.3.7 Mergers & Acquisitions
Changes shareholding pattern. SEBI regulations protect minority shareholders by providing exit opportunities【225:3†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.
📤 6.3.8 Offer for Sale
Existing investors (promoters, institutions) sell shares to the public. No fresh capital is raised. Used to meet minimum public shareholding norms【225:3†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.
