CAPITAL MARKET:

Capital market is the market for financial assets having a period of maturity of
more than one year or of an indefinite period. Thus, capital market provides long-term
resources needed by medium and large scale industries. Capital market is constituted by
three parts. Equity market debt market, derivative markets.

Capital market is a market for securities which consists of two segments:

Primary market
Secondary market

PRIMARY MARKET
The primary market is also known as the new issues market. It deals with new
securities being issued for the first time. The essential function of a primary market is to
facilitate the transfer of investible funds from savers to entrepreneurs seeking to establish
new enterprises or to 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 through the primary market in
the form of equity shares, preference shares, debentures, loans and deposits. Funds raised
may be for setting up new projects, expansion, diversification, modernization of existing
projects, mergers and takeovers etc.

SECONDARY MARKET
The secondary market is also known as the stock market or stock exchange. It is a
market for the purchase and sale of existing securities. It helps existing investors to
disinvest and fresh investors to enter the market. It also provides liquidity and
marketability to existing securities. It also contributes to economic growth by
channelizing funds towards the most productive investments through the process of
disinvestment and reinvestment. Securities are traded, cleared and settled within the
regulatory framework prescribed by SEBI. Advances in information technology have
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made trading through stock exchanges accessible from anywhere in the country through
trading terminals. Along with the growth of the primary market in the country, the
secondary market has also grown significantly during the last ten years.

ROLE OF PRIMARY MARKET

The primary market provides the channel for sale of new securities. Primary
market provides opportunity to issuers of securities; Government as well as corporate, to
raise resources to meet their requirements of investment and/or discharge some
obligation. The new issue market does not include certain other sources of new long term
external finance, such as loans from financial institutions. Borrowers in the new issue
market may be raising capital for converting private capital into public capital; this is
known as "going public."

NEED FOR ISSUING SHARES BY COMPANIES TO PUBLIC

Most companies are usually started privately by their promoter(s). However, the
promoters capital and the borrowings from banks and financial institutions may not be
sufficient for setting up or running the business over a long term. So companies invite the
public to contribute towards the equity and issue shares to individual investors. The way
to invite share capital from the public is through a Public Issue. Simply stated, a public
issue is an offer to the public to subscribe to the share capital of a company. Once this is
done, the company allots shares to the applicants as per the prescribed rules and
regulations laid down by SEBI.

CLASSIFICATION OF ISSUES
Primarily, issues can be classified as a Public, Rights or Preferential issues (also
known as private placements). While public and rights issues involve a detailed
procedure, private placements or preferential issues are relatively simpler. The
classification of issues is illustrated below:

Figure 1: Classification of Issues

Initial Public Offering (IPO):

Initial Public Offering (IPO) is when an unlisted company makes either afresh
issue of securities or an offer for sale of its existing securities or both for the first time to
the public. This paves way for listing and trading of the issuers securities.

A Follow on Public Offering (Further Issue):

A follow on public offering (Further Issue) is when an already listed company
makes either a fresh issue of securities to the public or an offer for sale to the public,
through an offer document.

Rights Issue:
Rights Issue is when a listed company which proposes to issue fresh securities to
its existing shareholders as on a record date. The rights are normally offered in a
particular ratio to the number of securities held prior to the issue. This route is best suited

for companies who would like to raise capital without diluting stake of its existing
shareholders.

A Preferential issue:
A Preferential issue is an issue of shares or of convertible securities by listed
companies to a select group of persons under Section 81 of the Companies Act, 1956
which is neither a rights issue nor a public issue. This is a faster way for a company to
raise equity capital. The issuer company has to comply with the Companies Act and the
requirements contained in the Chapter pertaining to preferential allotment in SEBI
guidelines which inter-alia include pricing, disclosures in notice etc. This means an issue
can be privately placed where an allotment is made to less than 50 persons.

MEANING OF ISSUE PRICE

The price at which a company's shares are offered initially in the primary market
is called as the Issue price. When they begin to be traded, the market price may be above
or below the issue price.

Difference between Public Issue and Private Placement or Preferential

Allotment:
When an issue is not made to only a select set of people but is open to the general
public and any other investor at large, it is a public issue. But if the issue is made to a
select set of people, it is called private placement. As per Companies Act, 1956, an issue
becomes public if it results in allotment to 50 persons or more. This means an issue can
be privately placed where an allotment is made to less than 50 persons.

NEED AND IMPORTANCE OF THE STUDY

The primary market plays an important role in the securities market by forming a
link between the savings and investments. It is through this market that the
borrowers viz., the Government and the corporates issue securities in which the
investors deploy their savings.

The primary market performs the crucial function of facilitating capital formation
in the economy.

This is the market for new long term equity capital. The primary market is the
market where the securities are sold for the first time. Therefore it is also called
the new issue market (NIM).

In a primary issue, the securities are issued by the company directly to investors.

The company receives the money and issues new security certificates to the
investors.

Primary issues are used by companies for the purpose of setting up new business
or for expanding or modernizing the existing business.

MAJOR REFORMS OF PRIMARY MARKET

Reduced the timeline between the launch of an IPO and listing of shares to 12
days from 21 days earlier. This ensures the money invested in an IPO is blocked

for a shorter time.

Introduction of Application Supported by Blocked Amount, or ASBA. Under this,
an investors account is debited only when the actual allotment of shares happen
in a public issue. Recently, ASBA has been made mandatory for all non-retail
investors. ASBA is safer, less time-consuming, and more transparent as compared

with the traditional method of investing in public floats.

100% margining for institutional investors in IPOs from 10% earlier. This ensures
only serious institutional investors will participate in the bidding. It enhances
transparency as it prevents issuers from attracting investors by way of displaying

inflated over-subscription numbers from institutional investors.

Introduction of French auction for follow-on public offerings. Under this,
institutional investors are allotted shares according to the bidding price and the
lowest bid price becomes the cut-off for retail investors. This ensures higher

listing premium for retail investors.

Allowed more time for retail investors for investing in IPOs and FPOs. Extra two
days allow retail investors to gauge the demand from the bigger investors and the
prospects of the issuer.
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Introduced anchor investors for primary market issuances. This would help firms
going public to get a capital commitment from a group of institutional investors
for a period longer than usual investors, which in turn could indicate the strength
of the company and promotes its brand in the market circle.

OBJECTIVES OF THE STUDY

To know the procedure through which we can apply a primary market issue.
To highlight the ASBA (Application Supported by Blocked Amount) and Non
ASBA form of applying for the issue.
To study Book Building issuing companies listed in NSE and BSE and analyze its
performance.
To study fixed price issuing companies listed in BSE and analyze its performance.
To compare the returns of Book Building and Fixed Price Issues.

To draw conclusions and offer suggestions for companies and investors in gaining
returns through Primary market.

SCOPE OF THE STUDY

The scope of the study is limited to only Indian Primary Market relating to Equity.
This study is based on the specified Book Building and Fixed Price issuing
companies of IPOs which are listed in BSE and NSE. So, the present study
includes the companies which are raised the capital through Public issues, the
Returns.

 The study confined to the specific objectives mentioned. Based on the data
available of trading of companies will be considered to analyze the performance
of IPOs.

RESEARCH METHODOLOGY
For the study of Primary market mainly the secondary data is extracted from the
Bombay Stock Exchanges site www.bseindia.com and also various books have been
referred for the same. Mainly the data collection done by
1) The direct interacting with the project guide.
2) The most of the data is collected from various text books, journals, magazines,
Stock Exchanges like NSE and BSE, SEBI.

Formulae used for Book Building and Fixed Price:

The initial return on IPOs has been computed as the difference between closing
price on the first day of trading and offer price, divided by the offer price.
For Book Building Issues:

Closing Price Offer price

Offer price

X
100

For Fixed Price Issues:

Closing Price Offer price

P1 = Closing Price on the first day of trading.

P0 = Offer Price

The returns for the different time period gaps considered calculated by taking
closing prices of the given stock after the specified time date from the listing day.
So, the formula used in equation as follows:
For Book Building Issues:

Pt P0
X 100
P0

For Fixed Price Issues:

Pt P0

Pt = Closing price at time t

P0 = Closing price on listing day

LIMITATIONS OF THE STUDY

The major limitations of the study of Primary market are as follows:-

1) The study under taken of the selected companies with only one tool and had
limited time period.
2) This study was conducted only for 45 days.