Primary versus Secondary Markets

An overview of Indian Securities markets broadly divided into two segments i.e Primary and Secondary Markets. These are divisions of Capital Markets. In today's fast-paced consumer society, Knowledge of capital markets is an essential everyday life skill. It helps to understand and negotiate the financial landscape and economic changes, manage money and financial risks effectively and avoids financial pitfalls .Knowledge of capital markets, can benefit anyone, regardless of age, income or background. It helps people make better informed choices and helps achieve financial goals.

A) Primary Markets: It provides an opportunity to the Issuers of Securities (Shares) both of Government & Corporations, to raise resources to meet their requirements of Investment i.e newly formed securities are brought or sold in primary markets. 

A market for new long term equity capital where securities are sold for the first time also called New Issue Market (ISM).

Securities in the form of Equity or Debt can be issued in domestic and international markets at face value, discount or premium.

In this market, flow of funds is directly from Savers (government) to Borrowers (Industries), hence it helps in the capital formation of the country.

Under companies act 1956, an Issue is referred as Public if it results in allotment of securities to 50 Investors or more. Otherwise, it is called Private Placement.

Examples: 

a) Initial Public Offering (IPO) is the first sale of company stock to the general public. IPO received by Companies for setting up new business or expanding or modernizing the existing business.

b) Investment Bankers are financial specialists who handle the sales of most corporate and municipal securities.

c) Underwriting process of purchasing an issue from a firm or government and reselling the issue to investors.

B) Secondary Markets: It refers to a market where Securities are traded after being offered to the public in the primary market (or) listed on Stock exchange. Here companies issues long term securities to investors. The chief purpose of secondary markets is to create liquidity in securities in the medium of stock exchange. It ensures safe and fair dealing. 

Examples: a) Stock Market allow investors to buy and sell shares in publicly traded companies. Any subsequent trading of stock securities occur in secondary market. 

  b) Over-the-Counter (OTC) market also known as Dealer market handles the exchanging of public stocks not listed in NSE, NYSE, NASDAQ, etc.