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FM PPT Group 14

The document discusses financial markets, focusing on the primary market's nature, significance, and methods of raising funds such as IPOs, private placements, and rights issues. It explains the functions of financial markets, including mobilizing savings, providing liquidity, and enabling direct fundraising for companies. Additionally, it outlines various methods of issuing securities, emphasizing the importance of public and private offerings in capital formation.

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Rajnish Singh
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10 views15 pages

FM PPT Group 14

The document discusses financial markets, focusing on the primary market's nature, significance, and methods of raising funds such as IPOs, private placements, and rights issues. It explains the functions of financial markets, including mobilizing savings, providing liquidity, and enabling direct fundraising for companies. Additionally, it outlines various methods of issuing securities, emphasizing the importance of public and private offerings in capital formation.

Uploaded by

Rajnish Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Session 2024-25

Paper Code :-AB-215


Paper Name :-Financial Management
Topic - Financial Markets, Primary Market (Nature and Significance) Methods of
raising funds in Primary Market (IPO, Private placement, rights issue)

Submitted By :
(Group No. 14) Submitted To :
Priyanshu Mishra - 42 Dr. Deepika Kaur
Rajnish Singh - 43 (Assistant Professor)
Rohit Romade - 44
What is Financial Market?

• Any place or system that provides buyers and sellers the means to trade
financial instruments, including bonds, equities, the various international
currencies, and derivatives.
• It include whole network of all organisation, and institution that provide
short, medium and long-term funds.
• In other words, Financial market is a market for creation and exchange of
financial assets.
Function of Financial Market
• Mobilize savings and channelize into most productive uses (Allocative
Function)
• Provide liquidity to financial assets
• Reduce the cost of transactions
• Enables the savers (household) to invest their surplus funds and
enables the investors(business firms) to borrow funds to meet their
requirements.
Types of Financial Market

• Financial market are classified on the basis of the


maturity of financial instruments traded in them.
1. Money Market : Maturity of less than one year.
2. Capital Market : Maturity of more than one year.
Primary Market
• In a Primary market, securities are created for the first time for investors to
purchase.
• New securities are issued in this market through a stock exchange, enabling the
government as well as companies to raise capital.
• In other words, the primary market is where newly issued securities are sold for the
first time by issuers directly to investors.
• It facilitates capital formation by enabling companies to raise funds for business
expansion, development, or debt repayment.
Nature of Primary Market

1. New Securities Issuance – Deals with the sale of newly issued securities to investors.
2. Direct Fundraising – Companies raise capital directly from investors without
intermediaries.
3. Regulated by SEBI – Governed by regulatory bodies like SEBI to ensure transparency.
4. Varied Methods – Includes IPOs, private placements, rights issues, and preferential
allotments.
5. No Trading Activity – Securities are issued for the first time and not traded like in the
secondary market.
Significance of Primary Market
• Market for new long term equity capital - Market place where securities are
sold for the first time.
• Securities are issued by the company- Securities are issued by the company
directly to investors.
• Setting up new business- Primary issues are used by the company for the
purpose of setting up new business or for expanding or modernizing the existing
business.
• Capital Formation- Attractive issue to the potential investors and with this
company can raise capital at lower costs.
• Channel for Govt. to raise funds- to raise funds from the public to finance public
METHODS OF ISSUING SECURITIES IN PRIMARY
MARKET,
ISSUES OF CAPITAL
• Issue of share capital is the total value of shares that a company has issued
to its shareholders.
• The value of issued share capital can fluctuate based on the market value of
the shares.
• Issued share capital is an important measure of a company's financial health
and its ability to raise capital.
1. Public Issue
• One of the most common methods of issuing securities to the public at large is Public
Issue.
• Generally, this process is undertaken by companies to raise funds from the capital
market that can be used to expand their business, pay off debt, or any other reasons.
• A) Initial Public Offer(IPO): Fresh issue of shares or selling existing securities by an
unlisted company for the first time is known as IPO.
• Listing and trading of securities of a company takes place in IPO.
• When a (unlisted) company makes a public issue for the first time and gets its shares
listed on stock exchange, the public issue is called IPO.
B. Further Public Offer (FPO)

• Also known as Follow on Offer, FPO refers to the process of issuing securities
to the general public by the company which is already listed on the stock
exchange. This is done with the aim to raise additional funds. In simple
words, when a listed company makes another public issue to raise capital, it
is called FPO. Both IPO and FPO can be undertaken by the company via 2
methods as mentioned below:
a.Fresh Issue: It means the issuance of new securities in the company and selling
of these new securities to the investors.
b.Offer for Sale (OFS): The selling of shares by promoters/investors of the
company in order to reduce their stake is known as OFS.
2. Rights Issue

• The offer to the company’s existing shareholders to buy new


shares of the company at a discounted price is known as a r
ights issue.
• It invites its existing shareholders to avail fresh shares in the
proportion of their holding in order to raise additional capital
without going to the public at large.
3. Private Placement

• When a company sells its stocks or bonds directly to a group of people


(private investors or institutions) instead of offering it to the general
public, it is known as private placement.
• A company can raise funds quickly via this distribution strategy as compared
to raising capital through fresh issues as the regulatory requirements are
significantly less.
A. Preferential Allotment
• The process in which the securities are allotted to a group of people/investors on a
preferential basis at a specific price is known as a preferential allotment.
• Listed as well as unlisted companies can issue shares/convertible securities to a select group
of investors via this strategy.
B. Qualified Institutional Placement (QIP)
• A type of private placement in which a company issues shares of debentures (fully or partly
convertible) or any other kind of marketable securities not including warrants (which are
convertible) to Qualified Institutional Buyers (QIB) is known as Qualified Institutional
Placement.
• Herein, QIBs are investors who have substantial financial knowledge and expertise to
invest in the capital market. A few of the QIBs are mentioned here, Foreign Institutional
Investors registered with SEBI, MFs, Public Financial Institutions, Insurers, Scheduled
Commercial Banks, etc.

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