Primary Market refers to a market which provides the channel for creation and sale of securities. Primary market provides an opportunity to investors to apply & own stocks issued by the corporate (as well as the government) through an IPO (Initial Public Offer). A corporate raises capital from the public to meet its expansion plans or discharge financial obligations.
The resources in this kind of market are mobilized either through the public issue in which anyone can subscribe for it, or through the private placement route in which the issue is made available only to a selected group of subscribers such as banks, FIs, MFs and high net worth individuals. In private placement, the stringent public disclosure regulations and registration requirements are relaxed since these securities are allotted to a few sophisticated and experienced investors,. The Companies Act, 1956, states that an offer of securities to more than 50 persons is deemed to be public issue.
Secondary Market refers to a market where shares are traded after being initially offered to the public in the primary market. It is a market in which an investor purchases shares from another investor through stock exchange. Majority of the stock trading is done in the secondary market. The secondary market enables participants who hold securities to adjust their holdings in response to changes in their assessment of risk and return. They also sell securities for cash to meet their liquidity needs.
|