Primary Market

 The Primary Market is where new securities (shares, debentures, bonds, etc.) are issued
for the first time by companies or the government to investors.
 The money from investors goes directly to the issuing company for its business activities.
 Example: When a company issues shares through an IPO (Initial Public Offering).

Key point:
👉 Company raises fresh capital from the public.

Secondary Market

 The Secondary Market is where already issued securities are bought and sold among
investors.
 The issuing company does not receive any money from these transactions.

 Example: Buying or selling shares on the stock exchange like NSE or BSE.

Key point:
👉 Securities are traded between investors

Difference at a Glance

Basis Primary Market Secondary Market

Meaning New securities issued Existing securities traded

Participants Company and investors Investors only

Purpose Raise new capital Provide liquidity to investors

Example IPO Stock exchange trading

Investment Institutions

Investment institutions are organizations that take money (savings) from people and companies
and invest it in shares, bonds, or other assets to earn profits. They help gather public savings and
use them to develop the country’s economy by creating more capital

Examples:

 LIC (Life Insurance Corporation)

 UTI (Unit Trust of India)

 Mutual Funds

 Pension Funds

Functions: Mobilize savings, invest in securities, and provide financial stability.

Qualified Institutional Buyers (QIBs)

Meaning:
Qualified Institutional Buyers (QIBs) are institutional investors who are considered to have
expertise, financial strength, and professional knowledge to evaluate and invest in capital
markets.
They are recognized by the Securities and Exchange Board of India (SEBI) under the SEBI
(Issue of Capital and Disclosure Requirements) Regulations, 2018.

Unlike retail investors, QIBs are not required to file detailed disclosures or undergo the same
level of investor protection since they are assumed to understand and manage investment risks
effectively.

Examples of QIBs

According to SEBI, the following entities are treated as Qualified Institutional Buyers:

1. Mutual Funds registered with SEBI

2. Insurance Companies registered with IRDAI
3. Scheduled Commercial Banks
4. Public Financial Institutions
5. Foreign Institutional Investors (FIIs) and Foreign Portfolio Investors (FPIs)
 6. Pension Funds and Provident Funds

7. Alternative Investment Funds (AIFs)

8. Venture Capital Funds

Role and Importance of QIBs

1. Stabilize the Market:

QIBs bring stability and confidence to the capital market through large, informed
investments.
2. Support Public Issues:
In Initial Public Offerings (IPOs), a certain percentage (usually 50%) of the issue is
reserved for QIBs.

3. Encourage Transparency:
Their participation encourages companies to maintain high standards of governance
and disclosure.

4. Liquidity Provider:
By actively trading in the market, QIBs improve liquidity and market efficiency.

QIB Reservation in IPOs

 In book-built issues, 50% of the shares are reserved for QIBs.

 Within QIBs, 5% of the shares are reserved for Mutual Funds.

 QIBs are not allowed to withdraw bids after the close of bidding, ensuring seriousness
of participation.

High Net-worth Individuals (HNIs) are investors who possess substantial investable wealth and are
capable of investing large amounts in the capital market.
They usually invest in Initial Public Offerings (IPOs), mutual funds, and portfolio management services
(PMS)
SEBI Classification:

According to SEBI’s IPO regulations:

 Investors who apply for shares worth more than ₹2 lakh in an IPO are categorized as
HNIs.
  They fall under the Non-Institutional Investor (NII) category.

In an IPO, investors applying for more than ₹2 lakh worth of shares are classified as HNIs.

Example: Businesspersons, professionals, or wealthy individuals investing large sums in

securities.

Features of HNIs:

1. Large Investment Capacity: Can invest substantial amounts in equity, mutual funds,
bonds, etc.
2. High Risk Appetite: Willing to take higher risks for better returns.

3. Diversified Portfolio: Invest in various asset classes like real estate, shares, startups, and
global markets.

4. Professional Financial Advice: Usually take investment guidance from wealth managers
or portfolio experts.

Venture Capital (VC) is a form of private equity financing provided by specialized investors
to startups and small businesses with high growth potential but high risk.
VC investors provide funds in exchange for equity and often actively guide the business.

Example: Funding a tech startup in its early stage to help it grow.

Features of Venture Capital:

1. High Risk, High Return: Invests in new or innovative businesses with uncertain
prospects.
2. Equity Participation: VC firms take ownership stakes in the company.

3. Active Role: Investors often mentor, guide, and manage the company’s growth.

4. Long-Term Investment: Usually held for 3–7 years before exit.

5. Exit Strategy: Returns are realized through IPO, mergers, or acquisitions.

Sources of Venture Capital:

 Venture Capital Firms

 Angel Investors
  Corporate Venture Funds

 Government Schemes supporting startups

Importance:

1. Encourages innovation and entrepreneurship.

2. Provides funding to startups that cannot access bank loans.

3. Promotes economic growth and job creation.

4. Helps professionalize management in startups through investor guidanc

Equity represents ownership in a company. Investors who buy equity shares become part-owners and
have a right to dividends and voting rights in the company.
Example: Buying shares of TCS or Reliance on the stock exchange
Features of Equity Shares:

1. Ownership Rights: Shareholders are co-owners of the company.

2. Dividends: Shareholders receive a portion of profits as dividends, which are not fixed
and depend on company performance.

3. Voting Rights: Shareholders can vote on key company decisions, such as election of
directors.

4. Capital Appreciation: Equity shares can increase in market value, giving capital gains
to investors.

5. Residual Claim: In case of company liquidation, equity shareholders are paid after debt
holders and preference shareholders.

6. Tradability: Equity shares are traded in stock exchanges, providing liquidity.

Types of Equity Shares:

1. Ordinary Shares: Standard equity with dividend and voting rights.

2. Preference Shares: Usually have fixed dividend but limited or no voting rights.

3. Bonus Shares: Free additional shares issued to shareholders.

4. Rights Shares: Shares offered to existing shareholders at a discounted price.

Importance:

 Helps companies raise long-term capital.

 Provides investors ownership and profit-sharing opportunities.

 Contributes to economic growth by mobilizing savings.

Meaning:

The Capital Market is a market for long-term finance (usually more than one year) where
securities like equity shares, debentures, bonds, and derivatives are issued and traded.
It plays a vital role in economic growth by channeling savings into productive investments.

Features:

1. Long-term Finance: Deals with equity, preference shares, debentures, bonds.

2. Two Segments:

o Primary Market: New securities are issued to raise fresh capital.

o Secondary Market: Existing securities are traded among investors.

3. Regulated Market: In India, SEBI regulates the capital market.

4. Mobilizes Savings: Encourages individuals and institutions to invest surplus funds.

5. Risk and Return: Investors face risk but have the potential for high returns.
Importance:

 Provides long-term capital to businesses and governments.

 Offers investment opportunities to individuals and institutions.

 Encourages economic growth and infrastructure development.

 Facilitates price discovery and liquidity of securities.

Example:

 Buying shares during an IPO → Primary Market

 Trading shares on BSE or NSE → Secondary Market

Debt instruments:

Debt instruments are financial instruments through which a company or government borrows
money from investors at a fixed rate of interest and promises to repay the principal on a
specified date.

Example: Bonds, debentures, government securities.

Investors in debt instruments do not become owners of the company but are creditors, entitled to
receive interest and repayment of principal.
Features:

1. Fixed Income: Investors earn fixed interest (coupon) periodically.

2. Repayment of Principal: The principal amount is returned on maturity.
 3. No Ownership: Investors do not have voting rights or ownership in the company.

4. Low Risk: Generally less risky than equity, especially government-issued debt.

5. Tradable: Many debt instruments can be traded in the secondary market.

Types of Debt Instruments:

1. Debentures: Long-term unsecured bonds issued by companies.

2. Bonds: Fixed-interest securities issued by companies or governments.

3. Government Securities (G-Secs): Issued by the government with guaranteed returns.

4. Certificate of Deposit (CD): Short-term deposits issued by banks.

5. Commercial Papers (CP): Unsecured short-term promissory notes issued by companies.

UNIT-II

History and develoment of stock markets in india

The history of stock markets in India evolved from informal gatherings under banyan trees in the
19th century to a modern, fully regulated, electronic trading system.

1. Early Beginnings (Pre-1850s)

Informal trading in shares started in the 18th and early 19th century.
Traders and businessmen used to meet under banyan trees in Mumbai (Bombay) to buy and sell
shares of [Link] British rule , the trade and business increased ,,which created need
for well –organised trade.

2. Formation of organized trading ( 1850-1920)

In 1850 is the date where the first recorded organized trade begin under banyan tree in Bombay
by stock brokers would later become this informal group of brokers become the foundation of
indian first stock exchange.

In 1875 the Bombay stock exchange was established , the is the old stock exchange in Asia
formed by 22 stock brokers who met under the banaya tree to trade share.

BSE played crucial role in Indian stock market for development of capital market by providing
trading securities and regulazation of process.

3. Pre Independence period 1920-1947

During this period the stock market had begun growth , due to expansion of railways, cotton
mills and govt projects . But trading was unregulated and vulnerable to maniplations. Provisional
Stock exchanges established in kolkatta and ahmadabad.

During the world war I and post war , considerable impact on stock market and economy , its
lead to increase spending governmane and need of war bonds which are traded on stock
exchange. Howerver this period brought economic difficulties , including inflation and decline
of trade and affected trade.

During the World war II , one side ware and increase spending govt and war bonds traded in
stock exchange and another side growth in industrial like cement , steel, chemical which
contributed growth in stock market. The british gov and indian entrepreures supported for new
companies and listed in stock market.

4. Modernation and reform ( 1991 onwards)

The later 1980 was marked for lack transference and undependable clearing and settlement
system, which understood there is need of regulirazation system. As result of this the stock
exchange board of india ( SEBI) established in 1988 and NSE – national stock exchange
established in [Link] this period stock market rapidly growth . The NSE was created grate
changes in stock market to bring online trading with fully automated sceen based electronic
trading system in 1994.

Major events that shapped in indian market.

Liberalization of economy in 1991 brought major reforms.

Introducing of electronics trading , online tranding.

In 1992 scam of harsad meheta , crashed the share market completely .

Estabishment SEBI and NSE.

Greater foreign investment allowed , increase of liquidty and participation.

5. Modern Era (2000 onwards)

 2000: Dematerialization of shares allowed paperless trading.

 Online and mobile trading became mainstream, enabling retail investors to trade easily.

 Recent developments include algorithmic trading, AI-based tools, and continuous

technology upgrades.

Online and mobile trading: The internet further democratized trading, and online platforms
became mainstream in the 2000s, enabling retail investors to participate more easily. More
recently, mobile trading and advanced tools like algorithmic trading and AI have emerged.

Banker to Issue:

A Banker to Issue is a bank or financial institution appointed by a company to manage their

process of securities ( shares, bonds, debentures) to the public .

When a new company want to issue its share and want to the bank or financial insution maintain
the process of issuing securities to the public . they appoint any bank to act on behalf company to
handle the process of the issuing securities to public.

Funtions/Role:

1. The bank has to collect the application along with payment.

2. Maintain the record of the application and payment.
3. Handover the application and payment to company for allotment of shares.
4. Refund the payment for unsuccessful application
5. Maintain the company transactions, act like bridge between company and investor

Role and Functions of Underwriters:

Definition:
An underwriter is a person, bank, or financial institution that agrees to subscribe to the shares or
debentures of a company if they are not fully taken up by the public during an issue.

Example:
Suppose a company, ABC Ltd, issues 1,00,000 shares to the public. If only 70,000 shares are
subscribed by investors, the underwriter agrees to buy the remaining 30,000 shares. This
ensures the company receives the full capital it needs.
  If ICICI Bank or HDFC Bank acts as the underwriter, they take the risk of buying the
unsold shares.
 This also encourages more investors to apply, knowing professionals have guaranteed the
issue

Roles / Functions:

1. Guarantee Subscription

 Ensures the company raises the required capital by agreeing to buy any unsold shares.

2. Risk Bearing

 Takes the risk of unsold shares, providing financial security to the issuing company.

3. Promote Confidence

 Their involvement increases investor trust in the issue, encouraging public participation.

4. Stabilize the Issue

 Helps maintain stability in the stock price of the company after the issue by reducing
uncertainty.

5. Advisory Role

 May advise the company on pricing, timing, and market conditions for the issue.

Role and Functions of Portfolio Managers

Definition:
A Portfolio Manager is a professional or firm that manages the investment portfolio of clients,
making decisions about buying, holding, or selling securities on their behalf to achieve specific
financial goals.

Roles / Functions:
 1. Investment Planning

 Analyze client’s financial goals, risk tolerance, and investment horizon.

2. Portfolio Construction

 Select a mix of securities (stocks, bonds, mutual funds) to achieve optimal returns.

3. Risk Management

 Diversify investments to minimize risk while maximizing returns.

4. Monitoring Investments

 Continuously track performance of investments and make adjustments as needed.

5. Advisory Role

 Provide professional advice on market trends, economic conditions, and investment

strategies.

6. Reporting

 Regularly update clients with statements and performance reports.

RERA Act 2016.

This act established under approval of parlament of india in 2016 and came into force from 2017.
The main purpose to establish this act is to regulate the real eastate market and protect the
interested home buyers and to promote the transference and accountability in the real estate
business.
Before this act , there is no proper protection and main home buyers lost due unfair practice.
The main objectives of this act
Regulate the real estate sector and
Protect buyers,
To ensure timely completion and handover the project
To establish the Real estate regulatory authority in every state and UT
To provide dispute resolution mechanisim through REAT.
This act applicable for all project residential or commericial where >500 sqt m and >8 flor
apartment as notified
Key functions:
Compulsory registration for project and reals estate agents
70% funds collected from buyes , has to deposit in separate bank account and these funds must
invest in same project.
Project has to complet intime and delivery
Penalities for not complete ( 10% of total project cost non registration, 5% for mislead
information,)

Reg process:
The Developer /agenemt must prepare all required document like developer name, address, pan
card, And fill the application form online to submit RERA with complete project details , plans ,
area , completion date etc
Authorizes verifies these documents and approve.
Once it approve , they will get RERA registration number , these number has to display in al
their documents before selling and advertisement