Equity Market

Equity Market

1. Primary Market

1.1 Issue Types:

- Initial Public Offering (IPO): A process through which a company raises capital by offering its shares to the public for the first time. 

- Follow-on Public Offering (FPO): Occurs when a publicly-traded company issues new shares to the market after its IPO.

- Rights Issue: Offering additional shares to existing shareholders at a predetermined price, usually at a discount.

 

1.2 Prospectus:

- A legal document that provides details about the company and the securities being offered to the public. It includes information on the company's financials, management, risks, and objectives.

 

1.3 IPO Pricing:

- Fixed Price IPO: The price at which the company offers its shares is predetermined.

- Book Building IPO: Price is determined through a bidding process, where investors bid for the shares at various prices.

 

2. Equity Market Instruments:

- Common Stocks: Ownership shares in a corporation, entitling the owner to dividends and voting rights.

- Preferred Stocks: Stocks that give shareholders priority over common shareholders in terms of dividends and assets.

- Derivatives: Financial contracts whose value is derived from an underlying asset, such as options and futures contracts.

 

3. Secondary Market:

- Indexes: Measures of the performance of a group of stocks, such as the S&P 500 or the Nifty 50.

- Participants: Include retail investors, institutional investors, brokers, and market makers.

- Terminologies: Include bid price, ask price, volume, and market capitalization.

- Clearing & Settlement: The process of confirming and completing transactions after they occur in the secondary market.

- Securities Transaction Tax (STT): A tax levied on the sale or purchase of securities in India.

 

4. SEBI Guidelines:

- The Securities and Exchange Board of India (SEBI) regulates the securities market in India.

- Guidelines cover various aspects such as disclosure norms, insider trading regulations, and corporate governance standards.

 

5. Scams:

- Harshad Mehta Scam: Involved manipulation of the stock market through illegal bank receipts.

- Ketan Parekh Scam: Involved stock market manipulation through circular trading and collusion with banks.

- IPO Scam: Involved manipulation of IPO allotment process by certain entities.

- NSEL Scam: Involved fraud in commodity trading at the National Spot Exchange Limited.

 

Features:

- Provides a platform for companies to raise capital.

- Facilitates investment opportunities for investors.

- Allows for price discovery through the interplay of supply and demand in the secondary market.

 

Objectives:

- Facilitate capital formation for businesses.

- Provide liquidity to investors.

- Ensure fair and transparent trading practices.

 

Advantages:

- Enables companies to access a wider pool of capital.

- Offers investors opportunities for wealth creation.

- Contributes to economic growth by allocating capital efficiently.

 

Limitations:

- Market volatility can lead to investment losses.

- Regulatory compliance can be complex and costly for companies.

- Scams and fraudulent activities can erode investor trust and confidence.