June 23, 2020 by Research Team
Capital market facilitates buying and selling of financial securities such as shares, bonds or debentures.
Capital market channels savings and investment between suppliers of capital such as retail investors and institutional investors, and users of capital like businesses, government and individuals.
It has two mutually supporting and indivisible segments: the primary market and the secondary market.
Intermediaries such as investment bankers, merchant bankers, stock brokers, etc. play an important role in trading of securities in both the markets.
Primary market
In the primary market companies issue new securities to raise funds. Hence, this market is also known as the new issues market.
New or listed companies make public issue of shares which implies that the securities are sold to public including all individuals and institutional investors.
Public issue by new companies for the first time is called the initial public offering (IPO).
In this market, companies interact directly with investors.
Secondary market
The secondary market deals with second-hand securities ie. securities which have already been issued by companies that are listed in stock exchange.
These securities are listed and traded in the stock exchange. Hence this market is also known as the stock market.
In this market, investors interact with themselves.
Secondary market may also include over the counter (OTC) market and derivatives market.
The secondary market determines the price and risk of the securities issued.
This is helpful for both listed companies and investors to act in primary market.
The operations of primary and secondary markets in India are regulated by Security Exchange Board of India (SEBI).