Primary Capital Market India

Primary market is the market place for fresh issuances of equity and long-term debt securities.

Each issue of securities in the primary market adds to the floating stock of such securities in the secondary market.

In India, equity issues are made by companies registered under the companies act 1956.
New issues of equity can be made through public offers or through private placements.

In India primary debt issues are made by companies incorporated under the companies act, pubic sector corporations, and local authorities incorporated under various statutes, and Central and state governments

Investment/Merchant bankers play an active role in the pubic offers made by companies and corporations.

In government bonds issues RBI conducts auctions.

Subscribers to government debt issues or auctions are banks and financial institutions, specialised debt and money market institutions like Discount and Finance House of India and Primary dealers.

Structure of the primary market

Public issues
Right issues
Private placements

Investors
Issuers
Instruments
Intermediaries


Institutional Investors in India


Public financial institutions

Companies Act, Section 4A has the provision for giving the status of ‘Public Financial Institution.’
IDBI, IFCI and ICICI were given this status.

Other institutions having this status

LIC
IDFC
ARCIL
GIC
TFCI
PFC
NHB
SIDBI
REC
IRFC
EXIM Bank
NABARD and
Several state financial corporations


Commercial banks

Commercial banks can make investments in corporate securities and are included in the definition of QIBs.

As per present law, the exposure limits of a bank to capital market is capped at 40% of its net worth as on march 31 of the previous financial year.

The overall ceiling applies to both funded and non-funded exposure.
Within this overall ceiling, the banks direct investment in shares, convertible bonds/debentures, units of equity oriented mutual funds and all exposures to venture capital funds should not exceed 20 per cent of its net worth.

Mutual funds

Domestic mutual in India are registered with SEBI under SEBI MF regulations 1996.
There are eligible QIBs.

FIIs

FIIs are non resident investors.
They invest in both primary and secondary markets.

FIIs include

Pension funds
Mutual funds
Investment trusts
Asset management companies
Nominee companies
Universities
Incorporate/institutional portfolio managers or their power of attorney holders
are also registered as FIIs.

The investments are regulated under SEBI FII regulations 1995.

A domestic asset management company or a portfolio manager which is registered with SEBI can also register itself as an FII to manage sub-accounts belonging to FIIs abroad.

The limit of FII holding in a company is 30%.
It can be increased to 40% if a company passes a special resolution to that effect.
FIIS require RBI approval also under FEMA.

Multilateral and Bilateral Development Financial Institutions

IFC an affiliate of IBRD (World Bank) invests in private sector companies.
ADB
KFW

Domestic V C Funds

SEBI VCF regulations

Foreign V C Funds

SEBI FVCF Regulations 2000.
Two types
Foreign venture capital investors investing in domestic VC funds.
FVCIs directly investing in companies

State Industrial Development Corporations

SIDC invest in equity securities of companies to promote companies in their states.

Insurance Companies

IRDA guidelines for investment

Provident Funds

Governed by PF Act 1952 and 1925
PF having minimum corpus size of Rs. 25 crore is a QIB.


Retail investors
One who puts in an application of less than Rs. 1,00,000 in a public issue.

High Networth Investors
Individual investor who is not a retail investors, investment companies, and other companies

Investment routes for Institutional Investors.

Subscribing to public issues
Taking up unsubscribed portions or undersubscriptions to public issues
Taking up unsubscribed portions in right issues
Subscribing to private placements
Investment in unlisted companies

Primary Market Intermediaries

Issue managers,
Underwriters,
Brokers
Registrars
Bankers
Support Services


Growth and Performance

Policy changes

Performance

Equity market

Debt market

GDRs/ADRs/Converible bonds