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What is the primary market? It is the first, original marketplace where the stocks or bonds of corporations and governments are bought from the public. The primary market is the one that enables direct dealings between the issuer and the buyer. Companies issuing first-time securities may also fund expansion, research, or debt repayment, while investors gain access to the assets at prices set by investment banks.
Key Takeaways
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Enables companies to secure fresh capital directly from investors.
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Includes IPOs, rights issues, private placements, preferential issues, and bonus shares.
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Initial prices are set by issuers and underwriters, not trading demand.
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In India, SEBI strictly monitors all primary issues to protect investors.
Key Players of Primary Market
In this market, three main players are involved: the company, investors, and underwriters.
Companies Issuing Securities: Entities raising capital by issuing new stocks, bonds, or financial instruments.
Investors: Investors in the primary market buy new securities. They include institutions like funds and individual investors.
Investment Banks and Underwriters: Facilitators assisting companies in the issuance process by providing advisory services, underwriting, and marketing of securities.
How Does the Primary Market Work?
In the primary market, organisations issue new securities aiming to meet business goals such as expansion, debt reduction, or general corporate purposes. Examples of securities issued in the primary market include government bonds, corporate bonds, notes, bills, and company stocks.
A strict set of regulations governs all issues in the primary market. To offer securities for sale to investors, companies must file statements with the Securities and Exchange Board of India (SEBI).
Once all the stocks or bonds in the initial offering have been sold, the primary market closes. Then these securities are available in the secondary market for trading/investing.
Types of Primary Markets
Public Issue
A public issue refers to the process of offering new securities, such as shares or bonds, to the general public for subscription and purchase.
Companies utilise public issues, like Initial Public Offerings (IPOs), to raise capital and list on stock exchanges. These offerings provide individuals with the opportunity to become shareholders or bondholders, based on the allotment process.
Public issues enable companies to access fresh funds for expansion, research, and operations, enhancing market visibility and investor participation in shaping a company’s future trajectory.
Private Placement
Private placement involves the sale of securities, like shares or bonds, to a select group of investors, excluding the general public. This method allows companies to raise capital directly from institutional investors or high-net-worth individuals.
Unlike public offerings, private placements have fewer regulatory requirements and offer flexibility in structuring deals. Companies often choose private placement for efficiency and confidentiality. However, it limits market liquidity and may lack the transparency associated with public markets. Private placements are commonly used by early-stage companies.
Qualified Institutional Placement
A Qualified Institutional Placement (QIP) is a capital-raising tool that enables listed companies to issue shares to Qualified Institutional Buyers (QIBs), such as mutual funds, public financial institutions, insurers, and foreign venture capital investors. QIPs offer an expedited route to raise funds while maintaining regulatory compliance.
Preferential Issue
A preferential issue is a capital-raising mechanism where a company offers new shares to a select group of investors, typically existing shareholders or strategic investors. This method enables companies to swiftly raise funds while providing preference to specific stakeholders. Preferential issues often align with expansion plans, debt reduction, or strategic partnerships. It can dilute existing shareholder holdings.
Rights Issue
A rights issue is when a company offers its existing shareholders the opportunity to purchase additional shares at a discounted price, in proportion to their current holdings. This helps raise capital from within the shareholder base, often for expansion or debt reduction.
Bonus Issue
A bonus issue involves issuing free additional shares to existing shareholders, based on their current holdings. It enhances shareholder value without affecting ownership proportions. Companies often issue bonus shares to reward shareholders and increase market liquidity.
Functions of Primary Market
New issue offer
A primary market allows for the offering of new issues that have not previously been traded on other exchanges. Organising a fresh issue market involves, among other things, a thorough evaluation of the project's feasibility. As a result, a fresh issue market is also called a "new issue market." Financial arrangements are made specifically for the purpose and take into account promoters' equity, liquidity ratio, debt-equity ratio, and foreign exchange demand.
Services for underwriting
Underwriting is crucial when launching a new issue. Underwriters are responsible for acquiring unsold shares in a primary market if the company cannot sell the required number. Financial institutions can earn underwriting commissions by acting as underwriters. In order to determine whether taking the risk and reaping the rewards is worth it, investors rely on underwriters. IPOs can be purchased by underwriters who sell them to investors.
New issue distribution
New issues are also distributed in a key marketing arena. These distributions begin with the issuance of a new prospectus. In it, the general public is invited to purchase a new issue, and detailed information about the issue, underwriters, and the firm is provided.
Read More About: Dos And Don'ts While Investing In Primary Market
Advantages of Primary Market
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Companies can raise capital at relatively low cost, and the securities issued in the primary market are highly liquid because they can be sold in the secondary market almost immediately.
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Primary markets are important for mobilising savings in an economy. Communal savings are mobilised to invest in other channels. Investment options are financed by this.
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Compared to the secondary market, the primary market has far fewer opportunities for price manipulation. Manipulations such as these affect the fair and free operation of the market by deflating or inflating a security's price.
Disadvantages of Primary Market
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As unlisted companies are not subject to the Securities and Exchange Board of India's regulatory and disclosure requirements, investors may have limited access to information before investing in an IPO.
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There are varying degrees of risk for each stock, but IPO shares lack historical trading data in a primary market for analysis, since the company is offering its shares for the first time.
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Small investors may not always benefit from it. Small investors might not receive allocations if a share is oversubscribed.
Examples of Primary Stock Market Selling
Here are a few examples of primary stock market selling:
Rights issue: Avanse Financial Services Rights Issue (2026)
In January 2026, Avanse Financial Services successfully funded ₹1,200 crore through a rights offering to current shareholders. The funds are designed to help the firm expand its education loan portfolio, improve product offerings, and strengthen its balance sheet.
Initial Public Offering: Bharat Coking Coal Ltd (2026)
In January 2026, Bharat Coking Coal Ltd (BCCL) announced an IPO of ₹1,071 crore. The offer received bids of over ₹1.1 lakh crore and was oversubscribed by more than 146 times, demonstrating high investor interest in the primary market.
Primary Market vs Secondary Market
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Feature |
Primary Market |
Secondary Market |
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Definition |
New securities are issued and sold for the first time. |
Existing securities are bought and sold among investors. |
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Purpose |
Companies raise capital through new shares or bonds. |
Investors trade previously issued securities for returns or liquidity. |
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Participants |
Issuers (companies) and investors (retail and institutional). |
Investors, traders, stockbrokers, and market makers. |
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Trade Volume |
Limited to the initial issuance of securities. |
Higher volume as securities change hands frequently. |
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Price Determination |
Set by the company based on valuation and market conditions. |
Determined by demand and supply in the market. |
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Listing on Exchanges |
Securities may be listed after issuance. |
Securities are already listed and traded on stock exchanges. |
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Role of Intermediaries |
Investment banks and institutions underwrite and issue securities. |
Stockbrokers and market makers facilitate trading. |
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Types of Securities |
Equity shares, preference shares, bonds, IPOs, NCDs. |
Shares, bonds, ETFs, derivatives, mutual fund units. |
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Risk and Return Profile |
Higher risk, with potential for higher returns. |
Moderate to high risk, depending on market conditions. |
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Capital Flow |
Funds move from investors to the issuing company. |
Funds move between investors. |
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Regulation |
Regulated by securities regulatory authorities. |
Regulated by stock exchanges and financial regulators. |
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Conclusion
The primary market plays a crucial role in the economy's progress by directing collective savings towards profitable business activities. It is the source of liquidity and financing that companies require to grow their businesses and eventually go public. The primary market is risky because it lacks historical trading data, yet it offers a transparent, regulated setting for generating wealth. Moreover, knowledge of its activities is essential for an investor who wishes to get involved in a company’s path from the start.
