Primary Markets

What is Primary Market and why is it important?

The primary market is that part of the capital market which is involved in issuing fresh securities in the market. It serves as a medium wherein unlisted companies raise capital through a fresh issue. It acts as a medium for companies, both private and public, in helping in their expansion phase. 

There can be various reasons for primary market issues. Companies may need to raise capital to expand their existing business, to meet their working capital needs, starting a new project or modification of an old project or even to pay off their debts. 

Primary markets allow mobilizations of funds via the issue of new securities. 

Issues through the primary market can come out either as a public issue or a private placement. The Companies Act, 2013 defines private placement as a term wherein issue of security results in allotment to less than 200 persons and an issue becomes public if the issue results in allotment to more than 200 persons.

For Example: Company A Limited requires funds. It issues shares in the primary market. When the company issues shares for the first time, it is called Initial Public Offering (IPO). A further issue of shares is known as Follow-on Public Offer (FPO).  The primary market comprises of both IPO and FPO.