1. What is a Primary Market?
Primary Market is usually referred to buying of
shares in an Initial Public Offering. The shares are
bought by applying for the shares in the respective
application form. Then once the shares are alloted
these share transactions are then done in the
secondary market or stock exchanges.
2. What is an IPO?
An IPO or Initial Public Offering is referred to the
issue of shares to the public by the promoters of a
company for the first time. The shares are made
available to the investors at the face value of the
share or with a premium as per the perceived market
value of the share by the promoters. The IPO can be
in the form of a fixed price portion or in the form
of Book Building portion.
3. What is a Secondary Market?
Secondary Market is referred to those transactions
where one investor buys shares from another investor
at the prevailing market price or at whatever price
both the buyer and seller agree upon. The secondary
market or the stock exchanges are regulated by the
regulatory authority. In India, the secondary and
primary markets are governed by the Security and
Exchange Board of India (SEBI).
4. How to apply for a called IPO?
You need to obtain an IPO Application Form through a
Share Broker or your Investment Consultant or they
are available at the collecting banks. Then fill up
the form, remit the amount after calculating the
number of shares applied for in the bank that is
designated as collecting center for that particular
Initial Public Offer. If you have a demat account,
then you can apply for the shares directly through
your demat account or there is an option of physical
delivery of share certificates. Some IPOs offer only
Demat form of shares and many other IPOs offer both
Demat as well as regular Shares. Care should be
taken to provide all the details specified in the
application form, because the application form has
the chance of gettting rejected due to not providing
of the complete details.
5. What is book building?
Book Building is a public offer of equity shares of
a company. Book building is so called because it
refers to the collection of bids from investors,
which is based on an price range. The issue price is
fixed after the bid closing date.
(i) How is the book built process done?
A company that is planning an intial public offer
(IPO) appoints a merchant banker as a book runner.
The company issues a prospectus which does not
mention the price, but gives other details about the
company with regards to issue size, the business the
company is in, the promoters and future plans among
Then a particular period is fixed as the bid period.
The book runner builds an order book, that is,
collates the bids from various investors, which
shows the demand for the shares. For example, a
bidder may quote that he wants 10,000 shares at Rs
500 while another may bid for 15,000 shares at Rs
600. Prospective investors can revise their bids at
any time during the bid period.
(ii) On what basis is the final price decided?
On closure of the book, the quantum of shares
ordered and the respective prices offered are known.
The price discovery is a function of demand at
various prices, and involves negotiations between
those involved in the issue. The book runner and the
company conclude the pricing and decide the
allocation to each syndicate member.
6. What factors to see in an IPO for applying?
An investor has to look for many important things in
an IPO to ascertain the risk factors before deciding
to buy the shares of a company. Few of them are
Promoters Track Record for consistant performance
over the previous years and their experience in
running this particular business.
Risk Factors listed in the Offer Document.
Risk Factors specific to this particular venture,
nature of the market, government policies assoiated
with this particular industry or field and the
performance of that particular sector in the
previous years and any available forecasts for this
industry for the near future.
Listing in as many Stock Exchanges in India, allows
for easy liquidity.
Transparent and regular reporting of the company's
performance and investor friendly policies adopted
by the promoters.
The registrars, bankers to the issue.
7. How can I get a DEMAT Account?
Demat Accounts are offered by many Banks, and the
Dematerialsed Stock is held by the National
Securities Depository Ltd.,. You have to obtain an
application form from your banker, fill up the form
and complete the required the formalities to get a
demat account. The bank where the demat account is
opened charges depending on the transactions done on
8. What is DIVIDENDS PER SHARE?
This is the amount of dividend declared by a company
(usually expressed as a percentage of it's face
value) calculated on a rupees-per-share basis.
Normally profit making companies that have completed
their capex or do not need funds to maintain their
existing facilities, pay higher dividends.
9. What is SHARE CAPITAL?
Share Capital is the issued equity share capital of
a company which may be more than the subscribed
share capital of the company. It does not include
preference share capital. In India, few companies
use preference share capital.
10. What is a DEMAT Account?
Demat Account or Dematerialised Account, is a way of
holding your portfolio in electronic form or
dematerialised form. Demat form of your shares can
be traded online, the transactions are conclued much
faster, which prevents theft, misuse or forging of
your original share certificates or other documents
and allows an investor to buy or sell shares in any
quantity ( i.e. even a single share of a particular
company). Demat account allows for faster refund of
your money, in case your application is not