Types of market sements

Primary and secondary markets

The stock market can be subdivided into two segments the primary market and the secondary market. The primary market is the segment that offers subscriptions to new issues. Companies that need to raise capital to run their businesses offer investors a fresh stake in their companies. These offers are commonly referred to as public issues or initial public offerings (IPOs) when shares are offered to the public for the first time and the offered stock is listed for trading on the stock exchange. Once they are listed they are bought and sold between existing and new investors in secondary market. Once the shares are listed, investors who either skipped the opportunity to participate in the IPO or those who consider the stock to be undervalued at the prevailing price can buy the shares from the secondary market by placing an order through a broker. The broker then sends the order to the stock exchange where it is matched. The flow of an order is as follows: you place a purchase order with your broker for 100 shares of ABC & co., at Rs. 50 per share. The broker sends your order to the stock exchange via his terminal, which is then matched with a sell order at the same price. This implies that at the exchange, your order will be matched against a sale order for ABC & co s shares at a price of Rs. 50 per share. Once the order finds its match, the trade is executed. After the trade is executed, the broker should send you an immediate order confirmation, followed by a contract note within 24 hours of trade being executed.

Book building
In the last few years, a large majority of public offers, both initial public offers and follow on public offers included, have used the book building process to raise money from the stock markets. Book building is a process of price discovery used in public offers. The issuer sets a base price and a band within which the investor is allowed to bid for shares. The investor has top bd for a number of shares he wishes to subscribe to within this band. Further, an order book, in which

investors can state the number of the shares they are willing to buy at a price within the band, is built. Hence, the term book building . Once the issue period is over and the book has been built, the book running lead manager (a merchant banker who manages the issue) along with the issuer arrives at a cut-off price. The cut-off price is the price discovered by the market. It is the price at which the shares are issued to the investors. Investors bidding at a price the cut-off price are ignored. But, how exactly is the cut-off price fixed? The cut-off price is arrived at by the method of dutch auction. In a dutch auction, the price of an item is lowered, until it gets its first bid and then the item is sold at that price. Lets say a company wants to issue one million shares. The floor price for one share of face value Rs. 10 is Rs. 58 and band is between Rs.58 and Rs.65. At RS. 65 on the basis of the bids received, investors are ready to buy 2,00,000 shares. So, the cut-off price cannot be set at Rs. 65 as only 2,00,000 shares will be sold. In the next step, the price is lowered to Rs. 64, around 6,00,000 shares will be sold. This still leaves 4,00,000 shares. The price is now lowered to Rs. 63 at which investors are ready to buy 4,00,000 shares. Now if the cut-off price is set at Rs. 63, all one million shares will be sold. Investors who had applied for shares at Rs. 65 and RS. 64 will also be issued shares at RS.63. the extra money paid by them while applying will be returned to them.

Investment guidelines
y y y y Equities have an inherent ability to beat inflation. The only way you can evaluate the market is through its valuation and not sensex levels. If you are looking at sensex levels, you are messing big time. From valuation point of view, the market is fairly valued at the point in time and not cheap. It took 14 innings for sachin Tendulkar to make the 34th century. In the meantime, everybody said that he does not enjoy his game and that he has lost touch. But, he bounced back and proved it. The sensex is like sachins 34th century. Every time the sensex reaches 6000 levels, people say thak gaya hai and start to book profits. the