Stock market or securities market is a market where securities
issued by firms in the form of shares, bonds and debentures can be bought
and sold freely. It consists of primary market and secondary market.
Primary market or the new issues market is the market which
is concerned with the issue of new securities. Companies often raise funds
through the primary market for setting up or expanding their business.
The various methods through which capital can be raised are:-
- By prospectus:- Capital can be raised from the general
public by the issue of prospectus. The prospectus is an invitation to
the general public for subscribing to the capital. It contains various
details regarding the particulars of the company, its financial position,
etc.
- By offer for sale:- This method is almost similar to
the prospectus except the difference that initially shares are taken
up by a third party in bulk. Later, a statement like prospectus is issued
for sale of shares to the public.
- By private placing:- Shares are sold to individuals or
institutions directly by making a private appeal to them.
- By offering rights issue:- Companies may also raise capital
from the existing shareholders by making a rights issue. Under the rights
issue, the shareholders have the right to a certain number of shares
in proportion to the shares held by them.
Secondary market or stock exchange is a highly organised
market for the purchase and sale of second hand quoted or listed securities
('quoting' or 'listing' of a particular security implies incorporating
that security in the register of the stock exchange). It is an association, organisation
or body of individuals, whether incorporated or not, established for the
purpose of assisting, regulating and controlling business in buying, selling
and dealing in securities.
The various instruments of stock market include:-
- Shares, which
represents the interests or rights of the investors (measured in terms
of money) to participate in the profits made by the company while it is
a going concern, or in the assets of the company when it is wound up
- IPOs or Initial Public Offerings is the first sale of a company's common
shares to public investors for the purpose of raising capital in the primary
market
- Mutual Funds is a mechanism of mobilizing the savings and
resources of various individual investors, especially small investors and
investing them in shares and securities of the companies
- Bond is
a security representing a long-term promise to pay a certain sum of money
at a certain fixed time or over the course of the loan,with a fixed rate
of interest payable to the bond holder.
The rating of stock market implies evaluating the various
options of issuing securities in the primary as well as the secondary
market. It is a tool which enables the investor to check the future capability
of each stock as well as that of its issuer. It is focused on communicating
to the investors the relative ranking of the profits or loss probability
for a given fixed income investment in comparison with other related instruments.
However, the evaluation of the security issues are not recommendations to buy or sell, or indicate the suitability of any particular security for the investor.
The rating of the bonds issued by corporates, government, etc.
is called the bond rating. The rating of preference share issued by a company
is called preference share rating. Whereas, the rating of equity shares
issued by a company is called equity rating.
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