Very few people know that the market through which we buy and sell shares is also called as the ‘Secondary Market’.
But before a company gets listed in the secondary market, IPO (Initial Public Offering) is issued through which a company offers shares to the public. This is called ‘Primary Market’.
The ‘Primary Market’ is also called as ‘New Issue Market’ (NIM).
In the ‘Primary Market’, the company fixes the price of the shares, whereas in the ‘Secondary Market’ the price is not controlled by the company – instead it relies on demand and supply.
When a company – which is unlisted in the stock market – wants to raise fresh capital from the public, it can do so through an Initial Public Offering (IPO).
For a company which is already listed in the stock market – there are other ways like Offer For Sale (OFS), Bonus Issue, Rights Issue etc.
Example of Primary Market
Recently, the IPO of ‘SBI Cards’ was in news. The price band was fixed between ₹ 750 to ₹ 755 per share.
‘SBI Cards’ was issuing its shares to the public for the first time. Institutional investors, retail investors etc were asked to bid for shares.
This process of transfer of shares from the company to the public happens in the ‘Primary Market’.
After the IPO, ‘SBI Cards’ was listed in the stock market on March 2nd 2020. From this date onwards, the public shareholders of the company could buy and share among themselves through the stock exchanges. This is the ‘Secondary Market’.