The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO)
Primary market Issues can be classified into four types.
1) Initial Public Offer [IPO]
2) Follow on Offer [FPO]
3) Rights Issue
4) Preferential Issue
Initial Public Offer (IPO):
When an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both, for the first time to the public, the issue is called as an Initial Public Offer.
Follow On Public Offer (FPO):
When an already listed company makes either a fresh issue of securities to the public or an offer for sale of existing shares to the public, through an offer document, it is referred to as Follow on Offer (FPO).
When a listed company proposes to issue fresh securities to its existing shareholders, as on a record date, it is called as a rights issue. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. This route is best suited for companies who would like to raise capital without diluting stake of its existing shareholders.
A Preferential issue:
A Preferential Issue is an issue of shares or of convertible securities by listed companies to a select group of persons under Section 81 of the Companies Act, 1956, that is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer company has to comply with the Companies Act and the requirements contained in the chapter, pertaining to preferential allotment in SEBI guidelines, which inter-alia include pricing, disclosures in notice etc.