3.1 What is Primary Market?
As we have seen earlier, a primary market is the market for new securities (debt or equity) issued by companies, the government and government sponsored bodies to the public to meet their respective capital requirements in the long run.
Therefore, primary market provides opportunity to issuers of securities; Government as well as corporates, to raise resources to meet their financial requirements. They may issue the securities at face value or at a discount/premium.
Face value is the stated amount (in Rs.) assigned to a security by the issuer. In a case of shares, it is the original cost of the stock shown on the certificate; for bonds, it is the amount paid to the holder at maturity. Also known as par value or simply par. For an equity share, the face value is usually a very small amount (Rs. 5, Rs. 10) and does not have much bearing on the price of the share, which may quote higher in the market, at Rs. 500 or Rs.1000 or any other price. But in case of debt security the face value indicates, the actual amount an investor would be repaid when the bond matures.
When a security is sold above its face value, it is said to be issued at a Premium and if it is sold at less than its face value, then it is said to be issued at a Discount.) and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market.