Liquidation of financial assets could be made by means of securities. Particularly the investor is a person who aims at investing financial assets against securities provided by a borrower. The securities market has two segments which are interdependent upon each other. The primary market aims to raise capital by issuing securities and secondary market opens gateway to trade such securities and bring flexibility. Primary markets help in creating financial assets and secondary market makes it saleable.

Primary market and secondary market are considered as the two pillars of financial security. A lot of activities are involved to make both the markets work efficiently. However, the main question is that can primarily market work independently and give fruitful result. Primary market is the first step towards issuing of securities. Another concern is whether the secondary market can provide fruitful result without the existence of primary market.
Both primary market and secondary market is important for companies. Sustainability of companies could be ensured by successful trade in both the markets.

Primary market and its role

Capital could be regarded as one of the important requirements for production. Capital is formed by means of investments. A promoter or founder might not have adequate financial resources to fulfil the requirements of a business. Primary market which is also called the new issue market helps in raising of public before it is made available in the secondary market for liquidity. Primary market refers to the raising of equity or debt capital by investments made from investors. In primary market the investors get an opportunity to buy securities directly from the issuer. Primary market is called the new issue market because the securities are issued for the first time[1]. Primary market allows the issuer to expand its business by gathering long-term capital from diverse investors.

An issuer in the primary market requires various intermediaries to carry out the process of raising funds from investors. A company could raise capital for the first time by going public. This process is regarded as the IPO or Initial Public Offering. A primary market carries out various roles[2].

Some important aspects of primary market are:

• One of the major functions of primary market is to offer new issues. This indicates that the securities issued in primary market are not traded before in any of the stock exchanges.
• Underwriters play an especially important role in the primary market. They are the assurers who assures to buy shares that is not sold in the Initial Public Offering. These underwriters play a role to sell the unsold shares initially to the investors within a certain period.
• Primary market allows flow of investors from new sources to raise the capital of company. The public is invited and the details of the company along with its underwriters is made by issuing a prospectus.

Some major functions of the Primary Market are:

Aiming at larger markets for gathering capital

Primary market aims to expand capital gains by issuing securities for the first time in public. It strives to remove its focus from existing investors like promoters, banks, interested parties, and other closed arrangements to new investors who are ready to subscribe in the capital.

Boosts competitive growth

Securities thar are issued in the primary market are dependent upon the demand and supply for the determination of price. The rate of interest must be in accordance with the pricing mechanism currently operating in the primary market[3]. for instance, the price of government securities is determined by conducting an auction. The investors willing to invest in such securities would require obtaining by agreeing with the determined price in the auction. This act helps in maintain a balance in the fairness of trading within the primary market.

Diversification in ownership

Primary market allows investments by new investors by providing them with stakes in the company. This makes a business diversified and broad in terms of ownership. Since, diverse small shareholders are not able to get directly involved in the management of the company so, professional managers work for serving the interest of those managers.

Efficient disclosures

A business that seeks to involve new investors might consider persons who are not well acquainted with the working of the enterprise. In such circumstances the company is required to accurate, relevant, and adequate for understanding. Apart from that the financial and other information are also required to be provided. Thus, the company must meet higher standards of transparency.

Investor�s evaluation

The investors are crucial in scrutinizing the details of a company while investing. They strive to focus on evaluating the performance and operations of a company. This leads to the creation of double scrutiny apart from the regulators and auditors. A scrutiny is also made by researchers, media, activists, and analysts which help the investors in taking decisions.

Liquidation of Securities

An investor could trade in primary market only after it has listed its public issue in the stock exchange. Holding of capital within few members stops the liquidity. Primary market allows a large set of investors to allow the flow of capital and initiate liquidity. Trading the secondary market comes after this primary raising of capital has been made by the company.

Supervision of the regulatory bodies

Investment from various investors requires supervision by regulatory bodies. Every steps of an issue in the primary market requires supervision and is subject to the regulatory norms. The primary market is regulated by the Securities Contracts (Regulation) Act 1956, Government Securities Act 2006, Government Securities Regulations 2007, and Companies Act. All these acts are focused to secure the interest of investors who does not have the direct authority to manage the affairs of business.

Kinds of issues

Primary issues could be a public issue, private placement, preferential issue, and rights and bonus issue. In public issue the securities are made open for the public. Such allows anyone to invest and participate in the issue. This could also be named as retail issue of securities. In case of private placements securities are issued to selected institutional investors, who take their positions by bidding and investing[4]. Preferential issue is made to certain identified set of investors who agree upon preferential terms.

Rights and bonus issues are those in which securities are offered to the existing shareholders at a cut-off date, allowing the investors to buy shares at a specific price and for which they are allotted with additional shares without consideration. Thus, it could be sought that primary market does not necessarily means issuing shares for public for the first time. This simple means that shares are issued by the company for the first time to increase its capital. Rolling of shares is not within the sphere of primary market.

Secondary market and its role

Secondary market could be referred as follow up of the public offering made in the primary market. Securities that are already issued are traded between investors in the secondary market. However, secondary market includes even those securities that were not issued in the primary market. secondary market is known as the aftermarket in which previously issued stocks, bonds, futures, and options are traded. Secondary market helps in determining the real time value of securities. This determination is made based on the demand and supply. There are various types of secondary market like over the counter market and exchange traded market[5].

Over the counter trade means trading of securities in an informal way. Such securities are not listed in the stock exchanges and therefore initiates greater risks. On the other hand, exchange traded securities are those where transactions are made under the supervision of stock exchanges. Here, the chances of default are less and hence inducing less risk than the OTC market. Currently, there are 1790 listed under National Stock Exchange which have traded till 31st March 2020[6]. As of September 2020, there are 482 positive stocks (32%), 481 negative stocks (32%), and 544 flat stocks (36%) listed in the BSE[7].

Some of the major functions of secondary market are:

Liquidity of securities

Secondary market paves the path of securities to provide liquidity in the market. The secondary market allows an investor to invest in both long term and short-term investments. Investors have the access to sell securities within a short time of time due to the existence of liquidity in the secondary market. Investors could enter and exit any listed entity that are transacted in the secondary market.

Discovery of price

The secondary market helps in enabling the price discovery securities that are traded. The buy and sell made by each investor show a reflection of the worth. Basically, the collective opinion of investors in a real time trade helps in discovering the price of a security that is being traded. If a company is performing well then, the prices of trade would be better. Prospects of a current company matter a lot at the time of investing. In case the investors believe that the company has good future then their probability of investments rises. The continuous information about price data helps the investors to determine market price of shares.

Informational signalling

Information signalling helps the investors to make increase profitability and improve performance in trading. The market prices continuously serve to provide information about the issuing company. A good market would provide all information in relation to the price changes time to time. This enables the investors to get a detailed view of the relevant information based on which the price changes occur.

Indications of economic activity

The trading data from secondary market are used to generate benchmark indices. Market index is derived from the market prices of shares. Movement in the index determine market direction. The most popularly watched indices in India are NSE-Nifty 50, S&P BSE Sensex[8]. The index of stock market is used as an instrument to assume the economic performance. A sustainable rise in the market indices reflect profitability, capital investments, healthy revenues, and growth of listed companies. Poor performance of indices show that the economy is weakening.

Enable corporate control

Stock markets creates a pathway for providing efficient governance. A company with inefficient management would perform poorly. The market forces would create a downward push and result in undervaluation. These types of companies get acquired by quality portion of shares by acquirers and there create an improvement in the market value. A possible takeover could also result in good governance.

Difference between primary market and secondary market

Public issue is the first thing that is required to be done for the purpose of trading. Initially the securities are made public and then they are listed in stock exchanges. Secondary market open platform for investors to trade amongst themselves. Unlike primary market, the issuers are not directly required in the secondary market. Primary market enables the issuer to raise capital and the secondary market is the way to provide liquidity of securities for investors who had subscribed to such capital[9]. Apart from that secondary market also facilitate new investors to purchase securities from the existing investors. The price indications in the secondary market are used as information signalling for the investors. Apart from that the data of market index in secondary market is also used for seeking economic performance.

In bull market when the price is high, the primary issues in the primary market is also high. Consequently, prices of primary issue are also high and favourable for the issuers. However, when the secondary market is in bear position then the favourability of subscription to adequate issues gets difficult in managing.

Primary market is known as the new issue market while secondary market is known as the after-issue market. the prime role of primary market is to help in expansion of old and new companies. On the other hand, secondary market is not involved in any transactions for raising capital. Once the capital is raised then the liquidity of securities is sought in the secondary market. In case of primary market, the investment bankers play a significant part in selling whilst brokers are concerned with selling in the secondary market. Securities in primary market could be traded only once whereas in secondary market this could be done innumerable times.

Dependency of the primary market upon secondary market

The Securities and Exchange Board of India was first established in the year 1988. It was a regulator of the securities market but was a non-statutory body. In the year 1992, the SEBI Act of 1992 was passed to make it a statutory body. The main aim of establishment of SEBI was to regulate securities market in India[10]. The primary and secondary market are the two major market where securities are traded. Primary issues are dependent on the swing of secondary market. If secondary market activity is high, then the primary market is also high and in favour for the issuers. Primary market opens a pathway for raising capital through public issue.

The process is also known as Initial Public Offering (IPO). However, new issue could also be made only for selected qualified institutions and not public. But issuance of new issues is necessary in the primary market to get facilitated with liquidity in the secondary market. Currently, from 9th of November a company named Gland Pharma would bring IPO for equity. As per the reports presented by Economic Times, on 11th of November the company had received 2.06 times bids. 6.2 equity shares were received against IPO of 3.02 crore equity shares[11]. Retail investors had 23.6 percent subscription. This was the result of company�s good past performance in regard to growth and profitability[12]. The details of IPO are mentioned on the website of stock exchanges and SEBI. In the year 2020, 28 IPO�s were brought in[13]. These kinds of activities in the primary market create confidence for investment and trading in the secondary market.

Secondary market provides liquidity to securities that are traded in the primary market. The primary market allows investors to get securities directly from the issuer whereas secondary market helps in buying and selling of securities between investors. Marketability and appreciation of capital are the two major factors that lead investors towards stock market. The secondary market provides information about the performance of the company. If secondary market is in good health, then automatically the issuers would be inclined towards raising of capital in the primary market[14]. though both play separate roles, yet they are complimentary to each other.

One cannot fulfil its functions effectively without the working of another. The good performance of a company in secondary market is very crucial. This is because if a company performs well in the secondary market then the investors would be attracted towards its expansion by primary issue. Moreover, if a secondary market is in upward trends then it gives confidence amongst investors to invest in the primary market as well. Primary market is not as flexible as secondary market. securities held in the primary market would gain liquidity only in the primary market. Hence, if a secondary market grows then the primary market would serve its end of profit making.

Changes in IPO for Start-ups and Small Companies

Small companies face issues in raising capital because they lack confidence amongst public. The reason behind this is that small companies and start-ups are not able to provide much information about themselves. To handle the situation, Securities and Exchange Board of India has allowed start-ups and small-medium enterprises to get listed in Institutional Trading Platform without making an IPO. There are certain restrictions as to the minimum investment which must be up to Rs. 10 lakhs[15].

Apart from that angel investors would be able to invest in companies those are incorporated in India and not more than three years old. Investment by angel investors must not be less than 50 lakhs and not more than 5 crores which is required to be held for a period of at least three years. This indicates that there are certain exceptions for companies to raise capital apart from making an IPO. However, these rules are made with the aim to enhance the economy and provide support to small-medium companies and start-ups. This also results in gaining trust of public and open gateways for investments in the secondary market.

Conclusion and Recommendation
Thus, from the above discussion it could be conclusively determined that primary market and secondary market are interdependent upon each other. Raising of capital could be done through primary market while providing liquidity to those capital is done by the secondary market. Securities cannot be rolled out unless there is flexibility in the market. Such flexibility is provided by the secondary market. The stock exchanges assure that trading in these two markets are made conveniently and without any deception. SEBI being the regulator of securities market has the access to authorize both markets under the Securities and Exchange Board of India Act, 1992.

However, it could also be sought from the above-mentioned study that the working of primary market is highly dependent on the health of secondary market. If secondary market is considering an upward trend, then the investors would also likely get interested in the primary market. this is because primary market is concerned about raising of capital by going public or through qualified institutional placements. The securities provided in the primary market would gain liquidity if the securities are traded in the secondary market. Investors would look upon the index in secondary market to seek an investment in the primary market.

Thus, it would be recommendable to seek a look both into the primary as well as secondary market while investing. This would give a clear picture of the market positions and prospects. Investments in both primary and secondary market is recommendable because both are inter- dependent upon each other. A successful primary issue determines its demand in the secondary issue. Apart from that a fresher in investments must study market details efficiently before investing. It is highly recommended to make a study about company�s past performance and profitability before making an investment. This would help in identifying risk factor and tentative outcome from such investment.

References
Books

• Securities Markets Foundations Certification Examination Series (12th edn, NISM 2020)

Scholarly Articles

• Adarsh Ranjan, 'Primary Market in Indian Financial System: Growth & Role | Law Corner' (Law Corner, 2019) Accessed on 7 November 2020

Newspaper articles

• Gland Pharma IPO Final Day: Issue Subscribed 2 Times, QIB Portion Booked Over 6 Times' (Moneycontrol, 2020) Accessed on 10 November 2020
• 'Gland Pharma�S Rs 6,480 Crore IPO Sails Through, gets 2.06X Bids' (The Economic Times, 2020) Accessed on 10 November 2020

Websites

• Edelweiss | Online Share Trading India | BSE Sensex Today Live | Indian Stock Market | Equity, Currency Derivatives' (Edelweiss, 2020) Accessed on 7 November 2020
  Knowledge Center, 'Secondary Market - Meaning & Types of Secondary Market In India' (Karvyonline.com, 2020) Accessed on 8 November 2020
• All Companies Based on Market Capitalisation' (NSE, 2020) Accessed on 8 November 2020
• BSE (Formerly Bombay Stock Exchange) - LIVE Stock/Share Market Updates from Asia's Premier Stock Exchange. (Bseindia.com, 2020) Accessed on 8 November 2020
• Relationship Between the Primary and Secondary Market in Security Analysis and Investment Management Tutorial 12 November 2020 | Wisdom Jobs India' (Wisdom Jobs, 2020) Accessed on 9 November 2020
• SEBI | A Historical Perspective of The Securities Market Reforms' (Sebi.gov.in, 2020) Accessed on 10 November 2020
• Securities and Exchange Board of India' (Sebi.gov.in, 2020) Accessed on 10 November 2020

End-Notes:

1. Adarsh Ranjan, 'Primary Market in Indian Financial System: Growth & Role | Law Corner' (Law Corner, 2019) Accessed on 7 November 2020
2. Edelweiss | Online Share Trading India | BSE Sensex Today Live | Indian Stock Market | Equity, Currency Derivatives' (Edelweiss, 2020) Accessed on 7 November 2020.
3. Securities Markets Foundations Certification Examination Series (12th edn, NISM 2020).
4. Supra 3
5. Knowledge Center, 'Secondary Market - Meaning & Types of Secondary Market in India' (Karvyonline.com, 2020) Accessed on 8 November 2020.
6. All Companies Based on Market Capitalisation' (NSE, 2020) accessed 8 November 2020.
7. BSE (Formerly Bombay Stock Exchange) - LIVE Stock/Share Market Updates from Asia's Premier Stock Exchange. (Bseindia.com, 2020) Accessed on 8 November 2020.
8. Supra 4
9. Supra 3
10. SEBI | A Historical Perspective of The Securities Market Reforms' (Sebi.gov.in, 2020) Accessed on 10 November 2020
11. Gland Pharma�S Rs 6,480 Crore IPO Sails Through, gets 2.06X Bids' (The Economic Times, 2020) Accessed on 10 November 2020.
12. Gland Pharma IPO Final Day: Issue Subscribed 2 Times, QIB Portion Booked Over 6 Times' (Moneycontrol, 2020) Accessed on 10 November 2020.
13. Securities and Exchange Board of India' (Sebi.gov.in, 2020) Accessed on 10 November 2020.
14. Relationship Between the Primary and Secondary Market in Security Analysis and Investment Management Tutorial 12 November 2020 | Wisdom Jobs India' (Wisdom Jobs, 2020) Accessed on 9 November 2020.
15. SEBI Changes Stock Market Rules: What This Means - Meaningful Minutes' (Kotak Securities�, 2020) Accessed on 10 November 2020.

Written By: Soumi Saha - (Pursuing LL.M in from National Institute of Securities Market)