Investment in primary market takes many factors within its purview. If an individual is investing in the primary market, it only indicates that the individual is availing the shares offered directly by the companies. The write up, which follows hereunder states the same.
Getting acquainted with the process of investment:
For a thorough understanding of the primary market, there are several aspects, which need to be paid heed to. The various elements, which are part and parcel of the investment process in the markets include the psychological factor, research work, timing of investment as well as the value. The risks forming an important element cannot be ignored too. Decisions pertaining to investment in primary market are influenced by the above factors.
A dynamic market:
The primary market is a place where a company for the first time makes shares or issues available to the public under different categories. The primary market serves as a platform for raising capital. The investment bankers are responsible for helping the company raise capital. A whole range of of planned work, adjustments, trials(testing) and implementations are involved in investments. The investors are required to keep a watch on the ever changing market conditions.
Primary market and secondary market are interdependent:
The primary as well as the secondary markets are dependent on each other and changes in one market affect changes in the other.
Investment in primary market-maladies:
There are many factors, which upset the investment process. They are:
(I) Holding back shares or “cornering” shares:
Recently, there was an instance when many shares were inappropriately held back. The shares, which were held back were actually meant for other groups of investors. The trading license of the company was banned for a definite time period.
(II) Over subscription of shares:
There are times when the IPOs or initial public offerings launched by companies are oversubscribed.
(III) Withdrawing IPO:
Lately, two companies in India withdrew their IPO after they received a lukewarm response from the investors. The same holds true for many companies in other continents too. Owing to United States’s subprime mortgage crisis, there was a global slowdown in the economy and this greatly impacted the investor sentiment worldwide. However, India felt the ripple effect quite late as compared to the other countries. These companies decided to “revisit” the markets when the time for investment in primary market is ripe.