Although the primary market has been witnessing a resurgence of late on the back of many IPOs hitting the market and good participation from institutional investors, the failure of many of the new issues to deliver returns on listing due to aggressive pricing and poor retail participation could halt the activity in the market.

The liberalization policies ushered in by the government in 1991 have brought about a new dimension in the capital market, as well as the corporate environment, in India. The investment climate improved considerably following the modification of licensing procedures and the freedom to fix prices for new issues. The abolition of the Capital Issue Control Act, in 1991, also ushered in a new era in the primary capital markets in India. Control over the pricing, design and tenure of the capital issues were abolished after the establishment of the Securities and Exchange Board of India (SEBI) on April 12, 1988. Following this, guidelines have provided that the issuer, in consultation with merchant banker, shall decide the price. There is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The company and merchant banker are, however, required to give full disclosures of the parameters which they had considered while deciding the issue price. Before the establishment of SEBI, the quality of disclosures in the offer documents was very poor. SEBI also formulated and prescribed stringent disclosure norms, in conformity with global standards. These favorable developments led to a rapid growth in the quantum of financial investment made. Thus, the primary capital market in India has been witnessing tremendous growth in the number of new issues hitting the market, surpassing the normal growth that is expected as a result of growth in the economy.

Primary market is that segment of the capital market that deals with the issuance of new securities, whereas the secondary market is the segment in which outstanding issues are traded. The primary market is one where the securities are sold for the first time. Therefore, it is also called the New Issue Market (NIM), while the secondary market is called the stock market. The different methods of issuing securities in the primary market are: public issue, rights issue, private placement/private equity and bonus issue. In an initial public offering or a public issue, a company issues common stock or shares to the public for the first time. A rights issue is an issue of shares to existing shareholders in proportion to their existing shareholding. Private placement involves selling securities privately to a selected group of investors. A bonus issue is the issue of shares to existing shareholders in proportion to their existing holdings. It differs from a rights issue in that the shareholder is not obliged to make payment for the shares. Instead, the company's capital reserves are used to effect payment. For this reason, a bonus issue is sometimes called a `capitalization issue'.

Equity shares, Fully Convertible Debentures (FCD), Partially Convertible Debentures (PCD) and Non-Convertible Debentures (NCD) are the securities commonly issued by non-government public limited and private companies in the primary market. Government companies issue equity shares and bonds.

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