NISM-Series-XV: Research Analyst · Introduction to Securities Market

Primary Market and Public Issues for NISM Research Analyst

Updated 11 October 2026 · Fact-checked

The primary market is where issuers sell new securities directly to investors and receive the money. Routes include IPO, FPO, rights issue, private placement and QIP. To solve questions, ask who the issuer is, who can buy, whether the issue is public, and whether it is new or follow-on.

Understand Primary Market and Public Issues

The primary market is where a company or government creates and sells new securities for the first time. The money goes to the issuer. This is different from the secondary market, where investors trade existing securities with each other and the issuer gets nothing.

An IPO (Initial Public Offer) is the first time an unlisted company offers shares to the public. After it, the shares get listed on an exchange. An FPO (Follow-on Public Offer) is when a company that is already listed offers further shares to the public. So the real difference is simple: IPO is by an unlisted company, FPO is by a listed one.

An issue can be a fresh issue (new shares, money goes to the company) or an offer for sale (OFS) (existing shareholders sell their shares, money goes to the sellers, not the company). An IPO can combine both.

A rights issue offers new shares only to existing shareholders, in proportion to their holding, usually at a price below the market price. Shareholders can subscribe, or sell their entitlement if renounceable. A private placement offers securities to a select group of persons, not the general public. A QIP (Qualified Institutions Placement) is a route for a listed company to raise equity from qualified institutional buyers (QIBs) such as mutual funds, insurers and banks, without a full public offer document.

In a public issue, the price can be fixed or found through book building, where investors bid within a price band and the final price is discovered from demand. Retail investors, non-institutional investors and QIBs apply in separate categories.

Key formulas to remember

IPO vs FPO: IPO = unlisted company, first public offer; FPO = already listed company, further public offer; The test is whether the issuer is already listed.
Fresh issue vs OFS: Fresh issue: money to company; OFS: money to selling shareholders; OFS does not add new shares or fund the company.
Rights entitlement: Shares offered = Existing shares × Rights ratio; For a 1:4 ratio, a holder of 100 shares can apply for 25 new shares.
Rights issue investor: Offered only to existing shareholders as on the record date; It is not an offer to the general public.
Private placement vs QIP: Private placement: select persons; QIP: only QIBs, by a listed company; QIP needs the issuer to be listed.
Book building: Floor price ≤ bid ≤ Cap price (price band); The final issue price is discovered within the band.

How to solve Primary Market and Public Issues questions

Use this method for any primary market question. It sorts the options quickly.

1Read the question and note the issuer: unlisted or listed company.
2Identify who is offered the securities: general public, existing shareholders, selected persons or only QIBs.
3Check whether the shares are new (fresh issue) or existing (OFS), and who receives the money.
4Match the facts to the route: IPO, FPO, rights, private placement or QIP.
5If numbers are given, apply the rights ratio to the holding and compute carefully.
6Eliminate options that mix features, such as a rights issue open to the public or a QIP by an unlisted company.
7Pick the option that fits all the facts, not just one.

Quickest way: Issuer and Investor Test

When to use it: Use for definition and difference questions where time is short.

Ask: is the issuer listed? Unlisted points to IPO; listed points to FPO, rights or QIP.
Ask: who can buy? Public means IPO or FPO; existing holders means rights; only institutions means QIP; select few means private placement.
Ask: who gets the money? Company for fresh issue; sellers for OFS.
Choose the option matching all three answers.

Common mistakes in Primary Market and Public Issues

Saying an FPO is the first public issue of a company.
The word 'follow-on' is overlooked.
Fix: IPO is the first offer by an unlisted company. FPO comes after listing.
Thinking the company receives money in an offer for sale.
Students treat every public issue as capital raising.
Fix: In an OFS the selling shareholders get the money. Only a fresh issue funds the company.
Treating a rights issue as open to all investors.
It is also a public-style issue of new shares.
Fix: Only existing shareholders on the record date are eligible, in proportion to holding.
Confusing QIP with private placement.
Both avoid a full public offer.
Fix: QIP is by a listed company to QIBs only. Private placement goes to a select group and is not limited to QIBs.
Mixing primary and secondary market features.
Listing and trading are linked in the mind.
Fix: If the issuer gets the proceeds from newly created securities, it is primary. Trading between investors is secondary.

Worked examples

Example 1

A listed company offers new shares only to its existing shareholders in the ratio 2:5 (2 new shares for every 5 held). How many new shares can a shareholder holding 300 shares apply for, and what is this issue called?

Show the solution

The offer is only to existing shareholders, so it is a rights issue.
Ratio is 2 new for every 5 held.
Number of sets = 300 ÷ 5 = 60.
New shares = 60 × 2 = 120.

Answer: 120 shares; it is a rights issue.

Example 2

Which of the following is correct? (A) An IPO is made by a listed company (B) A QIP can be made only by a listed company to QIBs (C) In an OFS the company receives the proceeds (D) A rights issue is open to the general public

Show the solution

A is wrong: an IPO is made by an unlisted company.
C is wrong: in an OFS the selling shareholders receive the money.
D is wrong: a rights issue is only for existing shareholders.
B matches the QIP definition.

Answer: (B)

Exam tips

Expect definition and difference questions. Learn one-line tests for IPO, FPO, rights, private placement and QIP.
Watch for words like 'unlisted', 'existing shareholders' and 'QIBs'. They decide the answer.
For rights ratio questions, divide holding by the base number first, then multiply.
With negative marking, skip a question only if you cannot eliminate at least one option.

Practice questions from Introduction to Securities Market

Primary Market and Public Issues in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Primary Market and Public Issues: frequently asked questions

What is the difference between IPO and FPO?

An IPO is the first public offer of shares by an unlisted company, after which it gets listed. An FPO is a further public offer by a company that is already listed.

How does a rights issue work in India?

A listed company offers new shares to existing shareholders in a fixed ratio, usually at a discount to market price. Shareholders can subscribe to their entitlement or, where allowed, renounce it.

What is the difference between QIP and private placement?

A QIP is made by a listed company only to qualified institutional buyers. A private placement is offered to a select group of persons and is not a public offer.

Does the company get money in an OFS?

No. In an offer for sale, existing shareholders sell their shares and they receive the proceeds. The company's capital does not increase.