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NISM Certifications · NISM-Series-VI: Depository Operations · Introduction to the Indian Capital Market

Ravi Menon wants to know the main difference between the primary market and the secondary market in the Indian capital market. Which statement is correct?

In the primary market, issuers create and sell new securities to investors to raise capital, whereas in the secondary market previously issued securities are bought and sold between investors on exchanges, providing liquidity. Both markets handle equity and debt.

  1. AIn the primary market, securities are issued afresh by the issuer to investors, while in the secondary market existing securities are traded among investorsCorrect
  2. BIn the primary market, existing securities are traded between investors, while in the secondary market new securities are issued
  3. CBoth markets deal only in new securities issued by companies
  4. DThe primary market deals only in debt and the secondary market only in equity

Explanation

The primary market is where issuers raise fresh capital through IPOs, FPOs, rights issues and similar routes. The secondary market provides liquidity by letting investors trade securities already issued. The second option reverses the roles, so it is wrong.

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