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Equity & Capital Markets – Part 2: Intermediate Concepts

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Equity & Capital Markets – Part 2: Intermediate Concepts

1. Debt Capital vs Preference Capital

  • Debt Capital: Borrowed funds with fixed interest and repayment obligation. Example: Bonds, loans.
  • Preference Capital: Hybrid capital. Fixed dividend, priority over equity in liquidation, but no voting rights.

2. IPO Application Process

  • Red Herring Prospectus (RHP): Preliminary document with all major IPO info except the final price.
  • Roadshows: Marketing presentations by company to attract potential investors.
  • Green Shoe Option: An over-allotment option that allows issuing extra shares to stabilize price post-listing.

3. Shareholding Structure

  • Diluted Shareholding: Considers the total potential shares including options, warrants, etc.
  • Non-Diluted Shareholding: Based only on current outstanding shares.

4. Pricing Mechanisms

  • Fixed Price Method: Price is decided and declared upfront.
  • Book Building Method: Investors bid within a price band; final price is based on demand.

5. Stock Exchange vs OTC (Over-the-Counter)

  • Stock Exchange: Organized, regulated market like NSE or BSE.
  • OTC: Decentralized, less regulated, direct trade between parties, often for debt instruments.

6. Trading and Settlement Process

  • Trading: Order placement and matching on an exchange.
  • Settlement: Transfer of securities and funds.
  • T+1 or T+2: Settlement completed within 1 or 2 working days from the trade date.

7. Cash Equity vs Equity

  • Equity: Ownership in a company.
  • Cash Equity: Buying equity using full cash upfront, without leverage.

8. Demat Account

  • Demat (Dematerialized) Account: Electronic account to hold shares and securities.
  • Opportunities: Easier transfers, faster settlements, access to IPOs and trading platforms.

What’s Next?

In Part 3, we’ll dive into:

  • Valuation Techniques
  • Technical Indicators (RSI, Moving Average, etc.)
  • Preference Shares (Types and Features)
  • Depository Receipts (ADR, GDR, IDR)

Click here to Read Part 3 →

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