Stocks

In the very first episode of Groww Academy, we will touch upon the basics. We will understand what do we mean by stocks and how did the stock market came into being? Finally, we also cover the various benefits of owning stocks of a company.

What is a stock and what is stock market?

This episode is all about the stock market. Here, we explain the concepts of primary market and secondary market, and how they are different from one another.

Primary and secondary stock markets

In this episode, we explain the entire stock market ecosystem and its' key players. From exchanges like BSE and NSE to brokers and SEBI, we will cover everything you need to know. We also touch upon the details of demat account, depository participants, and clearing houses.

Key players in the stock market

This episode will see us clarifying all your doubts about the various charges and taxes involved in the stock market. Account charges, brokerage and transactional charges are some of the many charges we will cover. Moreover, we will also cover LTCG and STCG taxes.

Costs of investing in the stock market

This module answers question like what is a stock, what are primary and secondary markets, who are the key players in the stock market and what are the various charges involved in a stock market transaction

Basics to know before investing in stock markets

PRIMARY AND SECONDARY MARKETS INTRODUCTIONIn our previous video, we got to learn what stocks are and what benefits you enjoy as an owner of the stock- investor. In this one, we&rsquo;ll talk about where all of the stock market action happens.&nbsp;Before we begin, let&rsquo;s start with the concept of primary and secondary markets.A primary market is generally when you buy something first hand. Let&rsquo;s take the example of when you buy a house directly from the developer. This is an example of a primary market. Let&rsquo;s say you go to a showroom and buy a car.&nbsp; This is again an example of a primary market because you buy directly from the source. But what if you buy a house from someone else instead of buying it from the developer directly? This is an example of a secondary market.&nbsp; Let&rsquo;s talk about primary and secondary markets from the point of view of the stock market. Founded in 2008 as a restaurant-discovery website &ndash; Zomato (show logo), is now one of India&rsquo;s largest food delivery companies.&nbsp; It was founded initially as Foodiebay (show logo), in response to the difficulties that they noticed their office mates were having in downloading menus for restaurants. Their initial response was simple wherein they uploaded soft copies of menus of local restaurants on their website, initially for people in their office and then for everyone in the city.&nbsp; As their popularity grew, they expanded to other large Indian cities and in 2010, they renamed the company &ldquo;Zomato&rdquo;.&nbsp; In 2015, Zomato ventured into the food delivery business. Between 2011 and 2021 Zomato went through a series of funding rounds. It sold shares in the company to investors who in turn invested in Zomato because they felt that Zomato had potential to grow. Zomato used this capital to expand and grow its business. Between 2011 and 2021 Zomato raised 14,374 crores through investments from investors like Info Edge, Sequoia Capital, Tiger Global, Ant financialand a few others.&nbsp; The number of investors before the company went for the IPO were 74. Zomato further raised around 9,000 crores through its IPO where many investors invested in the company.&nbsp; All these transactions happened in the primary market. Here, the company issued new shares in exchange for capital which in turn used to fund various growth initiatives. The company got listed on the stock exchange on July 23rd 2021. This is when investors and traders started buying and selling shares of Zomato among each other on a daily basis. All these transactions happened in the secondary market.&nbsp; They help in price discovery and determine how much investors are willing to pay for the shares. Zomato came out with an IPO price of 72 to 76 Rs per share. As soon as the shares got listed on the exchange the share price went up to 116 Rs per shareand further rose to 126 Rs per share. This meant that investors were confident about Zomato as a company and hence were willing to pay a premium for the stock in the secondary market.&nbsp;<h2>&nbsp;</h2>What is the stock market?The name is quite self-explanatory. Like any market, this is where buying and selling happens. For the stock market, it&rsquo;s clearly stocks. There are two ways of buying stocks. You can buy directly from the companywhich is the primary market or from another stockholderwhich is the secondary market&nbsp;<ul><li style="font-weight: 400;">Number 1, primary markets:</li></ul>Here, companies sell their stocks and we can buy them directly from the company. This allows companies to raise money for funding their businesses. <ul><li style="font-weight: 400;">And, number 2, secondary markets:</li></ul>Here, all the buying and selling happens between investors like you and me. The company doesn&rsquo;t play a part in selling any new stocks in this market. This gives us, investors, the opportunity to benefit from the growth of these companies. All transactions take place between investors and traders among each other. The new stocks issued in the primary market are bought and sold here.<h2>&nbsp;</h2>PRIMARY MARKET Let&rsquo;s look at the first one. Primary market. Remember, the company is the seller here. And, you are the buyer. So, the transaction is one-way. You might be thinking this sounds a lot like an IPO. Yes, you are correct to an extent. IPO isone common example of a primary market. IPOs are initial public offerings by a company. This is how a company issues equity stocks to the public and goes from being a private company to a publicly traded company. There are many companies that keep coming out with their IPOs every year. As mentioned earlier, primary markets help companies raise money to fund their business.&nbsp; Before the IPO, companies even declare what they plan to do with the raised money.&nbsp; For example, when Barbeque Nation (logo)launched their IPO, they mentioned that the raised money will be used to reduce the company debt. However, an offer for saleis part of most IPOs.&nbsp; This means that the existing promoters of the company might be interested in selling some or all of their shares. In an offer for sale no new shares are issuedto raise capital but existing investors sell their shares in the IPO.&nbsp; Let&rsquo;s revisit the Barbeque Nation example. In this IPO, the total issue size was 452.87 crores out of which fresh issue was only 180 crores. This means that the company issued new shares to raise 180 crores. The remaining 272.87 crores were existing investors selling their stake in the company.&nbsp;Now, how can youget these stocks? Well, you have to applyfor that company&rsquo;s IPO. This means, you have to first bid for the stocks and based on a lucky draw, yes, a lucky draw, you will be allotted stocks. That is if you&rsquo;re &ldquo;lucky&rdquo;.There&rsquo;s a lot more to cover regarding IPOs, which we will in a later video within Groww Academy.There are other examples of private placementsas well. There&rsquo;s private placement too, which I will explain shortly. Imagine this as an exclusive IPO. A company basically sells their stocks to pre-selected investors and institutions instead of going to the public.These may include wealthy individual investors, banks, other financial institutions, mutual funds, insurance companies, etc.For example, when PNB Housing Finance went for a private placement, they raised around 4,000 crores, 80% of which was funded by the US-based private equity firm, Carlyle Group.But, why do the companies go for this instead of an IPO? Simply because there are lesser restrictions and regulatory requirements in private placements. SECONDARY MARKET Now, let's talk about the secondary market. This is the one we&rsquo;ve always known.So, let&rsquo;s say you bought stocks from a company in the primary market. And, you now want to sell these stocks. Where do you do it? Yes! In the secondary market.After that, the investor who bought these stocks from you sells them to another investor. And so on. The cycle continues.Secondary markets are important for price discovery.The price is determined by the demand and supply of that particular stock. This buying and selling is facilitated by a stock market exchange which is something we will cover in detail later. For example: On 27th July 2021, 26,43,961 shares of Reliance were bought and sold in the secondary market.The total value of these shares was around 545 crores. Hence, generally secondary markets operate on a much larger scale than primary markets.&nbsp; SUMMARY - WITH TABLE OF DIFFERENCES&nbsp;To sum it up, these are the core differences between primary and secondary markets.&nbsp;<table><tbody><tr><td>Primary markets</td><td>Secondary markets</td></tr><tr><td>Seller:&nbsp; &nbsp; Company</td><td>Seller: &nbsp; &nbsp; Any investor or trader</td></tr><tr><td>Buyer:&nbsp; &nbsp; Investors/traders/institutions</td><td>Buyer:&nbsp; &nbsp; Investors/traders</td></tr><tr><td> Purpose: A way for companies to raise money to fund their businesses</td><td> Purpose: An opportunity for investors to benefit from the growth of companies</td></tr></tbody></table>&nbsp;CLOSING STATEMENT Alright! See you in the next video!

Primary and secondary stock markets

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