The capital market, Puji Bazar, is a financial marketplace where long-term loans and shares are traded. It is crucial to direct savings from individuals and entities toward institutions that use these funds for productive investments. This market provides a platform for investors to buy and sell various financial instruments, including bonds, debentures, shares, mutual funds, and derivatives.
The capital market is divided into two main segments: the primary market (Pratham Bazar) and the secondary market (Doshrow Bazar).
Primary Market (Pratham Bazar)
The primary market, the Issue Market, is the segment where new securities are issued and sold for the first time. This market allows issuers, such as corporations and governments, to raise capital to meet their investment requirements or discharge their financial obligations. In the primary market, new securities (dhitopartra) are offered to individual and institutional investors at their face value (Ankit Muilya) or a premium.
A common method for issuing new shares or securities in the primary market is an Initial Public Offering (IPO), known in Nepal as Sadaharan Share Niskashan. During an IPO, a company offers its shares to the public for the first time, allowing investors to purchase ownership stakes.
Secondary Market (Doshro Bazar)
The secondary market is where previously issued securities are bought and sold. This market becomes active after the securities have been offered to the public in the primary market and listed on a stock exchange. In the secondary market, investors trade securities among themselves, providing liquidity and enabling the continuous buying and selling of financial instruments.
The Nepal Stock Exchange (NEPSE) is the sole secondary market in Nepal. NEPSE's primary function is to provide liquidity to purchasers of securities, allowing them to easily convert their holdings into cash. Additionally, NEPSE offers a platform for investors to trade securities with one another, facilitating the efficient functioning of the capital market.
By participating in the secondary market, investors can manage their investment portfolios, diversify their holdings, and respond to market conditions. The secondary market also plays a vital role in price discovery, helping to determine the market value of securities based on supply and demand dynamics.
In summary, the capital market, encompassing both the primary and secondary markets, is essential for efficiently allocating financial resources, providing investment opportunities, and enabling the trading of financial instruments.