Read the following Case Study and answer the question.
Aryan is a CEO of RS Infotech Ltd., which is a company working in the technology sector for the last 55 years. The company is doing very well in this sector and now has a growth plan of entering into cosmetics market.
Keeping in view the changing tastes and preferences Of customers, it is planning to enter organic products market.
The company targets to achieve 20% of market share in the first 2 years of its entry.
For financial issues, Aryan consulted his chief finance officer, Raj and found that it requires 50 crores of additional capital for setting up a separate cosmetics division.
The Company plans to arrange this money by issuing equity shares in the market but it lacks sufficient cash to bear the floatation cost and hence planned to approach the financial market for the same.
When the company wants to issue new shares, which financial market it is going to approach ?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Primary Market
Option (1) Capital Market — Incorrect. The capital market is the whole market for long-term funds. It has two parts, the primary and the secondary market. The question asks for the market where new shares are issued, which is the primary market.
Option (2) Money Market — Incorrect. This is the market for short-term funds, with a maturity of up to one year. New shares are not issued here.
Option (3) Primary Market — Correct. The primary market is also called the new issues market. It deals with new securities issued for the first time. RS Infotech wants to issue new equity shares to raise 50 crores, so it will go to the primary market.
Option (4) Secondary Market — Incorrect. This is the stock exchange, where already issued shares are bought and sold. New shares are not issued here.
Note 1: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below. Note 2: The case study is taken from the chapter ‘Financial Management’, but this question is based on the chapter ‘Financial Markets’. However, since it is a case-study based question, all the questions on this case study are tagged to the chapter the case study is taken from. NCERT (Pre-rationalised Edition): “PRIMARY MARKET The primary market is also known as the new issues market. It deals with new securities being issued for the first time. …” “A company can raise capital through the primary market in the form of equity shares, preference shares, debentures, loans and deposits. …” |