2025: The year of the net equity outflow in the stock exchange

When people follow the stock market, their thinking is that the sole function of the capital markets is to provide price discovery for the stocks that are listed. The daily volatility in the market is considered to be the only use where investors can buy and sell their shares as they please. This is indeed a function of the market. However, it is not the primary purpose of the markets.

Capital markets are seen as the first place of issue where corporations can come to investors and offer them shares and an investment opportunity. This allows the companies to raise funds for themselves while allowing investors an opportunity to invest in the company at this initial stage. The market acts as the platform where the two parties come together and are able to communicate and trade with each other. Indeed, this function of the market is literally called the primary market.

Something that is seen as the most common example of this is an Initial Public Offering (IPO) where the company gives access to its financials to all the investors in the market. They provide details of their past and present and chart a future that they see for themselves going forward. The company has to wow the investors to such an extent that the investors are willing to use their savings in order to invest in the company. Subsequent issuances can be carried out where the companies go to investors for additional sources of funds as well in the form of right share subscriptions as well.