Offer For Sale Is The New Mantra In The IPO Market

Two of the biggest IPOs in the country that are expected this year are those of Jio and the NSE. There will be one major difference in these two issuances. The first is a fresh equity issuance where the funds will go into furthering the business of the company, while the second is an offer for sale, where essentially it is a case of some shareholders offloading their stakes in the company. This is a way of reaping value for investments made earlier and will, hence, enhance the profit and loss account for the selling shareholder companies. 

This facet is important because it has been observed over time that, as the market has evolved and matured, several promoters of companies have been selling a part of their stakes in the market. This also means that the market has been doing well in terms of reflecting valuations, though at times there is a sense that some stocks could be overvalued. One of the largest sales was that of the LIC, where the government earned a healthy sum from such a sale. While the share of public holding increases with the OFS, often the promoter sells only a part of the stake and continues to hold a significant share in the company. 

This was not the case with the start-ups, where the promoters sold almost their full stakes and probably exited the venture. Interestingly, during the stock market boom, several loss-making companies were able to leverage their ‘idea novelty’ to extract value in the market through the IPOs. This is going to be the new trend in the market, where the initial investors would be taking advantage of favourable market conditions on a regular basis and exiting through the OFS. 

The last three years, or those following Covid, have been very good for the stock market in terms of issuances. The total IPOs in the last three years, cumulatively, crossed Rs 10 lakh crore. After the Lehman crisis, for the first time in three successive years, in terms of numbers, there were issuances of above 1,000 every year, which summed to 3,865. Clearly, the investment habit has picked up in the market, and there is greater access to investors. A lot of credit goes to SEBI, the regulator, as well as the infrastructure created by exchanges and depositories that has made it easier for companies to raise money in the market. Having separate platforms for SMEs has been an innovative idea that has worked well. 

Now the interesting part is that of these IPOs that are being raised, there is skewness in the pattern of issuance. The OFS route, for example, in FY26 accounted for 34% of the total issuance of Rs 3.8 lakh crore. The balance, 66%, was in the form of fresh equity issuances. Within this category, private placement, which consists mainly of institutional investors, had a share of 32%. The share of the public offering was only 21%, which is what one would associate with retail participation. The balance went as rights issues to existing shareholders. This has, in fact, been the pattern with the share of the OFS, moving up from 27% in FY24 to 34% in FY26. Interestingly, for the period before FY08, public issues had dominated with shares of above 40%. 

While the OFS is a way of extracting value, from the point of view of investment, it is the fresh equity issuances that really matter. This is because the funds raised remain with the company. Before the pandemic struck, fresh equity issuances accounted for over 80% of total IPOs, and, hence, the change in composition is important. This was also the time when companies were investing money in capital formation. 

Interestingly, the higher share of the OFS was led more by the services and financial sectors, while manufacturing largely consisted of fresh issuances. In a sector like IT, the share of the OFS has been between 60 and 70% in the last two years. This does mean that manufacturing companies tend to raise equity more for using the proceeds for capital expansion or other business requirements. In case of non-manufacturing companies, it is more for monetising value from investments made in the past. It is also true that fresh equity issuances do not necessarily go for only investment and can also be used for repaying old loans or substituting for working capital. But these would get clubbed under business requirements. 

The OFS has also been associated with foreign companies, which set up shops in India under the liberal FDI environment offered over the years and are partly offloading their stake and repatriating the proceeds, which has also gotten reflected in the higher FDI outflows on this score. This was seen in the case of sectors like automobiles and electronics, where there were fairly large IPOs, in the last few years. Going ahead, there would be a tendency for this trend to become more prevalent, with the mirror image being seen in the FDI net inflows. 

The future of the IPO market is, hence, very good. Companies would be raising fresh capital either for cashing in on past investments or for capital formation. This normally tends to get synchronised with the secondary market, which has also been quite sprightly in the past 2 years or so, notwithstanding the major reverses the global economy went through in the form of the Trump tariffs and Gulf crisis. With growth prospects in India looking positive, there is reason to believe that the company’s performance would tend to be good, if not get better, thus improving valuation in the market. India already has several start-ups that are doing well in the fintech space. This will open the doors for more OFS issuances in the coming years. 

The author is Chief Economist, Bank of Baroda and author of ‘Corporate Quirks: The Darker Side of the Sun’. Views are personal.

Published on: Sunday, July 12, 2026, 10:52 PM IST