India’s listing bonanza: IPO window opens wide as OFS turns exit route

Why in the News

The initial public offering (IPO) process in India has become an exit mechanism for existing shareholders rather than a route for companies to raise growth capital. The offer for sale (OFS) component was nearly 1.5 times the fresh capital raised in FY26, according to National Stock Exchange data. Forthcoming issues, including the National Stock Exchange’s own estimated Rs 30,000 crore offering, are entirely OFS. The tension is that a window designed to widen public ownership and fund new investment is now converting private holdings into public ones without adding capital to the companies being listed.

What is an offer for sale?

1. The instrument: An OFS is a sale of shares already held by promoters or early investors, conducted through the stock exchange rather than by the company issuing new shares.
2. Where the money goes: The proceeds reach the selling shareholder, so the listed company’s own capital base does not change.
3. The Indian variation: When an unlisted firm lists, an OFS can be included in the IPO prospectus, also called a Red Herring Prospectus (the offer document filed before the issue price is fixed), so it enters through the primary market window while behaving like a secondary market transaction.

How large has the OFS share of India’s primary market become?

1. It now exceeds fresh capital: OFS was nearly 1.5 times the fresh capital raised in FY26, according to National Stock Exchange data.
2. It dominates issue proceeds: OFS accounted for about 59 per cent of IPO proceeds in FY26, according to KPMG India data. Listings backed by private equity rose sharply.
3. The pattern is five years old: Indian companies mopped up Rs 5.4 lakh crore through public issues during 2021-25, of which Rs 3.37 lakh crore came entirely from OFS, according to Prime Database.
4. The pipeline is large: As many as 245 companies have filed their draft Red Herring Prospectus with the Securities and Exchange Board of India (SEBI), according to an Equirus Capital report.

Why was the OFS route created, and what was it originally meant to do?

1. A compliance mechanism, not an exit route: SEBI formally introduced OFS in 2012 as a dedicated exchange based mechanism for promoters of listed companies to sell shares transparently.
2. The stated purpose: It was meant to help promoters reduce their holdings and comply with minimum public shareholding norms, which require a listed company to keep a fixed proportion of its equity with public shareholders.
3. The government adopted it for disinvestment: The Centre used OFS to dilute its holding in central public sector enterprises to reach the shareholding threshold and beyond it, in ONGC, Hindustan Copper, NMDC, Oil India, NTPC, Rashtriya Chemicals and Fertilisers, NALCO and the Steel Authority of India.
4. Large public issues carried it too: Life Insurance Corporation of India, General Insurance Corporation, Coal India, Indian Railway Finance Corporation and New India Assurance each saw a sizeable OFS share in their public offer.

Which of the forthcoming issues are entirely exits?

1. The exchange’s own listing: The National Stock Exchange, cleared by SEBI for its estimated Rs 30,000 crore IPO, will go entirely through OFS.
2. An asset manager followed the same route: SBI Funds Management’s public offering of more than Rs 9,800 crore was entirely through OFS.
3. Three more public sector issues are proposed on the same basis: Indian Gas Exchange, Mahanadi Coalfields and Asset Reconstruction Company India are taking a proposed 100 per cent OFS route.
4. The private sector uses it to unlock value: In the Hyundai India listing the parent company did not dilute to fund the subsidiary’s expansion, and sold shares to Indian investors instead, in one of India’s largest IPOs.

Why is the window open now?

1. Subscription demand has more than doubled: Average IPO subscriptions rose to 59.1 times in July and August from 24.5 times in April to June, according to NovaaOne Investment Banking.
2. Listing gains have widened: Average listing gains climbed to 19.5 per cent from 5.7 per cent over the same comparison.
3. Deferred issues have returned: Companies that stayed on the fringes during volatile markets are now seeking to capitalise on improving sentiment.
4. The pipeline spans consumer facing sectors: The private sector queue covers quick commerce, logistics, housing finance, dairy, financial services and education infrastructure, with a sizeable proportion of OFS embedded in the issues.

What does the contrast with other large markets show about the Indian structure?

1. The comparison is structural rather than detailed: The United States, China, the United Kingdom, Japan and parts of Europe have historically had large secondary equity markets, but their structures differ from India’s IPO plus OFS model.
2. Sequence is the difference: In the United States and Europe, secondary sales usually happen after a company is already public, so the market has already achieved price discovery before existing holders sell.

Challenges to the offer for sale route

1. Pricing is set by the party leaving: A selling shareholder fixes the price of its own exit and carries no continuing obligation to the company’s performance after listing. Eg. Paytm listed in November 2021 and traded far below its issue price within a year.
   The Fix: Extend a lock in on significant selling shareholders beyond the existing anchor investor period, so a portion of the exit is priced after the market has tested the company.
2. Disclosure is built around the issuer, not the seller: An offer document centres on the company’s stated use of proceeds, which carries little information where the fresh issue is small. Eg. An issue that is entirely OFS has no use of proceeds section of substance at all.
   The Fix: Require a separate disclosure of each large selling shareholder’s holding period and acquisition cost on the cover of the offer document.
3. Retail investors absorb the price discovery risk: Listing gains draw first time investors into issues priced off valuations set in private funding rounds. Eg. SEBI studies have found that a majority of retail allottees sell within a week of listing.
   The Fix: Publish an issue level dashboard showing the fresh issue share and the pre-issue acquisition cost, so a subscriber can see what is being funded.
4. Public sector divestment becomes procyclical: Stake sales are timed to buoyant markets rather than to a stated ownership policy, so the exchequer sells most when sentiment is strongest. Eg. Coal India’s stake sales have clustered in periods of strong index performance.
   The Fix: Publish a rolling multi year divestment calendar with target holdings per company, so the sale schedule is not set by market mood.

Conclusion

India’s primary market is functioning as a liquidity platform, and capital formation has become only one part of what it does. That is not a defect in itself, since an exit route is what persuades early investors to fund unlisted firms in the first place. The unresolved question is whether a subscriber can tell which of the two an issue is doing, because the offer document is built to describe a company raising money and most issues are no longer doing that. The marker to watch is whether SEBI requires the fresh issue share to be disclosed on the face of the prospectus.

Matching Previous Year Question

“[2023] Consider the following markets : 1. Government Bond Market 2. Call Money Market 3. Treasury Bill Market 4. Stock Market How many of the above are included in capital markets? (a) Only one (b) Only two (c) Only three (d) All four ANSWER: (b)”