Offer For Sale Is The New Mantra In The IPO Market

Two major initial public offerings (IPOs) anticipated this year in India are from Jio and the National Stock Exchange (NSE). These two will differ significantly: Jios IPO involves issuing new equity to raise capital for business expansion, whereas NSE’s IPO is structured as an offer for sale (OFS), where existing shareholders sell their stakes, realizing returns on their earlier investments.

This approach impacts the sellers financial statements without bringing fresh capital into the company.

Evolution of OFS in the Indian Market

Over time, as financial markets have matured, company promoters have increasingly chosen to sell portions of their holdings through OFS transactions. This signals greater market efficiency in reflecting company valuations, although some concerns remain about stock overvaluation.

A notable example is the Life Insurance Corporation (LIC) IPO, where the government raised substantial funds through an OFS. While OFS transactions often raise the public shareholding percentage, promoters typically retain significant stakes.

In contrast, startup promoters sometimes sell off almost all their holdings during IPOs, effectively exiting the ventures. During previous market booms, even unprofitable firms leveraged innovative business ideas to attract IPO funding.

This pattern of initial investors capitalizing on favorable market conditions to exit via OFS is expected to continue.

IPO Activity Post-COVID-19 and Market Trends

The post-COVID-19 period has been particularly active for IPOs, with cumulative issuances exceeding 6 lakh crore over three years. For the first time since the Lehman Brothers crisis, over 1,000 issues occurred annually across three successive years, totaling 3,865 offerings.

This growth reflects increased investor activity and improved market access, aided by regulatory efforts from SEBI and infrastructure enhancements by exchanges and depositories. Innovations like dedicated SME platforms have also contributed to facilitating capital raising.

Shifts in IPO Composition and Financing Patterns

Examining recent IPO composition reveals a shift. In fiscal year 2026, OFS accounted for 34% of the 3.8 lakh crore raised, while fresh equity issuances comprised 66%.

Within fresh issuances:

  • Private placements to institutional investors represented 32%
  • Public offers to retail investors made up 21%
  • The remainder were rights issues to existing shareholders

The OFS share has risen from 27% in FY24 to 34% in FY26, whereas pre-FY08, public issues dominated with over 40% share.

From an investment perspective, fresh equity issuances are crucial as they infuse new funds into companies. Prior to the pandemic, fresh equity constituted more than 80% of total IPOs, underscoring a period of significant corporate capital investment.

Sector-wise, the increased OFS share is more pronounced in services and financial sectors, while manufacturing firms prefer fresh equity issuances aimed at capital expansion.

In the IT sector, OFS typically accounts for 60 60% of issuances over the past two years. Generally, manufacturing companies use IPO proceeds to fund growth, whereas non-manufacturing companies frequently use the IPO to monetize previous investments.

Though fresh equity can also serve to repay debt or enhance working capital, such uses fall under general business needs.

Foreign Companies and OFS Impact on FDI

Foreign companies operating in India under liberal FDI policies have also utilized OFS to partially divest and repatriate funds, contributing to notable outbound foreign direct investment flows, particularly in automobiles and electronics sectors in recent years.

This trend is expected to become more common, influencing FDI inflow patterns.

Future Outlook for the IPO Market

Looking ahead, the IPO market is poised for strong performance. Companies will continue raising fresh capital for either cashing in on prior investments or funding growth initiatives.

This activity usually correlates with buoyant secondary markets, which have remained resilient despite global economic challenges like trade tensions and geopolitical crises. Positive prospects for Indias economic growth suggest improving corporate performance and market valuations.

Additionally, the success of several fintech startups positions the market for increased OFS activity in the near future.

Key Takeaways

  • Jio and NSE represent different IPO approaches: fresh equity issuance versus offer for sale.
  • OFS transactions have grown as a tool for promoters to monetize holdings without raising new capital.
  • Post-pandemic IPO activity has increased markedly, supported by regulatory and infrastructure improvements.
  • The share of OFS in IPOs has risen, especially in service and financial sectors, while manufacturing leans toward fresh equity for growth.
  • Foreign companies also use OFS for partial exits, influencing outbound FDI flows.
  • Future IPO market prospects remain strong due to resilient secondary markets and economic growth outlook.