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Offer for sale (OFS) is a mechanism for the promoters and initial investors to monetize their investment by selling their shares in the open market. This route can be used by the listed company and even by an unlisted company. The promoters or early investors of a listed company can go for OFS to sell their existing shares through the stock exchange, whereas the promoters or early investors of an unlisted company can also go for OFS to sell their shares through an IPO.

OFS is not just popular in India. It is also used in other countries, albeit under different names. The U.S. uses secondary offerings or secondary market offerings to describe sales where existing shareholders sell shares after listing. Europe similarly has secondary share transactions and follow-on offerings, where existing shareholders sell shares to investors.

Unlike a fresh issue, OFS does not bring new funds into the company. There is no increase in share capital, no dilution of equity, and no change in book value per share. The proceeds flow entirely to the selling shareholders.

OFS: Some recent trends
Over the past ten years, nearly 66 percent of IPO proceeds in India have been through OFS, with fresh capital raising accounting for only about 34 percent. During the last two years, promoters and early investors of several well-known startups used the route of OFS to monetize their investments. For example, in 2024, 13 startups raised ₹29,200 crores through IPOs, of which ₹14,570 crore was in the form of OFS. Similarly, in the year 2025 also, several startups used OFS to enable the promoters and investors to reduce their stake.

OFS: Some larger concerns
Such huge flow of cash from small investors to the pockets of promoters and early investors through OFS has raised concerns in different circles of policy makers and academic researchers. India’s Chief Economic Advisor V. Anantha Nageswaran too expressed his concern on this development. He said, “India’s equity markets have grown impressively, but Initial Public Offerings (IPOs) have increasingly become exit vehicles for early investors, rather than mechanisms for raising long-term capital. This undermines the spirit of public markets.”

The following table shows the OFS by the foreign investors of some well-known companies. OFS activity of these five companies over the last two years enabled their foreign parents and overseas investors to monetize Indian assets worth more than ₹46,000 crore.

The enormity of potential capital flight becomes evident when it is compared with the gross state domestic product (GSDP) of some Indian states.  The above OFS is around 40% and 50% of GSDP of Andhra Pradesh and Odisha, respectively. While it is difficult to say whether the entire amount has been repatriated or not, these transactions represent a clear channel through which flight of capital can occur.

OFS: Caveat Emptor
There is no problem with OFS as such. In fact, OFS is one of the important mechanisms for providing liquidity to the market. As SEBI’s whole-time member Kamlesh Varshney has said, “such exit routes are necessary for investors,” and he warned that India will not be able to attract the required investments otherwise.

But OFS becomes a matter of concern if the valuation is not based on the fundamental strength of the company, but on the notional profit created through accounting adjustments. Unfortunately, several accounting adjustments have been observed in the IPO documents of some well-known companies in India. Here are some examples where the accounting adjustments had an impact on the disclosed profit.

Lenskart, one of India’s most visible consumer internet brands, saw around 70 percent of its IPO structured as OFS. Financial statements showed losses in earlier years, followed by a sudden profit of nearly ₹300 crore in the IPO year. However, the bulk of this profit came from fair value adjustments and investment income, not from core business operations.

Pine Labs offers another revealing example. In the period leading up to the IPO, Pine Labs reported a swing from losses to profits. A closer examination revealed that much of this improvement is due to accounting adjustments, such as higher other incomes, depreciation and impairment changes, and significant deferred tax adjustments, rather than from a sustained improvement in operating cash flows.

PhysicsWallah Ltd. also restated financials to reduce losses in FY25 compared to a much larger loss in FY24. The reduction in the loss was attributed to non-cash items and accounting adjustments such as classification of fair-value losses on financial instruments like compulsorily convertible preference shares.

It has been observed that companies often use some of the following accounting adjustments to increase profits or decrease losses just before the date of IPOs:

  • Deferred tax
  • One-time gains or expenses
  • Unusual related-party transactions
  • Aggressive revenue recognition policies
  • Fair value changes on financial instruments
  • Prior period or retrospective accounting policy changes

Since there is a possibility of the price not reflecting the fundamental strength of a company going for OFS, investors in general, and small investors in particular, should apply the principle of caveat emptor (let the buyer beware). The principle says that the buyers should understand what they are buying, at what price, and why insiders are selling. The investors should not decide to invest solely based on the hype created in the popular media. One must analyze fundamentals of the company carefully, understand the past and examine the future thoroughly but going through both numbers and narratives.

OFS: From Caveat Emptor to Caveat Venditor
To ensure a fair and transparent securities market, it is essential to uphold the principle of caveat venditor (let the seller beware). The Securities and Exchange Board of India (SEBI) has proposed a separate and concise summary of IPO offer documents. The summary is expected to help retail investors better understand the IPO and avoid being taken for a ride either by the company or by any intermediary organisation.

Companies must be held accountable for not providing accurate, complete, and timely disclosures, particularly when raising funds or selling shares through mechanisms like OFS. At the same time, regulators and stock exchanges should be empowered to enforce these obligations effectively.

Going forward
OFS is a legitimate mechanism in the capital market, to ensure liquidity and provide promoters and early investors an opportunity to monetize their investments. However, both buyers and sellers are expected to observe the principles of caveat emptor and caveat venditor.

Caveat emptor encourages the buyers to be more self-regulated, and the practice of caveat venditor will not only protect investors but also enhance trust and credibility in the market.