Secondary SURGE

India’s initial public offer (IPO) market is witnessing an unprecedented surge in secondary share offerings, with offer-for-sale (OFS) issuances poised to cross the ₹1-trillion mark for the first time. Fresh disclosures from Prime Database show that OFS collections have already touched ₹96,000 crore this year, surpassing the previous record of ₹95,285 crore set in 2024.

While total IPO proceeds for 2025 stand at ₹1.53 trillion, only a modest portion represents fresh capital issuance. The bulk continues to come from shareholders — primarily private equity funds, venture capital investors, and promoters —offloading stakes in mature businesses. Decade dominated by OFS The rise of OFS is not sudden; it is structural. Since 2015, Indian IPOs have mobilised ₹7.17 trillion, of which ₹4.73 trillion — nearly two-thirds — originated from secondary share sales. Fresh issues during the same period contributed ₹2.44 trillion, marking a decisive shift in how companies approach public markets.

The trend has been even more pronounced in recent years. Between 2020 and 2025, nearly two-thirds of all IPO money raised in India came through secondary sales. This reflects a deeper evolution in India’s financing ecosystem, where early-stage capital is funded privately and public markets are used primarily for liquidity and consolidation.

The dominance of OFS stems from three underlying forces reshaping India’s market landscape.

Lower capital needs: Many of the firms approaching the bourses today — ranging from tech-enabled businesses to consumer and financial services companies —are already profitable and have scaled without requiring heavy external funding. For such companies, IPOs serve more as liquidity events than capital-raising exercises. PE & VC monetising investments: Over the last decade, private capital has driven India’s startup boom. With investment cycles maturing, PE and VC investors are now turning to IPOs to monetise gains. This has been particularly visible in newage listings such as Lenskart, Groww, and Pine Labs, where secondary sales formed the dominant share of the issue. Staggered dilution possible: Sebi’s rules permit companies with a post-listing market capitalisation above ₹5 trillion to list with a minimum public float of just 2.5 per cent, and extend up to 10 years to reach the mandatory 25% shareholding norm. This flexibility encourages staggered sell-downs and multiple OFS windows over time.

Healthy trend or distortion?

The rise of OFS has reignited debate across policymaking and investment circles. Chief Economic Advisor V. Anantha Nageswaran recently argued that IPOs must not become mere exit routes for early investors, warning that excessive secondary sales risk diluting the core purpose of capital formation. However, several market experts push back. Bhavesh Shah, Managing Director at Equirus Capital, notes that OFS is a sign of market maturity. “Investors today are supporting cash-generating businesses that do not require fresh capital. OFS allows orderly ownership realignment without unnecessary dilution.” Sebi Chairman Tuhin Kanta Pandey echoed this view, stressing that both primary and secondary components are essential. Many companies, he said, had already raised growth capital through private rounds; OFS simply offers a transparent exit mechanism.

Investor behaviour factor

IPO investing in India has increasingly become a short-term, momentum-driven activity. Sebi’s landmark 2024 study revealed that over 54 per cent of IPO shares allotted (excluding anchor allocations) are sold within a week of listing. The study showed that:

Individual investors sell around 50 per cent of their allotments within a week,

HNIs flip more than 63 per cent,

When listing gains exceed 20 per cent, investors sell nearly 68 per cent of their holdings almost immediately. This speculative churn often distorts issue pricing and can limit long-term gains —especially in OFS-heavy IPOs where valuations are pushed higher due to strong short-term demand.

Long-term returns in focus

Studies of IPO performance between 2021 and 2023 show that while listing-day gains have remained robust, medium-term returns have been far more subdued. Issues dominated by secondary sales tend to underperform over six to twelve months, largely due to limited fresh capital inflow and the overhang of future lock-in expiries.

Analysts note that aggressive pricing in OFS-heavy issues — combined with the pressure from large shareholder sell-downs — often reduces long-term wealth creation for retail and HNI investors. Despite concerns, OFS remains an important pillar of India’s capital market mechanism. Proceeds generated by shareholders — though not entering the listed company — are often channelled into:

new entrepreneurial ventures,

private market reinvestments,

capital-intensive projects within promoter groups,

and deleveraging of related businesses. This, experts argue, strengthens the broader economic ecosystem.

What investors should watch for in OFS-heavy IPOs The new IPO landscape demands sharper analysis. Market strategists emphasise:

assessing the mix of fresh issue versus OFS,

analysing post-IPO promoter and PE holdings,

comparing valuations with listed industry peers,

monitoring upcoming lock-in expiries,

and evaluating the company’s ability to generate free cash flows. A high OFS is not inherently negative; it simply places greater responsibility on investors to focus on fundamentals rather than euphoria.