With a record year for primary markets rekindling the OFS vs IPO debate, signals of a maturing market

With 2025 marking a big surge in primary market activity, some trends could stand out: the so-called offers-for-sales (OFS) dominated the issues, while facing some flak for the fact that the money raised has gone to promoters and early investors as they partly or fully exited from the companies, even as the funds did not go to the business itself.

Experts feel that while exits to early investors is a sign of maturing and evolving market and will strengthen the initial funding ecosystem, they have raised concerns over the large-scale dilution by promoters, whose next generation is less interested in investing in business. There is a growing trend of such promoters setting up family offices abroad and investing in markets worldwide or other asset classes.

According to a study by Prime database of OFS and fresh capital raises in the period from 1989 up till 2012, where, on an average, around 13% of the total issue amount was offer-for-sale, and the balance 87% per cent amount was fresh capital, from 2013 onward, there has been a reversal of sorts, with about 68% of the total IPO amount being offers-for-sale, while the balance 32% was fresh capital.

What’s more interesting is this analysis from 2015 onward, of over 102 pure OFS issues, which, on average, delivered an absolute return of over 350% while the 80-odd pure fresh capital issues delivered some 170% return — roughly half of what the OFS IPOs generated. India’s largest IPO, Hyundai was, for instance, a pure OFS issue.

In the primary market, an IPO or initial public offering often involves a fresh capital component where a company issues new shares to raise funds for growth or debt repayment, while an OFS or offer-for-sale is when existing shareholders (such as promoters or early investors) sell their shares, with no new money going to the company. An OFS can also sometimes be a part of an IPO. The key difference is who gets the money: in a pure IPO, the company get the proceeds, while in an OFS, the selling investors do.

In 2025, while a total of 103 issues raised over 1.75 lakh crore through the mainboard IPOs in 2025, nearly Rs 1 lakh crore or 57 per cent was offered for sale. According to Prime Database, 19 out of the 103 IPOs that hit the market had a prior PE/VC investor who sold shares in the IPO and accounted for Rs 20,643 crore or 12 per cent of the total IPO amount. While offers for sale by private promoters stood at Rs 79,030 crore and accounted for 45 per cent of the IPO amount, the government divestment amounted to around Rs 7,600 crore.

Even as concerns are being raised from various corners about the fact that IPOs are now becoming a tool for OFS and providing exit to existing investors and dilution to promoters, market experts say that it is a part of the evolution of the equity market.

The CEO of a leading mutual fund said, “In the early 1990s and 2000s, when most of the amount raised was fresh capital, it is important to note that the PE and VC funding was not prevalent. In mid 2000s, PEs and subsequently VCs started entering the Indian equity markets and funded businesses with seed and initial capital, and handheld them in their growth phase. It is good to see that they are getting exit after having helped the company grow and the fund generated through liquidation is now getting routed into a fresh set of companies. This is a healthy cycle, and it is not a cause of concern,” he said.

The CIO of another mutual fund said that since the risk capital to a lot of these new age companies is provided by angel investors, venture capital investors, and private equity investors, “it is important to see them getting exit as it will create a strong funding environment for future ventures and new age companies,” he said.

While experts say that providing exit to PE and venture capital investors shows the strength, maturity and evolution of the Indian equity markets, they raise concerns over the high volume of promoter stake dilution.

Data shows that offers for sale by private promoters stood at Rs 79,030 crore and accounted for 45 per cent of the total IPO amount raised in 2025.

“This is where the concern lies. The traditional risk takers were the promoters, however, what we are witnessing is that the next generation of promoter family is not willing to invest in the business and instead they are setting up family offices abroad and looking to invest in global markets and other asset classes,” said the CEO of a leading brokerage firm who did not wish to be identified.

Another concern experts raise is the lower percentage of the fresh capital raised going for expansion. Data shows that while the amount of fresh capital raised in IPOs in 2025 amounted to Rs 64,406 crore or 37 per cent of the total amount, only 31 per cent of that amount raised through fresh capital was utilised for expansion, new project, or plant & machinery. Around 26 per cent of it was utilised for retirement of debt (26 per cent) and 23 per cent for capital enhancement or working capital.