Offer for Sale (OFS): How the Exchange Window Works

An offer for sale is a sale of existing shares by existing shareholders. No new shares are created, so there is no dilution, and the company itself receives nothing. The money goes to the selling shareholders.

In India the phrase covers two different things. There is the OFS component inside an IPO, where promoters or early investors sell part of their holding alongside the fresh issue. And there is the OFS mechanism on the stock exchange, a separate bidding window that promoters of already listed companies use to sell a block of shares in a single session.

This article deals mainly with the second one, since that is the version retail investors can actually bid in.

The Two Meanings, Side by Side

Point	OFS inside an IPO	OFS on the exchange platform
Company status	Unlisted, going public	Already listed
Who sells	Promoters and existing investors	Promoters, or non promoters holding a large stake
Price	Book built price band	Floor price set by the seller, bids above it
Duration	Three or more working days	Usually one or two trading sessions
Governing framework	SEBI ICDR Regulations	SEBI circulars on the OFS mechanism
Money reaches	The selling shareholders	The selling shareholders

Why a Company Uses the Exchange OFS Route

The most common reason is compliance. Listed companies must maintain minimum public shareholding of 25%, so a promoter sitting above 75% has to bring the stake down. An OFS does that in one or two sessions instead of dribbling shares into the market for months.

The Government of India has also used this route repeatedly to sell down stakes in public sector companies. Other sellers include private equity funds exiting a large position, where a normal market sale would move the price against them.

Eligibility is defined by circular. The mechanism is open to promoters of companies meeting a market capitalisation criterion, and to non promoter shareholders holding at least a specified percentage of share capital. Because the eligibility thresholds have been widened more than once, check the current NSE or BSE circular rather than assuming an old number still applies.

How the Bidding Actually Runs

1. Announcement. The seller notifies the exchange before the OFS date, disclosing the number of shares, the date, and whether a discount will be offered to retail investors. The floor price may be announced upfront or given to the exchange in a sealed cover before bidding opens.
2. Separate window. Bidding happens in a dedicated OFS window during normal trading hours, not in the regular order book.
3. Two days, two groups. The non retail portion typically bids on the first day, and retail investors bid on the second day, with unsubscribed shares from one group available to the other.
4. Reservations. A minimum of 10% of the offer size is reserved for retail investors, defined as those bidding up to Rs 2 lakh. A minimum share of the offer is also reserved for mutual funds and insurance companies together.
5. Bid types. You can place a price bid at or above the floor, or, as a retail investor, a cut off bid that accepts the final clearing price.
6. Allocation. The seller chooses between multiple clearing prices, where each successful bidder pays their own bid price, and a single clearing price for everyone. This is disclosed in the notice.
7. Settlement. Trades settle on the normal T+1 cycle, and shares land in your demat account like any other delivery trade.

During bidding the exchange publishes an indicative price and the quantity bid, so you can watch demand build in real time. That transparency is one genuine advantage over an IPO, where you bid blind on price.

Should a Retail Investor Bid

Sometimes, with clear eyes about what you are buying.

• The discount is real but small. Sellers often offer retail investors a discount to the cut off price, typically a modest percentage. It is a genuine advantage, not a reason to buy a business you do not want.
• The floor price is a floor, not a valuation. It is usually set at a discount to the prevailing market price to attract demand, which is exactly why the stock often falls towards the floor on OFS day.
• Allotment is not guaranteed. In a heavily bid OFS with multiple clearing prices, a bid at the floor may get nothing.
• Funds are blocked. You need 100% margin in cash or an acceptable form to place the bid, and unallotted money is released after settlement.
• Supply is the story. A large OFS increases free float. That is good for long term liquidity and index weight, and it can pressure the price in the short run.

A misconception worth correcting: an OFS is not a signal that the promoter has lost faith. When the sale is to meet the 25% public shareholding rule or is a scheduled government divestment, it is a compliance or fiscal decision, not a view on the stock. Read the exchange notice for the stated reason before drawing conclusions.

Frequently Asked Questions

Can I sell OFS shares the day they hit my demat account?

Yes, once shares are credited on settlement they are ordinary shares with no lock-in for retail bidders, so you can sell them in the normal market. Some sellers impose conditions on the retail discount, so read the notice.

What is the difference between an OFS and a buyback?

In an OFS a large shareholder sells shares to the market, so the share count stays the same and promoter holding falls. In a buyback the company itself purchases and extinguishes shares using its own cash, so the share count drops and remaining holders own a slightly larger slice.

Do I need a special account to participate in an OFS?

No, a regular demat and trading account is enough, and most brokers offer an OFS bidding section during the window. You will need the full bid amount available as margin when you place the bid.

Why does the share price often fall on the day of an OFS?

The floor price is usually below the market price, and traders anticipate a fresh supply of shares, so the market price tends to converge towards the floor. The effect is generally short lived once the sale is absorbed.

Is an OFS the same as an FPO?

No. A follow on public offer usually involves the company issuing fresh shares to raise money for itself, with a full offer document and a multi day subscription window. An OFS is a sale of existing shares by shareholders through a one or two day exchange window.

Key Takeaways

• An OFS sells existing shares, so there is no dilution and the company receives no money.
• The exchange OFS runs in a separate window with a seller declared floor price, over one or two sessions.
• At least 10% of the offer is reserved for retail bids up to Rs 2 lakh, with a further reservation for mutual funds and insurers.
• Retail investors can bid at cut off and are often offered a small discount.
• Promoters frequently use an OFS to meet the 25% minimum public shareholding requirement.