Offer for Sale (OFS): Meaning, Process & Investor’s Overview

An Offer for Sale (OFS) is a method used in the Indian stock market that allows existing shareholders to sell their shares to the public through stock exchanges. Introduced by the market regulator to improve transparency and efficiency, OFS provides a faster route for share dilution compared to traditional public offerings. It is commonly used by promoters, institutional investors, or the government to reduce their stake in listed companies while ensuring a market-driven price discovery process.

An Offer for Sale refers to a mechanism through which shares of a listed company are sold directly on the stock exchange by existing shareholders. Unlike fundraising methods that involve issuing new shares, OFS does not bring fresh capital into the company. Instead, it facilitates a change in ownership by enabling promoters or large shareholders to offload their holdings.

The OFS mechanism was introduced by the Securities and Exchange Board of India to simplify stake dilution and help companies meet minimum public shareholding norms. These sales are conducted through a transparent bidding process on recognised exchanges, allowing institutional and retail investors to participate at a market-linked price.

In the context of an Initial Public Offering (IPO), an Offer for Sale refers to the portion of shares offered by existing shareholders rather than newly issued equity. When an IPO includes an OFS component, it means promoters or early investors are selling part of their stake to the public as the company gets listed.

This structure allows existing shareholders to monetise their investments while giving new investors an opportunity to acquire ownership in the company. Importantly, proceeds from the OFS portion go to the selling shareholders, not the company. Many IPOs combine fresh issue shares with OFS to balance capital raising and promoter stake reduction.

In the secondary market, the offer for sale meaning extends to a fast-track share sale mechanism available only for already listed companies. Under this framework, eligible shareholders can sell shares through a special trading window on the stock exchange.

The OFS in the stock market is time-bound, usually completed within a single trading day. Since bids are placed electronically and allocation follows a transparent process, it reduces administrative complexity and enhances price efficiency. This method is widely used for government disinvestment and promoter stake reduction exercises.

The offer for sale process follows a structured exchange-driven workflow:

• The selling shareholder announces the OFS with details such as number of shares and floor price.

• The stock exchange opens a separate OFS trading window for the specified date.

• Investors place bids through their trading accounts during market hours.

• Bids are collected and matched based on price priority.

• Shares are allotted after market close, and funds are settled as per exchange timelines.

Retail investors are usually provided a price discount, and a specific portion of shares may be reserved for them, ensuring wider participation.

The OFS mechanism operates through recognised exchanges such as National Stock Exchange and Bombay Stock Exchange. The general process includes:

• Seller submits OFS notice to the exchange

• Floor price and quantity are disclosed in advance

• OFS window opens during trading hours

• Bids are placed through brokers

• Allocation is done post market hours

• Settlement follows standard exchange cycles

Both exchanges follow similar frameworks with minor operational differences.

The following entities are permitted to issue an Offer for Sale:

• Promoters of listed companies

• Promoter group entities

• Institutional shareholders holding significant stakes

• Government entities undertaking disinvestment

• Shareholders seeking to meet minimum public shareholding norms

Only companies already listed on stock exchanges are eligible for OFS.

Consider a listed company where the promoter holds 60% equity. To comply with regulatory norms, the promoter decides to reduce the stake by 5%. An OFS is announced to sell this portion through the exchange at a specified floor price. Investors place bids during the OFS window, and shares are allotted based on demand. The promoter receives the proceeds, and the public shareholding increases accordingly.

• Faster execution compared to IPOs or FPOs

• Transparent, exchange-based price discovery

• No dilution of company equity

• Lower administrative and compliance burden

• Enables compliance with public shareholding norms

• Retail investor participation with possible price discounts

• Limited bidding window for investors

• No capital infusion into the company

• Price volatility due to sudden supply

• Allocation uncertainty for retail bidders

• Market sentiment heavily influences demand

These disadvantages of offer for sale make timing an important consideration for sellers and participants.

Retail investors can apply for OFS through the following steps:

• Log in to your trading account

• Select the OFS option on the trading platform

• Choose the company and enter bid price and quantity

• Confirm the bid during market hours

• Funds are blocked until allotment

• Shares are credited post settlement if allotted

Applications are placed like regular trades but within the OFS window.

SEBI has laid down specific guidelines governing OFS, including minimum shareholding thresholds, bidding timelines, retail investor reservations, and disclosure norms. Selling shareholders must disclose floor prices in advance, and a portion of shares is reserved for non-institutional and retail investors. These rules aim to ensure fairness, transparency, and orderly market conduct.

Offer for Sale is a streamlined mechanism that allows existing shareholders of listed companies to sell shares efficiently through stock exchanges. It supports transparency, regulatory compliance, and broader investor participation. While OFS does not raise capital for companies, it plays an important role in ownership restructuring and market liquidity within the Indian securities ecosystem.

This content is for informational purposes only and should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision taken based on this content. Comment end.