Offer for Sale: how large shareholders sell through the exchange
The answer
An Offer for Sale, or OFS, is a large existing shareholder selling part of their stake directly through the stock exchange, usually in 1 or 2 trading days, at or above a floor price they announce in advance.
No new shares are created. The company does not receive a single rupee. This is somebody else's stake changing hands, using the exchange as the auction house.
Why this costs you money
The main loss here is a misreading, and it happens in both directions.
Direction 1: you think the company is raising money. An OFS is announced with a large number attached — "₹5,000 crore offer for sale". It looks like a fundraising. It is not. The seller keeps the money. If you bought because you believed the company was about to be recapitalised, you bought on a fact that does not exist.
Direction 2: you think something is wrong. The stock opens down 4% on the morning of an OFS. Your stop order fires. You are out. Nothing happened to the business. A known seller put a known quantity of shares on the market on a known date, and the price moved toward the floor price they published the previous evening.
This is the specific mechanical trap: an OFS is announced after market hours, usually 1 banking day before it opens. So you find out overnight, and the price adjusts at the open the next morning. If you hold a stop loss just below the market, an OFS can remove you from a position for reasons that have nothing to do with the company.
And there is a third, smaller loss. In India, retail investors have a reserved portion of every OFS and are often offered a discount to the cut-off price . Most retail investors do not know the window exists, do not know it lasts 1 day, and never use it.
How it works
Cluster 1 taught the difference between the primary market, where the company sells new shares, and the secondary market, where investors trade with each other. An OFS sits oddly across that line. The shares are old. The sale is public and scheduled. The money goes to a shareholder, not the company.
Here is how an Indian OFS runs.
- The seller notifies the exchanges by a deadline on the banking day before the offer opens, stating the number of shares, the date, and the floor price — the lowest price at which they will sell.
- The exchange opens a separate window during normal trading hours. This is not the regular order book. It is a dedicated auction.
- Buyers place bids at or above the floor price, for a quantity. Retail investors can bid at "cut-off", which means they accept whatever the final price turns out to be.
- At the end, the seller sets an allocation. Bids above the cut-off are filled. Bids below the floor are rejected. Retail bids are filled from a reserved portion.
- Settlement follows the normal cycle, and the shares arrive in the buyer's demat account.
Two days are common: 1 day for institutional and other non-retail buyers, and the next day for retail. The retail day usually uses the price discovered on the first day, which is why a retail investor sees the floor price and the actual clearing price before deciding.
Now place the OFS among its neighbours.
| New shares? | Company gets money? | Who sells | How long | |
|---|---|---|---|---|
| IPO | Usually some | Yes, the fresh part | Company and existing holders | 3 or more days |
| FPO | Usually yes | Yes | Company | 3 or more days |
| OFS | No | No | 1 large holder | 1 or 2 days |
| Block deal | No | No | 1 large holder | Minutes, in a set window |
| Buyback | No, they are cancelled | It pays out | Shareholders sell to the company | About 2 weeks |
The row that matters is the second one. Only the IPO and the FPO put capital into the business.
What it tells you, and what it does not
The most informative number in an OFS notice is not the size. It is the floor price against yesterday's closing price.
- A floor set close to the market price says the seller is patient and would rather not sell than sell cheap.
- A floor set well below the market price says the seller wants it done, and is paying for certainty.
That is a fact about the seller's urgency. It is not a fact about the company.
The second thing to establish is why they are selling, and there are 4 common answers with 4 different meanings.
- The government needs money. State disinvestment sales have a fiscal target and a deadline in a budget document. The timing says nothing about the company.
- The promoter must comply. In India, a listed company must keep at least 25% of its shares with the public. A promoter holding more than 75% has to sell down. That is compliance, not a view.
- A fund has reached the end of its life. A private equity or venture fund with a fixed term must return money to its own investors.
- The seller thinks the price is good. This is the only one of the 4 that is a signal, and it is the one you can never confirm.
What an OFS does not tell you is which of those 4 it is. The notice does not say. You have to work it out from the identity of the seller and their constraints.
The decision rule
An OFS is a supply event with a published date and a published floor. Treat it as an event, not as news.
Before the day: if you already hold the stock, check whether any stop order of yours sits between the current price and the floor price. If it does, you will probably be sold out by an auction, not by the market.
On the day: the only question worth asking is who is selling and are they free not to. A forced seller — a government with a fiscal target, a promoter above 75%, a fund at the end of its life — is telling you about their calendar. A free seller choosing this month is telling you about their view.
Never buy an OFS because there is a discount. A discount to a price the seller chose is not a discount to value.
Try this now
Five minutes, on stocks you actually hold.
- Pick 2 of your own holdings. For each, open the stock's page on the NSE or BSE website and find Corporate Announcements and Bulk and Block Deals. In the United States, open the company's filings page on the SEC's EDGAR system and look for Form 4, Form 144 and any prospectus supplement marked 424B.
- Look for any sale by a promoter, a government body, a founder or a large fund in the last 3 years. Note the date and the size.
- Now open the price chart and mark that date. Look at what the price did in the 5 trading days after it.
- Finally, open the shareholding pattern for each holding — quarterly, on the exchange site or in the annual report. Write down the promoter percentage.
What you should see. Two things.
First, the price effect of a large sale is usually sharp and short. The days around the sale look dramatic on a chart and the following month usually does not. You are seeing supply, not information.
Second, and more useful: if a promoter percentage in your list is above 75%, that company has a seller in its future whether the promoter wants one or not . If it is at 51%, the promoter has a lot of room to sell before losing control. Neither is a reason to buy or avoid. Both change what a future sale announcement will mean when you read it.
Three real cases
1. Coal India, January 2015 (India) — the government as the seller The Government of India sold about a 10% stake in Coal India through an offer for sale over 2 days, raising roughly ₹22,500 crore. It was the largest OFS in India at the time. Coal India the company received nothing. The money went to the government's disinvestment account. The floor price was set below the prevailing market price, and institutional demand covered the offer on the first day. Nothing about the coal business changed that week. A shareholder with a budget deficit sold shares.
2. The United States Treasury and General Motors, December 2013 — the same job, done a different way After the 2009 rescue, the US Treasury owned a large stake in General Motors. It sold that stake down over about 2 years and announced its exit on 9 December
- There was no single scheduled auction window and no retail quota.
The Treasury sold in the open market through appointed brokers, in tranches, disclosing progress periodically. The economic event was identical to an Indian OFS. The visible mechanism was completely different.
3. Archegos Capital Management, 26 March 2021 (United States) — what a large sale looks like with no orderly mechanism Archegos was a family office with very large leveraged positions. When it could not meet margin calls, its banks sold the collateral. On a single Friday, Goldman Sachs, Morgan Stanley and others placed roughly $20 billion of block trades in a handful of media and Chinese technology stocks. Several of those stocks fell 30% or more within 2 days. No announcement preceded it. No floor price was published. Holders of those shares learned about the seller from the price. This is the case that shows what the Indian OFS framework is designed to prevent.
The question that resolves it
A novice sees an OFS notice and asks: is the stock going to fall?
An expert asks: is this seller free to walk away, or do they have to sell?
A seller who has to sell will accept a lower price and will be finished within days. A seller who chooses to sell has decided something, and that decision is the only part of the event that carries information.
What would make this wrong
If an OFS carried real information about a business, then the price effect should persist. Mostly it does not. Large scheduled sales produce a temporary price impact that fades once the supply is absorbed, which is the standard finding on block sales and secondary offerings in both markets.
The honest limits are real.
Sometimes the seller genuinely knows something. A promoter selling 30% of a company 6 months before a profit warning is not a supply event. You cannot separate the 2 cases at the time, only afterwards.
And the fade is not guaranteed. If a sale takes the promoter's holding below the level where they control the company, the sale has changed the company, not only the supply of its shares. Size matters here, and the threshold to watch in India is a promoter dropping toward or below 50%.
In India
The OFS mechanism was created by SEBI in 2012, specifically to give large holders an orderly, transparent way to sell without filing a full prospectus . It was built for a problem India had created for itself: the minimum public shareholding rule required many promoters, including the government, to sell down within a deadline.
The rules that matter to you:
- Who may use it. Promoters and other large shareholders of companies meeting an eligibility test, historically framed around the largest companies by market capitalisation.
- Notice. The seller must inform the exchanges before the offer opens, with the floor price, on the banking day before.
- Retail reservation. A minimum portion of the offer is reserved for retail investors, and the seller may offer them a discount.
- Cut-off bidding. A retail investor can bid at cut-off rather than name a price, which removes the risk of bidding below the clearing price and getting nothing.
- Minimum public shareholding. 25% of shares must be held by the public
. This single rule is the reason a large number of Indian OFS transactions exist.
An OFS is not the only route. A block deal happens in a short dedicated window at a negotiated price, between 2 large parties. A bulk deal is any trade above a size threshold in the normal market, disclosed the same day . Both are visible on the exchange website, and both are worth checking for any stock you hold.
In the United States
There is no instrument called an offer for sale. The same job is done 3 ways.
A registered secondary offering. Existing holders sell through underwriters under a registration statement. The shares are old, the company gets nothing, and the offering is often priced overnight and sold to institutions before the market opens.
A Rule 144 sale. Affiliates — officers, directors and large holders — may sell restricted or control shares in the open market subject to volume limits, holding periods and a Form 144 notice. This is a drip, not an event.
A block trade. A bank buys a large parcel from the holder at a negotiated discount and then resells it to institutions, usually within hours. The bank takes the risk. Retail investors have no access to the placement.
Insider sales are visible through Form 4 filings, usually within 2 business days of the transaction. Many executives sell through pre-arranged Rule 10b5-1 plans, which schedule sales in advance and are designed to remove the question of what the seller knew.
Where they differ, and what that tells you
In India, a large sale is an announced, scheduled, exchange-run auction with a published floor price and a slice reserved for retail investors. You can see it coming and you can take part.
In the United States, the same sale is usually a private placement arranged overnight between a bank and a list of institutions. A retail investor finds out from a filing, often after the price has already moved.
What this tells you is where your information advantage is, and where it is not.
An Indian retail investor has real, usable visibility into who is selling their company. The announcements are public, the shareholding pattern is published quarterly, and bulk and block deals appear on the exchange website on the day they happen. Most people never look.
A US retail investor has less real-time visibility into a block placement, but far better standardised records of insider selling through Form 4 and Rule 144 filings, which are searchable, dated and free.
The habit is the same in both countries and the source is different. Check who sold before you decide what the price move meant.
Carry this
- An OFS moves shares from 1 owner to another. The company receives nothing.
- The floor price against yesterday's close measures the seller's urgency, not the company's health.
- Ask whether the seller is free to walk away. A forced seller is a calendar. A free seller is a decision.
Knowledge check
Related
- Splits, bonuses and buybacks
- Mergers and acquisitions: what happens to your shares
- Reading promoter and insider buying
- ← Corporate actions and the IPO