India's IPO jargon decoded: What fresh issue, OFS, and DRHP really mean

From fresh issue and OFS to confidential filing and QIB demand, here is a simple guide to the IPO terms that you should know

India’s primary market is seeing renewed IPO activity, with startups, consumer brands, financial firms and established companies lining up to tap public markets. 

As IPO structures become more sophisticated, terms such as fresh issue, OFS, confidential filing, anchor investors and grey market premium are increasingly influencing investor decisions. 

For retail investors, these terms offer clues about where the money is going, who is exiting, how institutional investors are responding, and whether an IPO is aimed at business expansion or investor monetisation. 

Here is a simple breakdown of some of the most important IPO concepts investors are likely to encounter.

Fresh issue vs OFS

Sebi’s 2018 issue of capital and disclosure requirements (ICDR) regulations define an initial public offer as an offer of securities by an unlisted issuer to the public. It may also include an offer for sale by existing shareholders along with fresh shares. 

 

In a fresh issue, a company creates and issues new shares to investors. The money raised flows directly into the company and is usually used for expansion, debt repayment, technology investment, acquisitions or working capital. 

In the case of OFS, or offer for sale, existing shareholders such as promoters, private equity investors or early backers sell part of their stake to the public. The proceeds go to those shareholders, not the company. 

“This distinction matters because it tells investors whether an IPO is raising growth capital or primarily giving liquidity to early stakeholders,” said Abhishek Jain, head of research, Arihant Capital Markets. 

Jain said OFS-heavy IPOs are not automatically negative, particularly in private equity-backed businesses where investors operate within fixed fund timelines. 

However, Paresh Bhagat, CIO of Veer Growth Fund (AIF), and Chairman at Mangal Keshav Financial Services, said promoter-heavy OFS structures deserve closer scrutiny. “LG Electronics India was a 100 per cent OFS of roughly ₹11,607 crore, meaning no money went into the Indian company. That does not make the business weak, but investors need to understand it was a listing and monetisation event, not a growth-capital raise,” he said. 

His thumb rule for investors: “OFS-heavy IPOs need seller analysis. Fresh-issue-heavy IPOs need capital-allocation analysis.”

What is a DRHP?

A Draft Red Herring Prospectus, or DRHP, is the preliminary document a company files with Sebi before launching an IPO. It contains disclosures about the company’s business model, financial performance, promoters, risks, litigation, debt, use of proceeds and industry outlook. 

According to Bhagat, five sections deserve special attention:

• Objects of the issue: It explains how the company plans to use the money raised
• Risk factors: It often reveals customer concentration risks, regulatory issues, debt stress, governance concerns or pending litigation
• Promoter and selling shareholder information: It shows who is exiting and how much stake promoters will retain after listing
• Related-party transactions: It indicates dependence on promoter-linked entities
• Auditor qualifications and financial statements

Confidential filing

Under the confidential filing route, companies can file draft IPO papers with Sebi privately before publicly disclosing details. This allows firms to receive regulatory feedback without immediately exposing business details, financials or strategic plans to competitors and the broader market. 

Market experts say this route has become popular among startups and new-age firms operating in competitive sectors. 

For companies, it offers flexibility in uncertain market conditions. If market sentiment weakens, firms can defer plans without attracting as much public attention. For investors, however, it also means less visibility during the early stages of the IPO process.

Anchor investors and QIBs

Anchor investors are large institutional investors that subscribe to shares before an IPO opens to the public. Sebi defines anchor investors as qualified institutional buyers making large applications in book-built public issues. 

Qualified Institutional Buyers, or QIBs, include mutual funds, insurance firms, pension funds, banks and foreign portfolio investors. Their participation is closely watched because institutional investors typically undertake deeper due diligence on valuation, governance and financial quality. 

“QIBs matter because they bring institutional price discovery into the process. Their participation is a test of whether sophisticated investors are comfortable with the business and its valuation. The institutions study the business, valuation, and governance more deeply,” Bhagat said. 

Still, he cautioned against blindly following institutional participation. “Strong QIB interest can support confidence. It can also give issuers room to price aggressively,” he said. 

Anchor books are often treated as a positive signal, especially when they include large domestic mutual funds, sovereign funds or long-only foreign institutions. But Bhagat said investors should focus more on the quality of anchor investors than the size of the anchor book itself.

Grey Market Premium or GMP

Grey Market Premium, commonly known as GMP, refers to the unofficial premium at which IPO shares trade in the unregulated grey market before listing. 

Retail investors closely track GMPs as a proxy for listing gains. But market experts caution against relying too heavily on them. “Retail investors should not place too much weight on GMP. It is an unofficial grey-market indicator, easily driven by short-term euphoria, scarcity, or operator-led sentiment,” Bhagat said. 

According to Jain, GMPs can rise sharply ahead of listing and collapse equally quickly if broader market sentiment changes.  ALSO READ | Is GMP a good barometer for evaluating an IPO? Here's what experts suggest

Price band and book building

Most Indian IPOs follow the book-building route. Sebi defines book building as the process used to gauge investor demand and determine the issue price. 

Companies announce a price band within which investors place bids. Based on demand across categories, the final issue price is determined. 

This mechanism is intended to improve price discovery by involving institutional and retail demand in the pricing process.

Lot size and oversubscription

Every IPO specifies a minimum lot size, which is the smallest quantity of shares an investor can apply for. 

Oversubscription happens when investor demand exceeds the number of shares available. For example, if an IPO is subscribed 20 times, bids have come in for 20 times the shares on offer. 

Oversubscription figures often generate excitement among retail investors. But Bhagat warned that high demand does not guarantee strong listing gains. According to Bhagat, 108 IPOs raised around ₹1.76 trillion in FY26, with average oversubscription at 39 times, but listing-day gains averaged only 8 per cent. 

“The right reading is this: GMP shows sentiment, subscription shows demand, but fundamentals and valuation decide returns,” he said.

HNI/NII category

Non-institutional investors, or NIIs, apply above the retail limit but are not institutional investors. This category includes high-net-worth individuals, corporations and wealthy investors. According to market experts, this segment often sees aggressive leveraged bidding in popular IPOs, particularly when expectations of listing gains are high.

What is an IDR?

An Indian Depository Receipt, or IDR, allows foreign companies to raise funds in India by issuing shares to Indian investors. They are conceptually similar to American Depository Receipts, or ADRs, through which Indian companies are listed overseas. 

Standard Chartered PLC became the first global company to file for an issue of Indian depository receipts in India in 2010. The issue raised about ₹2,500 crore, but saw limited investor participation post-listing.

Lock-in period

A lock-in period refers to the duration during which certain shareholders are not allowed to sell their shares after listing. Sebi’s ICDR rules prescribe lock-in requirements for promoters and other shareholders. 

The purpose is to ensure promoters continue to have a stake in the company after the IPO and cannot sell all their shares immediately after listing.

Pre-IPO placements

Many companies raise money from institutional investors before filing or launching an IPO. Such investments are called pre-IPO placements and often come from private equity firms, sovereign wealth funds, family offices or institutional investors. 

Pre-IPO placements can help validate valuations and strengthen the company’s balance sheet before listing. But experts say they can also increase pressure for eventual investor exits through OFS components.

Market capitalisation

Market capitalisation refers to the total value of a company’s outstanding shares. It is calculated by multiplying the share price by the total number of shares outstanding after listing. 

Market experts say retail investors need to understand IPO terms so they can judge a company on its business and financial strength, and not just market buzz. As India’s IPO market evolves, the language of public issues may become more complex, but the underlying questions remain: who gets the money, why is the company listing, and does the valuation justify the promise?