The correction comes at a time when regulatory clarity from Securities and Exchange Board of India and structural aspects of the offering are influencing market dynamics.

OFS Structure and Eligibility Rules Impact Sentiment

The proposed IPO, expected to exceed ₹20,000 crore, will be entirely an Offer For Sale (OFS). This means the exchange itself will not raise fresh capital, and all proceeds will go to existing shareholders looking to dilute their stakes. Around 4% to 4.5% of equity is likely to be sold through this route.

A key factor affecting unlisted share prices is SEBI's rule that only investors who have held shares for at least one year prior to the filing of draft papers can participate in the OFS. This effectively excludes new investors who entered the unlisted market recently in anticipation of listing gains.

As a result, investors who purchased shares after June 2025 will not be eligible to sell in the IPO. Existing shareholders must also provide consent by April 27 to participate in the OFS, adding another layer of procedural complexity.

This regulatory framework has significantly altered the short-term trading strategy in unlisted markets, where late-stage entry ahead of IPOs was previously a common practice.

Valuation Concerns and Market Reassessment

Another major reason behind the decline in unlisted share prices is the reassessment of valuation. NSE's unlisted shares had witnessed a sharp rally in recent months, driven largely by IPO expectations. However, as more clarity emerges around the structure and timing of the issue, investors are re-evaluating whether the current pricing accurately reflects fundamentals.

Market participants are increasingly focusing on realistic valuation metrics rather than speculative gains. The shift indicates a broader trend in the primary market, where investors are prioritising long-term performance over short-term listing gains.

The evolving sentiment also reflects caution, as the final IPO price will be determined through a book-building process. This introduces uncertainty regarding the eventual listing valuation and potential upside for investors.

Expanding Shareholder Base Adds Complexity

The exchange's shareholder base has expanded significantly, rising from around 39,000 investors at the start of 2025 to over 1.8 lakh by the end of the year. This rapid increase has added complexity to the IPO process, particularly in managing approvals and coordinating participation in the OFS.

Handling such a large and dispersed investor base requires extensive logistical and regulatory coordination. The exchange has reportedly engaged multiple bankers and legal advisors to manage the process efficiently.

The size and diversity of the shareholder base may also influence the supply of shares in the market post-listing, potentially affecting price stability.

Risks and Outlook for Investors

For investors, the biggest uncertainty remains the IPO pricing. Since the final price will be discovered through the book-building mechanism, it is difficult to predict the exact valuation at which the shares will be offered.

Additionally, if all offered shares are not fully subscribed, there may be a six-month lock-in period for the remaining shares after listing. This could limit liquidity for certain investors and impact trading dynamics in the initial months.

The current decline in unlisted share prices highlights the risks associated with pre-IPO investments, particularly in markets driven by speculation and limited liquidity. While such investments offer early access to high-profile listings, they also carry higher volatility and regulatory uncertainties.

As the IPO process moves closer to filing the Draft Red Herring Prospectus, expected around June, investor focus is likely to shift further toward fundamentals, governance track record, and long-term growth prospects of the exchange.