VSNL, on its part, is giving the demat option to its investors, but insiders say that it is more of an option to take shares in the physical form. VSNL was among the first in the country to put its scrip on the mandatory demat trading list for all investors.

"We would be surprised if anything less than 80 per cent of the total offering is not issued in demat mode. On the one hand, more than 90 per cent of the existing non-government and GDR equity is already in demat mode.

All the existing investors, therefore, are only expected to subscribe to demat shares. Those entering for the first time too would see value in taking the shares in a demat mode considering that trading in these shares is only indemat mode. Only a few investors who are only keen to keep the shares with them for a long period and not trade them would apply for the shares in the physical mode," said a top depository source.

Sources said that the depository will hold talks with VSNL to see how the new primary market module of the depository can be activated for issuing the securities. The module enables speedy and efficient issuance of demat shares into investor accounts.

Interestingly, it appears that the market regulator has once again been overtaken by the market. The Sebi board had, a year back, cleared a committee report, which made it mandatory on fresh issuers to issue equity only in demat mode. Those investors who did not wish to receive shares in electronic form would be allowed to rematerialise their shares at no charge whatsoever, is what the Board had approved at that time.

Subsequently, the decision was once again put to discussion at the primary market committee of Sebi, which struck down the Sebi board's suggestionto push the primary markets to demat mode.

The issue was taken up again at a recent Sebi board meeting, where it was decided that public issues would be made in the demat mode with an option to receive paper shares as well. The only difference, in this, and the earlier decision was that while there, an investor would exercise the option to hold physical shares by rematerialising the shares at no cost, now the investor would be able to take the physical shares in the very first instance.

What the market regulator seemed to have overlooked is the fact that over the past year, the depository movement has gained considerable ground and with more than 8.50 lakh accounts having already been opened, the chances of future investors in the primary market seeking to touch physical shares seems remote.