Thursday is an important day for the market. After all, India's largest real estate stock debuts, that too with a staggering market capitalisation of around Rs 1 lakh crore.
Its post-listing performance has ramifications not only for valuations in the real estate sector but also for overall market sentiment. The debate that surrounded DLF's initial public offering (IPO) valuation simply heightens the drama around its listing.
Valuing real estate stocks is a challenge. It is something that market participants are still grappling with. The street is also quite divided on the assessment of DLF's net asset value or net present value.
Estimates range from Rs 430 to Rs 520, which makes it all the more difficult. If one assumes that the net asset value is around the ballpark figure of Rs 480-500, then a 1.2 multiple of that would peg the value of the stock between Rs 575 and Rs 600.
Some would consider that expensive while a comparison with similar regional realty plays would make it look reasonable. That would peg DLF's market cap at around Rs 1 lakh crore.
If the company manages to deliver profits in the region of Rs 5,000-6,000 crore in 2007-08, it would work out to a price-earnings multiple of between 15 and 20, again not wildly high. The important thing, of course, is the accuracy of these underlying assumptions of net asset value and profits.
On technicals, the portion of the IPO reserved for institutions was subscribed five times, so there should be enough unsatiated demand. Foreign institutional investors and large domestic institutions would want to buy post-listing. DLF is just too big a stock to ignore.
There was not any great expectation of post-listing gains, a fact that explains the lukewarm interest from the big individual investors. By that very token, there should not be any great selling pressure either from that fraternity.
Of course, it will debut on the futures and options segment as well and people may open shorts if the stock makes a very significant upmove. One can expect a listing in the range of Rs 560-600.
The key question is whether it can stabilise above Rs 600 or slip below its issue price in the coming days. That will set the benchmark for the sector.
(The writer is Executive Editor, CNBC-TV 18)