India’s largest real estate company DLF Ltd listed on the bourses on Thursday at Rs 582 against the issue price of Rs 525. But for an odd trade that put the day’s high at Rs 714.25 the stock traded lower and closed at Rs 570.
The Bombay Stock Exchange’s 30-stock sensitive index (Sensex) soared even as initial trades were being struck in DLF to another all-time high of 14,963 points. It was a wobbly day for the Sensex as it moved from an opening of 14,932 points to the day’s high of 14,963, dipping to a low of 14,731 and recovered to close at 14,861.
While profit booking eroded gains in most counters, real estate stocks, too, lost an average of 5 per cent as traders suspected investors to be moving to the newly listed DLF counter.
With a market capitalisation of Rs 96,287 crore, DLF entered the list of top 10 companies by market capitalisation. This gives DLF a sure entry into the top indices, the Sensex and National Stock Exchange’s broad-based Nifty.
There is no representative of real estate or property companies on these two indices. “DLF, like other real estate stocks, might also witness volatility and there would be big action between bulls and bears in the counter,” said an analyst not willing to be identified.
“DLF is the default player for the sector, given its size, brand and visibility and, therefore, it will command a lot of demand,” said Naveen Jain, analyst at Emkay Share and Stock Brokers.
Jain expects DLF to enter not only the Sensex and the Nifty but also the MSCI Emerging Markets Index. “Index-based funds would be buying into it and FII demand would continue to be there for the stock,” Jain said.
But the measure of volatility DLF brings to the index it forms a part of depends on three factors. One, the stock that DLF replaces on the index; two, the nature of the indices (full float or free float); and three, the correlation of the DLF scrip to the rest of the stocks in the index. If the stock that DLF displaces is a stock with a lower weight then DLF’s volatility will increase the index volatility.
Similarly in the case of a pure price index, the volatility will be higher. “Since the Sensex is a free float index, the volatility will be less. It will be a little higher on the Nifty,” explains G Ramachandran, a financial analyst.
“On its own, the stock will be volatile. But real estate stocks have a negative correlation to other stocks, so it may even bring down the Sensex volatility,” he added.