The huge demand from institutional investors for the DLF issue of issues underscores the tremendous international appetite for Indian stocks. The issue’s performance also highlights the fact that, though domestic retail investors may find the pricing aggressive, there are enough institutional takers for local issuances. If local investors are conscious of the risks involved in real estate prices levelling off, in the company’s rapid growth assumptions as also the history when it comes to corporate governance, the institutional investor who is supposed to be more rigorous before showing the money, has no doubts.

 There is the question of understanding new and fast-growing industries in rapidly growing economies, and how to value them correctly. This is where global institutional investors seem to come out on top. Whether it was believing in the mobile penetration or the retail proliferation story, they have been the early adopters, and have made good money in Bharti and Pantaloon. Real estate is probably at the same level as was telecom and retail, three or four years ago. Understanding the sector and putting a fair value to the price is not an easy task. It is also relevant that with a market capitalisation of close to Rs 1 lakh crore, DLF’s listing would boost India’s market capitalisation by 2.5 per cent. Potentially, this could also increase India’s weight in the global equity indices.

Valuing a company with sales, earnings or assets which are going to be significantly higher in the future than what they are now requires faith in the management on keeping promises. In the case of DLF, there is lack of clarity on the value of the land holding, the titles and the rights to development of the land, and so on. For a sample, more than 60 per cent of company’s land is still agricultural land which needs government clearance to be used for any other purpose, the cost of which is indeterminable. As for real estate prices heading upward, which is a key selling point for DLF, its own aggressive development schedule could keep prices under check. Interestingly, the March 2007 earnings figures for DLF were approximately 40 per cent short of the figures projected by investment bankers in December 2006, when the issue was being pre-sold to potential investors. This demonstrates the risk of under-performance.