Shares in India's biggest real estate developer DLF fell as much as 2.5% after the Bombay Stock Exchange (BSE) said it will replace the company in the benchmark 30-share Index with pharma major Dr Reddy's Laboratories.
DLF has taken a beating from investors with the company's market value eroding almost 84% to $6.4 billion compared with the peak of over Rs 2 lakh crore in early 2008.
"The replacement of DLF stock in the BSE Sensex is primarily due to low floating stock. DLF has high promoter group holding of about 79% leading to relatively low free float," a company spokesman said.
DLF's removal from the index, which will come into effect from June 11, points to a wider problem of declining profitability among Indian real estate companies struggling with high debt, slow sales and sluggish growth.
"The weak macro environment and high interest rates have been punishing on over-leveraged balance sheets putting stress on the companies' cash flows," said Rakshit Ranjan, an analyst at Ambit Capital.
"The sector has faced a huge de-rating from investors who have also become sceptical about the transparency and accounting policies of companies," said Ranjan.
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The BSE Realty Index lost more than 50% of its value in 2011.
After DLF's exit, there will be no real estate stock on the benchmark index.
DLF was down 1.8% to Rs 193.80, while Dr Reddy's was up 0.31%.