Coffee Day Enterprises Ltd’s debut on the bourses was a damp squib. Its shares closed about 18% lower than its issue price at Rs.270.15 apiece on the first day of listing, when broader markets declined slightly. With one of the two most anticipated initial share sales out of the way, what can investors expect from the forthcoming listing of InterGlobe Aviation Ltd, which runs IndiGo?
Aviation stocks—Jet Airways (India) Ltd and SpiceJet Ltd— have been on fire for some time now, helped by sustained softer crude oil prices. In the last two days, the stocks of both airlines have gone up 13-15% compared with a 1% decline in the benchmark Sensex. What has led to this spurt?
Sure, the draft National Civil Aviation Policy (NCAP) released on Friday is good for the sector, proposing measures that can improve connectivity and make air travel affordable across the board. Announcements related to developing MRO (maintenance, repair and overhaul) hub are positive. Still, “some critical issues remain unaddressed”, points out Capa-Centre for Aviation, a consultancy. Capa says it would have liked to see more emphasis on addressing the negative fiscal environment, for example, sales tax on jet fuel, service tax on fares, airports charges and withholding tax on aircraft leases. Moreover, the government’s stand on the 5/20 rule is far from clear and one will have to wait for the final policy.
The recent surge in airline stocks could also be because of a large purchase by Rakesh Jhunjhunwala’s Rare Enterprises. The firm purchased 1.2 million shares of Jet Airways on Friday. For perspective, the daily average delivered quantity on the Jet Airways counter stood at 0.5 million on NSE and BSE in the past year.
It is premature to conclude that NCAP is a game changer of sorts for the sector at this point of time. The recent fall in crude oil prices could be a reason for the renewed enthusiasm, but it’s worth remembering that Jet Airways and SpiceJet have a lot of debt on their balance sheets.
Nonetheless, the sudden interest generated in the sector leaves little doubt that market leader IndiGo’s shares will list with a pop. The million-dollar question then is: is the price burst temporary, and should investors exit on listing? The answer to that will depend on the view investors have on crude oil prices, but the consensus currently is that they’re likely to remain low. Moreover, another silver lining for investors is that domestic passenger traffic data is more than reasonable, with 20% year-on-year growth during January-September.
The writer does not own shares in the above-mentioned companies.