Mumbai: Shares of InterGlobe Aviation Ltd surged on a spectacular trading debut on Tuesday as investors seek to tap the world’s fastest-growing aviation market by riding on the owner of its largest and most profitable airline, IndiGo.

The stock rose as much as 17.5% to touch 899.5 during the day before paring some of the gains and closing at 877.5 on the NSE, up 14.7% from its offer price.

InterGlobe received demand for more than six times the shares it offered in its 3,130 crore initial public offering last month—the biggest initial share sale by an Indian company since 2012—on demand led by financial institutions and rich individuals.

“There was quite a rush to buy the stock today morning. We had received several orders from large institutional investors to buy the stock at the price of 855 per share before the stock started trading on exchanges," said an investment banker involved in the IPO. The person didn’t want to be named.

Investors bet that IndiGo, which has a market share in excess of 37% and is the only consistently profitable domestic airline since 2009, is well positioned to take advantage of growth in a market where the number of air passengers increased 19.3% in the nine months ended 30 September from a year ago, according to the International Air Travel Association.

Passenger traffic has increased due to more flights, fare cuts and faster economic growth. Airlines are also benefiting from cheaper jet fuel following the oil price rout.

“There were many doubts on the profitability, listing price and others. IndiGo has posted profits and successfully listed," Aditya Ghosh, president and whole-time director at IndiGo, said.

“Indeed, it is a challenge to maintain the profitability. So, it is our responsibility to maintain the profitability post-listing too," he added.

IndiGo posted a record 640.43 crore profit in the three months ended 30 June. In September, it said it earned a record net profit of 1,304 crore in the year ended 31 March—a fourfold jump over the previous year.

“We are quietly confident," said Ghosh. “We are adding more flights to international segment, but the pace of growth in domestic flights is much more," he said.

The aviation sector is expected to benefit from a proposed new aviation policy, which has called for incentivizing airlines to operate flights to smaller towns and creation of no-frills airports to boost regional traffic. It proposed a 2% levy on domestic and international plane tickets to subsidize airlines so that they connect small and remote cities.

The policy set a target of increasing the sale of air tickets from 70 million to 300 million by 2022 and 500 million by 2027.

Investors are drawn to the Indian aviation sector given its growth potential, experts said, although the airline industry has in recent years experienced quite a lot of pain and, barring IndiGo, most carriers are burdened by accumulated losses.

On 14 March 2005, when IndiGo’s rival Jet Airways got listed, the stock closed 19% higher at 1,305 against the offer price of 1,100. On Tuesday, the stock closed at 420.75, less than half its offer price.

“Investors have invested in the aviation sector given the fact that the penetration of air transport in India is very low and that the sector was expected to see growth rates higher than some of the peer sectors," said Mahantesh Sabarad, deputy head of research at SBICAP Securities Ltd.

The sector has been hurt by high taxes and fuel prices, but the situation is beginning to ease out, Sabarad said. Delivering on shareholder expectations will be the single biggest pressure point for IndiGo, he added.

“They will also have to enhance the (stock) liquidity in the market. The firm has listed with a very small free float. Having a low free float and having a fantastic debut or a high valuation has been done by even several relatively lesser known firms too," he said.

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