Shares of InterGlobe Aviation Ltd, which runs IndiGo, are unlikely to stage a major recovery once the stock joins the Sensex on 22 December as investors await clarity on regulatory overhang, but its inclusion in the benchmark index could provide downside protection, several analysts told Mint.
IndiGo shares are down about 17% since the start of the month, after the airline cancelled more than 4,500 flights last week due to an acute crew shortage that resulted from its failure to adapt to new, stricter flight duty time limitations (FDTL) rules for pilots. Following this, the civil aviation regulator ordered India’s largest airline to cut its winter schedule by 10%. The stock’s price-to-earnings ratio was 25.5 on 11 December, compared to 30.8 on 1 December and 32.7 on 20 August, when it hit a record high of ₹6155.50.
However, five market analysts have said a further erosion of the share price was unlikely, even though the airline expects revenue to fall in the December quarter because of last week’s cancellations. Inclusion in the Sensex typically increases demand for a stock as passive funds which track the index and other mutual funds look to include it in their portfolios, driving the share price higher.
On 21 November, BSE Index Services, a Bombay Stock Exchange subsidiary, announced that InterGlobe Aviation would replace Tata Motors Passenger Vehicles Ltd in the 30-stock Sensex on 22 December.
Sensex privilege
While IndiGo stock may not get a Sensex boost, its inclusion in the index should at least offer support on the downside, said Nirav Karkera, head of research at Fisdom, a wealth management firm based in Bengaluru. “Investors will still be cautious because the regulatory overhang isn’t gone. But index investors don’t get to pick and choose; they buy the basket, and that automatically brings flows into the stock,” Karkera added.
"The day of the Sensex rebalancing could see $315 million of inflows into the counter," said Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research. He added that while a 2-3% uptick on the day of inclusion or before that was possible, fundamental issues would catch up with the stock sooner or later.
After the chaos of last week, the Directorate General of Civil Aviation sent the airline a show-cause notice, seeking an explanation from chief executive Pieter Elbers and chief operating officer Isidre Porqueras for the disruption, and ordered an inquiry. It cut 10% of the airline's nearly 2,145 daily domestic flights of the winter schedule and, on Wednesday, formed an eight-member team to monitor IndiGo's daily operations, including two officials stationed at the airline's Gurugram headquarters.
Analysts at JMF Financial and ICRA, a rating agency, have speculated whether there could be leadership changes at the airlines, further increasing uncertainty among investors.
‘Aviation growth story intact’
Anil R, senior analyst at Geojit Investments Ltd, said, “Overall, the inclusion should offer support, even if not a sharp rally after IndiGo’s recent correction, which has already priced in most of the near-term operational issues. But investors may remain cautious on regulatory developments. [Nonetheless] the stock’s inclusion in the Sensex could still bring some fund flows.”
Jinesh Joshi, aviation analyst at PL Capital, a financial services group in Mumbai, said, "It is difficult to comment on whether the stock will see a rally after its inclusion in the Sensex because of the regulatory uncertainty keeping investors on the fence. However, there may be some inflows to support the stock.”
Gagan Dixit, senior vice president, aviation, at Elara Securities, echoed their views. “Index inclusion usually brings support because funds tracking the benchmark have to buy, but in the near term the stock will still move with the regulatory noise.
He added, “However, over a longer period, money managers such as mutual funds and pension funds will look at the FY28 outlook, which looks unchanged. There’s value here as India’s aviation demand growth story is intact.”
IndiGo said on Wednesday it expected a revenue drop in the December quarter and cut its guidance. It now expects passenger growth to decline in the ‘mid-single-digits’ range, compared with management’s 4 November guidance of, at best, “slight growth” in the December quarter. IndiGo said it expected “high single to early double-digit (%) growth” in capacity, compared to management’s earlier guidance of “high teens growth”.
Analysts at JP Morgan said in a note dated 5 November, “IndiGo's domestic airfares for 3QFY26TD are flattish YoY, while select international routes indicate double-digit growth; fuel costs are rising 6% QoQ, and a weak INR is likely to pressure non-fuel CASK.” Cost per available seat kilometre (CASK) is a key airline industry metric that measures the operating expense required to fly one seat – occupied or empty – over one kilometre. Airlines try to minimize this cost to increase profitability.