IndiGo share drop hurts equity MFs

Funds with high allocation to airline company took a hit of over 1 per cent in single day

An 11 per cent drop in shares of InterGlobe Aviation (IndiGo) on Tuesday has dented the net asset value (NAV) of equity mutual funds' schemes.

Schemes that had a high exposure to the stock of the country's largest airline, which got listed in November, have seen NAV erosion between 75 basis points (bps) and 140 bps in a single day (Tuesday).

On Tuesday, shares of IndiGo closed at Rs 865, dropping 11 per cent, most since January 22. The stock fell 0.3 per cent on Wednesday. Currently, 17 equity schemes have exposure to the IndiGo stock. Fund managers are generally wary of investing in airline stocks as they believe the sector, historically, hasn't made much money for investors.

On a cumulative basis, mutual fund managers have invested around Rs 600 crore in IndiGo. Some schemes have made allocation of as high as seven per cent of their total assets to the IndiGo stock. Those were the worst hit on Tuesday. Interestingly, small-sized Motilal Oswal Mutual Fund has most exposure to the stock among fund houses. Its schemes such as Focused Multicap 35, Focused 25, and Focused Long Term Fund and have allocated 4.7 to 7.04 per cent of their assets in the airline stock. Put together, these three schemes have a little over three million shares of IndiGo in their portfolio with a total investment of Rs 305 crore as on June 30.

Taher Badshah, head of equities at Motilal Oswal Mutual Fund, who is bullish on the aviation sector, said, "I am not unnecessarily perturbed with a fall in one of the holdings. The market leader in the aviation sector is well-placed to counter the challenges, as it knows there is a market which can grow."

The fall in IndiGo shares came due to two factors - a 7.3 per cent decline in its first-quarter net profit and delay in deliveries of Airbus A320neo planes due to engine problems.