Airline stocks soared high on Wednesday in an otherwise dull market, on reports that the government would soon clear a proposal allowing foreign airlines to buy stakes in Indian carriers. The shares of the sector’s three listed entities — Jet Airways, Kingfisher Airlines and SpiceJet — gained a little more than five per cent each.
The Cabinet is likely to meet tomorrow to discuss the proposal to allow up to 49 per cent foreign direct investment (FDI) by foreign airlines in Indian carriers, a move that could provide a big boost to the debt-laden domestic companies.
Vijay Mallya-promoted Kingfisher Airlines gained the most at 6.4 per cent, to close at Rs 19.85. SpiceJet gained 5.45 per cent to Rs 29, while Naresh Goyal-promoted Jet Airways added 5.2 per cent to Rs 358.5. The benchmark Sensex closed 0.3 per cent lower at 17,199.40 on Wednesday.
Though current regulations allow foreign investors to hold up to 49 per cent stake in Indian carriers, foreign carriers are barred from investing in domestic airlines.
Market participants said the decision to allow investment by foreign airlines will be positive for the sector. It should be interesting to see how the government tackles the new takeover code’s 25 per cent open offer trigger. According to current regulations by the Securities and Exchange Board of India (Sebi), if a foreign firm were to pick a stake of 25 per cent or above in a domestic carrier, it would have to make an open offer for another 26 per cent.
In January, Union civil aviation minister Ajit Singh, had proposed to allow foreign airlines to pick up to 49 per cent stake in Indian carriers.
Most airline stocks have had a dream run since the start of this year. Jet Airways has more than doubled, while SpiceJet has gained 72 per cent. Even though Kingfisher Airline is down close to six per cent since January, the stock has surged more than 30 per cent this month.
It soared mainly on buzz that some big corporate houses, including Mukesh Ambani-led Reliance Industries, might pick up a stake in the company. The Sensex has gained 11.3 per cent so far in 2012.