MFs exit SpiceJet and board Jet Airways instead

Fund managers sold shares in the grounded carrier much ahead of its slipping into trouble

India’s equity fund managers were seen selling SpiceJet shares before the airline ran into rough weather. As of now, there is no equity scheme with exposure to the SpiceJet stock, data show. Mutual funds had previously reported exposure to the Chennai-based airline in April this year.

“Through the past year, there have been enough indications that SpiceJet would face trouble. Continuous freebies offered by the airline to attract sales, amid talk of the entry of Air Asia, didn’t make business sense. Therefore, investing in SpiceJet wasn’t a rational decision,” said the chief executive of a foreign fund house.

CHANGING OPTIONS

• MFs sell entire holdings in SpiceJet; shift investment to Jet Airways
• MFs investments in SpiceJet becomes zero, from Rs 17.4 crore earlier this year
• MFs’ investments in Jet Airways tripled this year to Rs 241 crore, from Rs 77 crore

At the beginning of this year, only two equity schemes had exposure to SpiceJet —Principal Emerging Bluechip Fund and Reliance Regular Savings Fund. Their combined investment was Rs 17.4 crore, according to data from Value Research.

The chief investment officer of a mid-sized fund house says, “The balance sheet of a company is a function of its past deeds. SpiceJet is not an exception. The company could be better placed if it had aimed for profitability, not market share. It’s paying the price for obvious reasons.”

Fund managers say the aviation sector is in bad shape, as most airlines lack operating leverage. Fuel costs account for 45-50 per cent of the aviation sector’s expenses. Many fund managers have shifted to Jet Airways. At the beginning of this year, 22 equity schemes had exposure to Jet Airways, with a total corpus of Rs 77.23 crore. By November, this increased to 32 schemes, with an overall investment of Rs 241 crore.

“Jet Airways is staying away from repeating the mistakes its erstwhile peers did. The company is well aware it needs to rationalise costs to stay in business. More, Jet already has an operating leverage and it will benefit from the weak prices of crude oil,” said the head of an equity fund managing firm. He added fund managers had moved their investments to a company with a better model.

Some schemes offered by Birla Sun Life MF, BNP Paribas MF, SBI MF, ICICI Prudential and Reliance Mutual Fund have invested in Jet Airways.