IndiGo: Analysts advise 'Hold' despite rich valuations, sector headwinds

IndiGo’s near-term outlook appears turbulent as weak demand, pricing pressures, and rising competition weigh on the industry, prompting analysts at Nuvama Institutional Equities (Nuvama) to maintain its ‘Hold’ rating on the Interglobe Aviation stock. 

 

Nuvama flagged ‘high valuations’ and ‘near-term industry weakness’ as key reasons for caution, even as structural positives remain intact.

 

Nuvama’s scheduled flights tracker – a lead indicator with strong correlation to actual data – signals a subdued September quarter (Q2FY26). 

 

“Our scheduled flights tracker points towards a weak Q2,” the brokerage said, noting that domestic scheduled flights fell 3 per cent year-on-year (Y-o-Y) during the period, with IndiGo reporting a 4 per cent drop. Overall scheduled flights growth was limited to 1 per cent Y-o-Y, with IndiGo flat, despite a strong 20 per cent Y-o-Y jump in international flights where the airline posted a 30 per cent increase.

 

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Traffic turbulence

 

Passenger traffic trends also underline demand headwinds. Domestic passenger (PAX) growth in the first four months of FY26 was only 2.5 per cent Y-o-Y, compared with 7.9 per cent in FY25. IndiGo outperformed peers with 8.2 per cent growth, but the broader weakness is evident. Monthly growth slowed to 1.6 per cent in May and 2.9 per cent in June before slipping into negative territory at -3 per cent in July. ICRA recently pared back its FY26 domestic PAX growth forecast to 4-6 per cent, from 7-10 per cent earlier.

 

On the international side, PAX growth was 10.2 per cent in April-July 2025, dragged down by weaker June (1.9 per cent) and July (6.7 per cent) prints compared to April-May’s 16.5 per cent. 

 

Analysts attribute this slowdown to geopolitical tensions, US tariff and visa uncertainties, and heightened passenger safety concerns. “Global travel is slowing on geopolitics, US tariff and visa uncertainty,” Nuvama noted, pointing out that June 2025 international passenger growth was just 2.6 per cent Y-o-Y, versus a historical average of 7-8 per cent.  ALSO READ | Defence, PSBs, auto, & metal indices outpace Nifty50 in CY25; what's next?

Fuel dynamics, rising competition

 

Fuel dynamics provide only partial relief. Aviation turbine fuel (ATF), which accounts for 30-40 per cent of airline operating costs, declined 11 per cent Y-o-Y regionally, but a 3 per cent depreciation in the rupee offset much of this benefit. Thus, domestic ATF prices fell just 5 per cent Y-o-Y to ₹90.9 per litre.

 

Competition is another emerging challenge. With SpiceJet and Akasa expanding international routes in Asia, analysts expect premium fare segments to come under pressure. This, coupled with weaker demand, is weighing on yields. The brokerage’s daily airfares tracker shows average domestic passenger revenue per available seat kilometre (PRASK) at ₹4.25 per km in Q2, down 12 per cent quarter-on-quarter (Q-o-Q), while international PRASK fell 5 per cent Q-o-Q to ₹5.6 per km. “We forecast thinner margins for Q2 as fares continue to soften,” it said.  ALSO READ | Competitive pressures may cap upsides for Container Corporation of India

Caution, with a dash of optimism

Despite these headwinds, IndiGo retains several positives. Its strong market leadership, scale benefits, and expansion into international markets offer resilience against cyclical shocks, analysts said. However, they warned that valuations remain steep. IndiGo trades at 1.6-2.1x, which it described as ‘unsupportive versus peers.’

 

Amid this backdrop, analysts at Nuvama left earnings estimates and its target price unchanged at ₹5,428. “Near-term outlook looks challenging on demand weakness. Current valuations are unsupportive… but positive factors make risk-reward balanced,” it said, reiterating a ‘Hold’ stance.