Indian aviation sector has been through a phase of consolidation for the past several years. There have been pressures on the margins as various new players entered the market and the price wars between the low cost carriers and the premium carriers affected the sector adversely.
After this long period of consolidation, the Aviation Industry is coming out of recession and the future is beginning to look somewhat bright and exciting. Analysts and international aviation groups like Boeing, Singapore Airlines, Lufthansa, Emirates, British Airways and Virgin Atlantic are now bullish on Indian Aviation.
India’s record growth in air travel, which expanded rapidly in the past eight years due to liberalization and favorable economic conditions, is likely to continue. India’s projected GDP growth over the next 20 years will average 6.5 per cent annually, driving a resurgence of demand and capacity growth for the country’s airlines.
Many international players have also shown interest in buying stakes in Indian aviation companies. Current norms allow for 49% FDI in Indian aviation companies while foreign airlines are not allowed to pick up stake. Now, the Civil Aviation Ministry has sent a proposal to allow foreign airlines to own up to 25% in Indian carriers — this will be of part of the 49% in FDI. Indian carriers are estimating to lose about Rs 10,000 crore this fiscal and this may come as a major relief.
Airline stocks like Jet Airways, Kingfisher and Spice Jet present contrarian stock picking ideas. Though the immediate future is still uncertain, yet some strings of hope are appearing on the horizon. Also this sector has suffered for many years, extreme pessimism and under ownership are significant positives for long term value investors. So investors with a 2-3 years time horizon can enjoy a smooth flight by booking airline stocks on every decline.
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