Monday, September 17, 2012

NEWS | Don’t look for the gainers

The announcement on aviation gives the go-ahead for foreign airlines to own up to 49 per cent stake in domestic passenger airlines. Expectation of this has sparked off a rally in all listed airline stocks from the distressed Kingfisher Airlines to Jet Airways and Spicejet. But that seems irrational.

If you were a foreign airline company looking to buy into the India story on air travel, where you would choose to deploy your capital today? Would you sink money in order to revive Kingfisher, with its depleted operations, huge debt burden and high cash burn?
Or would you rather bet on the other listed airlines which stand to gain from the forced consolidation in the sector, by way of less capacity, higher airfares and better load factors? That points to Spicejet or Jet Airways as the only likely choices for these foreign investors. Similarly, hopes that global retailers will rush to sew up deals with Pantaloon, Shopper’s Stop or other cash-strapped players owing to liberalised FDI seem misplaced. Reading through the announcement shows that these new foreign players will have to jump through many hoops to get their India investments off the ground.


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