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Despite rising crude oil price concerns, Indian aviation stocks remain unfazed; are fears overblown?

Even in the last three to six months, the stock prices have remained mostly stable despite crude oil prices consistently inching up since July. Well as Sandip Sabharwal says, major aviation stocks have remained mostly stable despite the concerns being raised on crude oil price front.

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Hardly one week into the Telecom Regulatory Authority of India (Trai)'s recommendation for allowing internet services in airlines, Chicago-based in-flight internet company Gogo has announced its plan to enter the Indian market by establishing a technology development centre in Chennai

Renowned market investor Sandip Sabharwal on Thursday tweeted, “The sector supposed to be most affected by “Crude Price Rally” i.e. Aviation seems to be doing the best it has ever done. Obsession with one variable is biggest flaw of analysis.” The statement holds merit considering the fact the prominent aviation stocks have performed well despite constant fears being raised by the Reserve Bank of India (RBI) and the central bank about soaring crude oil prices having an impact on inflation. The shares of Jet Airways that closed at Rs 791.70  on BSE up by 1.92  percent on Friday have returned nearly 19 percent in last three months. The shares of Interglobe Aviation that closed at Rs 1,259.50 on BSE up by 0.33 percent on Friday have returned nearly 4.94 percent in last three months. Spicejet closed at Rs 141.65 up by 1 percent on BSE on Friday. The stock is just down 0.49 percent in the last three months.

Even in the last three to six months, the stock prices have remained mostly stable despite crude oil prices consistently inching up since July. Well as Sandip Sabharwal says, the major aviation stocks have remained mostly stable despite the concerns being raised on crude oil prices front. So, as he says, “obsession with the one variable (crude) is biggest flaw of analysis” – appears to be true.

The Reserve Bank of India, in the sixth and last bi-monthly monetary policy meeting raised the inflation forecast for the the fourth quarter of the current fiscal to 5.1% and for the first six months of the next fiscal year in the range of 5.1 percent and 5.6 percent on the concerns of rising crude oil price and house rent allowance impact. “Domestic pump prices of petrol and diesel rose sharply in January, reflecting lagged pass-through of the past increases in international crude oil prices. Considering these factors, inflation is now estimated at 5.1 per cent in Q4, including the HRA impact,” the RBI said.

Finance secretary Hasmukh Adhia has already gone on record to state that if crude oil price hardens, the government would indeed consider cutting the excise duties on petrol and diesel to give relief to consumers and avoid a spike in inflation.Rallying crude oil price, which is now hovering over $66 per barrel is one of the major inflation-related concerns. According to the Economic Survey Report 2018, every $10 per barrel hike in crude oil prices push inflation up by 1.7 percentage points. The Sensex and Nifty were on a downward spiral this week. Sensex lost as much as 1,493 points in last six days and Nifty struck a low of 2018.

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First published on: 10-02-2018 at 09:47 IST
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