InterGlobe Aviation, SpiceJet rose 27% in March; should you buy, sell or hold?

Airline stocks such as InterGlobe Aviation as well as SpiceJet have rallied about 27 percent so far in March, while Jet Airways has risen 1.3 percent in the same period. Brokerage firms remain mixed on aviation sector at current levels after the recent rally.

Well, experts are of the view that the recent passenger growth data is far from encouraging for the sector but smart money could move from Jet Airways to Indigo or SpiceJet, but at the same time investors should keep a close eye on crude oil prices.

Any significant rise in crude oil prices could weigh on both InterGlobe and Spicejet.

Credit Suisse in a recent note upgraded InterGlobe Aviation to 'outperform' from 'neutral' and also raised its target price to Rs 1,650 from Rs 1,075 earlier.

Jet Airways capacity withdrawal is positive for the airline. It may be difficult to find a new partner and restore full-scale capacity for Jet. The global investment bank revised FY19 earnings to `0 from a loss of Rs8/sh for Indigo.

It has also revised FY20/21e earnings to Rs52-86 from Rs 35-65 on better yield prospects. Credit Suisse estimates Indigo's spread at 38 paisa/ask in FY21e, compared to 30 paisa earlier.

HSBC in a note last week said that the domestic traffic growth at its slowest in the last five years, as fares seem to have moved north, denting demand.

The load factor is down by 2 pts despite capacity growth slowing to 8 percent. HSBC has a hold rating on SpiceJet with a target at Rs 79.50/share, while it has a reduce rating on Jet Airways with a target of Rs 190/share.

Citigroup has a sell call on InterGlobe Aviation with a target of Rs 1,000. The company’s market share rose slightly while at the same time fuel prices have also started rising again.

“We do not think that airlines will grapple with cost issues. The main focus for operators will be the balance between fares and traffic volume,” said the Citi note.

Technical View on InterGlobe Aviation & SpiceJet:

Analyst: Prakash Pandey, Director, Fairwealth Securities

Indigo:

Indigo rallied almost 100 percent in less than 6 months and it is extremely overbought on daily charts. Any correction of 6-8 percent will be a buying opportunity.

But before buying any Airline stocks, always keep a close eye on Global Crude Oil Prices/ ATF prices.

SpiceJet:

SpiceJet is currently trading at Rs. 98 and also rallied more than 50 percent in the last 6 months. This stock can be bought around Rs. 95 levels with a stop loss below Rs 85, and a target of Rs 120.

Jet Airways is trading well below all the important moving averages and on the charts, the stock is looking weak. One should not try and do bottom fishing in these stock & also news flow around this stock is not painting any rosy picture for the company.

Remarks: One can buy Spicejet because the risk/reward is better. However, once crude crosses USD 75, all bets will be off.