IndiGo shares decline after OMCs raise jet fuel rates; should investors be worried?

Airline stocks saw cautious trade on Friday after state-run oil marketing companies announced a significant increase in the prices of aviation turbine fuel (ATF) —or the fuel in jet engines.

At 11:10 am, the stock of InterGlobe Aviation, which owns and operates the IndiGo airline, was down 0.2 per cent at Rs 2,427.5 apiece while SpiceJet shares were up 0.3 per cent at Rs 31.1 apiece on BSE. Earlier in the day, IndiGo and SpiceJet shares traded in a range of Rs 2,402.5-2443 apiece and Rs 31-31.4 apiece, respectively.

Also Read: ATF prices hiked from today; check out the new rates here

State-run oil marketing companies Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) announced an increase in the jet fuel prices applicable in the four metros.

In New Delhi, the price of ATF was raised by 14 per cent to Rs 1,12,419.33 per kilolitre—the highest since December 2022, with effect from September 1. The revision took the total increase in ATF prices to more than Rs 21,000 per kilolitre in two months.

In Mumbai, the price of the fuel stands at Rs 1,05,222.13 per kilolitre after the revision.

The hike in jet fuel rates comes just before the onset of the festive season in the country, which typically boosts the demand for air travel. Fuel forms the lion's share in airlines' operating costs.

ATF price trend

What analysts say

Siddharth Sedani of Anand Rathi Securities suggests holding IndiGo shares.

The latest hike in ATF prices will only lead to short-term pressure for the airline, he told Zee Business.

Earlier in the day, Zee Business Analyst Arman Nahar gave a ‘sell’ call on InterGlobe Aviation shares with a target price of Rs 2,375 and a stop loss at Rs 2,484.

Here’s how the stocks of both airlines have fared in the recent past:

In 2023 so far, IndiGo shares have grown more than 18 per cent, sharply outperforming a six per cent rise in the headline Nifty index. SpiceJet shares have, on the other hand, declined more than 20 per cent during this period.

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