Indigo stock may not soar on Sensex debut, but it will curb the crash, analysts say

Indigo shares have fallen nearly 17% since the beginning of the month after the airline canceled more than 4,500 flights last week due to acute crew shortages caused by its failure to comply with new, stricter flight duty time limits (FDTL) rules for pilots. Following this, the civil aviation regulator ordered India’s largest airline to reduce its winter schedule by 10%. The price/earnings ratio of the stock was 30.8 on December 1 and 32.7 on August 20, while it was 25.5 on December 11. ₹6155.50.

But five market analysts said a further decline in the share price was unlikely, although the airline expected a decline in revenue in the December quarter due to last week’s cancellations. Being included in the Sensex generally increases demand for a stock, as passive funds and other mutual funds that track the index try to include it in their portfolios, pushing up the share price.

On November 21, BSE Index Services, a subsidiary of the Bombay Stock Exchange, announced that InterGlobe Aviation will replace Tata Motors Passenger Tools Ltd in the 30-stock Sensex on December 22.

Sensex privilege

Nirav Karkera, head of research at Fisdom, a Bengaluru-based asset management company, said that although Indigo shares may not be able to provide a boost on the Sensex, its inclusion in the index should at least offer downside support. “Investors will still be cautious because the regulatory burden has not been removed. But index investors do not have a choice; they buy the basket and that automatically brings flows into the stock,” Karkera added.

“The day Sensex rebalances, the counter could see an inflow of $315 million,” said Abhilash Pagaria, head of Alternative and Quantitative Research at Nuvama. He added that while a 2-3% rally is possible on or before the day of inclusion, fundamental issues will catch up with the stock sooner or later.

Following the chaos last week, the Directorate General of Civil Aviation sent a show-cause notice to the airline, asking for an explanation from chief executive Pieter Elbers and operations manager Isidre Porqueras about the glitch and ordering an investigation. It has cut 10% of the airline’s nearly 2,145 daily domestic flights in its winter schedule and on Wednesday set up an eight-member team, including two officials based at the airline’s Gurugram headquarters, to monitor IndiGo’s day-to-day operations.

Analysts at JMF Financial and ICRA, a ratings agency, speculated about whether leadership changes could occur at the airlines, further increasing uncertainty among investors.

‘The growth story of aviation is solid’

Anil R, senior analyst at Geojit Investments Ltd, said: “Overall, this engagement should offer support, even if not a sharp rally after IndiGo’s recent correction, which has already priced in most of the near-term operational issues. However, investors may remain cautious on regulatory developments.” [Nonetheless] “Inclusion of the stock in Sensex may still bring some inflow of funds.”

“It is difficult to comment on whether the stock will see a rally after its inclusion in Sensex due to regulatory uncertainty that has left investors uncertain. But there may be some inflows that will support the stock,” said Jinesh Joshi, aviation analyst at PL Capital, a financial services group in Mumbai.

Gagan Dixit, senior vice president of aviation at Elara Securities, echoed his views. “The inclusion of indexes generally brings support because funds that track the benchmark have to buy, but in the near term the stock will still move with regulatory noise.

He added: “However, over a longer period, money managers such as mutual funds and pension funds will be looking at the FY28 outlook, which appears unchanged. There is value here as India’s aviation demand growth story is robust.”

IndiGo said on Wednesday it expected revenue decline in the December quarter and cut its guidance. Passenger growth is now expected to fall in the ‘mid-single digit’ range, compared with management’s forecast on 4 November of “mild growth” at best in the December quarter. IndiGo said it expects “high single to early double-digit (%) growth” in capacity, compared with management’s earlier forecast of “high junior growth”.

“Indigo’s domestic airfares for 3QFY26TD remain flat on a year-on-year basis, while select international routes are showing double-digit growth, with fuel costs rising 6% from the previous quarter and a weak INR likely to weigh on non-fuel CASK,” analysts at JP Morgan said in a Nov 5 note. Cost per available seat kilometer (CASK) is a key airline industry metric that measures the operating expense required to fly one occupied or empty seat one kilometer. Airlines try to minimize this cost to increase profitability.