Warren Buffett, Rakesh Jhunjhunwala pick Airlines stocks; should you too?

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Published: August 1, 2017 3:36:50 PM

With the world's most successful investor Warren Buffett, and India's big bull Rakesh Jhunjhunwala taking a fancy to the airline stocks, should the Indian investors follow suit?

Warren Buffett had made investments to the tune of billion in America’s four major carriers. (Image: Reuters)

Warren Buffett had recently shared his love for the aviation sector. In an annual letter to shareholders, he wrote, “I must admit I have developed some tolerance, bordering on enthusiasm, for that practice now that Berkshire has made large investments in America’s four major carriers.” He had made investments to the tune of $10 billion in American Airlines Group, Southwest Airlines, United Continental Holdings and Delta Air Lines – through his company Berkshire Hathaway.

Many Indian experts had voiced their opinion that while it may work for a market like the United States, in India it’s is a very different story. Hedge fund manager Samir Arora of Helios Capital says that the aviation industry is highly dependent on oil prices. He also pointed out that Warren Buffett had initially stayed away from the sector, as the airline space is saddled with high fixed costs, and commodity prices remain unpredictable.

Samir Arora said that through this investment, Warren Buffett might be looking for disciplined returns, as opposed to rapid  growth. Earlier this year he had said in a conversation with ET Now: “The US markets reward discipline, while the Indian markets reward growth… it does not make sense for the Indian investors to mimic Warren Buffett.”

On the other hand, Rakesh Jhunjhunwala, commonly referred to as India’s Warren Buffett, has also taken up equity stakes Indian carriers in the past and present. Rakesh Jhunjhunwala had bought 1.4% stake in low-cost private carrier SpiceJet in 2014, and 1.05% stake in the full-service private airline Jet Airways in 2015. He currently holds equity stake in lndia’s largest carrier Indigo’s parent company Interglobe Aviation. However, despite the low cost carrier posting record quarterly profits yesterday, Rakesh Jhunjhunwala seemed not too amused.

The big bull questioned the management of Interglobe Aviation about Indigo’s capacity expansion plans. Indigo had revised its capacity expansion from 25% to 20% as per its management guidance. The Interglobe Aviation stock hit a 19 month high of Rs 1330.8 on Tuesday afternoon.

This has been one of the best years for the aviation industry. The share prices of these players have soared on the back of lower crude oil prices. In fact, the Interglobe aviation stock is up by nearly 58% in year to date terms. The Spicejet stock has returned 106% in the year, outperforming the benchmark Nifty Service Sector Index by more than 70%. Jet Airways India Ltd. too has beaten the benchmark Nifty Midcap Index by more than 50% with year to date returns of 72%. Is it time to make these stocks a part of your portfolio?

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