Brokers’ call: HSBC downgrades SpiceJet to 'neutral'

HSBC has downgraded Spicejet to ‘Neutral’ with a target price of Rs 40.

Finally, although the policy change removes a key regulatory hurdle and associated overhang from aviation stocks, the still unattractive aviation economics in India may deter potential foreign investments in the sector.

While it remains a potential upside risk at this stage, the considerable uncertainty around it warrants caution in the medium term.

Jet fuel prices have risen 13% since August 2012, now only 4% below their 2012 peak. Latest DGCA domestic traffic statistics suggest domestic demand has been weakening and registering negative growth.

All this suggests that the profit surprise seen in Q1 results may not last in 2Q which is also the seasonally weakest quarter for domestic travel.