Airline tocks on downtrend despite drop in crude: Prakash Diwan

Prakash Diwan, Head–Institutional Clients Group, Asit C Mehta Investment Intermediates Ltd. talk to ET Now on airline stocks.

When crude prices correct, airline stocks they normally gain some elevation but this time around despite drop in crude, airline stocks have come crashing down?

Yes. This time the whole expectation on crude prices, the big question there is how sustainable would this fall be or these lower levels be. Now given the fact that that still is not emerging very clearly, I do not think people have started discounting the crude impact the prices of crude into the stock prices of most of these companies. On the other side, you have this increasing sense of competition that's going within the domestic space.

Internationally if you notice the kind of expansion that especially the larger ones like KFA and Jet Airlines have done, very clearly that's going to be an area where they are going to be hit dramatically in terms of a slowdown, especially the Eurozone, I do not think is going to be positive for these players and that's exactly what the big concern is and airlines is a very capacity sensitive business as you would know.

The moment you reach occupancy rates, which are below 60-62%, you actually start incurring huge losses, so that's a kind of tipping point that they are very perilously close to and that's exactly the concern, so unless things improve in terms of their business growth, the crude impact probably gets nullified by that much.