Is Your Mutual Fund Portfolio Headed For A Crash Landing With Jet Airways?
Apr 26, 2019

Author: PersonalFN Content & Research Team

(Image source: Photo by Chris Liverani on Unsplash)

A balance-sheet problem of one aviation company is now turning out to be a full-blown crisis for the country.

Nearly 20,000 people have lost their jobs.

Investments of shareholders are bleeding.

Debtors are on the brink of losing money.

Regular Jet fliers are paying through their nose because Jet Airways has suspended all its operations, albeit temporarily.

If you had pre-booked your air tickets with Jet Airways to a holiday destination this summer, you're probably very perturbed about having to pay more for an alternative flight with another airline.

What went wrong with Jet Airways?

In the recent past, India's second-largest carrier reported steep losses and suffered a massive financial crunch due to unsustainable debt. Rising fuel prices complicated the problem further for Jet Airways.

On the other hand, its competitors managed to absorb the shocks of rising fuel prices. Their stocks bounced back soon after the crude oil prices in the international markets cooled off and when the Jet Airways crisis stormed headlines.

Graph: Value of Rs 100 invested in aviation stocks...


Data as on April 24, 2019
(Source: BSE)


From the graph above, you can see that Rs 100 invested in Jet Airways on April 24, 2018 reduced to Rs 27 as on April 24, 2019. However, similar investment in Interglobe Aviation and Spice Jet returned to Rs 99 and Rs 93 respectively.

This performance indicates the underlying stress in the aviation sector. Now that Jet has suspended its operations, other carriers such as Spice Jet, Go Air, Interglobe Aviation are in great demand.

The Jet Airways crisis could turn out to be a saviour for investors of other listed airline companies, Interglobe Aviation and Spice Jet.

After Kingfisher's collapse in 2012, Jet Airways is the second airline in India to go defunct.

Experts say, more than debt, other cost factors, market forces, and the management style of Mr Naresh Goyal has caused the embarrassing crash of Jet Airways.

Impact on mutual funds...

If you invested in mutual funds, you might be interested to know if this aviation company going bust has affected your investments in any way.

The good news is that mutual fund houses are learning from their mistakes. Recently, debt funds including Fixed Maturity Plans (FMPs) earned bad publicity due to their investments in troubled companies such as IL&FS, DHFL or Essel group companies to name a few.

[Read: Are Indian Debt Markets In For A 'Lehman' Like Crisis?]

Fortunately, mutual funds have very limited exposure to Jet Airways. Many mutual funds jettisoned Jet Airways from their portfolios long ago.

Aditya Birla Sun Life Mutual Fund is the only fund to hold Jet Airways. As per the data sourced from ACE MF, the fund house held 40.7 lakh shares of Jet Airways as on March 31, 2019. According to media reports, the fund house offloaded 7.6 lakh shares in April 2019.

Schemes that held investments in Jet Airways as on March 31, 2019 are:

Aditya Birla Sun Life MNC Fund

Aditya Birla Sun Life Tax Relief 96

Aditya Birla Sun Life Tax plan

Aditya Birla Sun Life Bal Bhavishya Yojna - Wealth Plan

Aditya Birla Sun Life Retirement Fund 30s plan

Aditya Birla Sun Life Retirement Fund 40s plan

Are mutual funds investing aggressively in other aviation stocks?

No!

Historically, mutual funds have managed their exposure to the aviation industry with kid gloves because India is vulnerable to oil shocks, and fuel costs weigh heavily on carriers' operations.

This time round, mutual fund houses continue to maintain a cautious view on aviation stocks and aren't going overboard with them.

Table 1: Aren't mutual funds bullish on aviation stocks?

Company Stake held by mutual funds
March 2019 March 2018
Interglobe Aviation Ltd. 5.0% 7.2%
Jet Airways (India) Ltd. 3.6% 9.1%
Spice Jet 6.9% 5.1%
Data as on March 31, 2019
(Source: ACE MF, BSE)


But there's a problem...

At a time when institutional investors such as mutual funds opened their parachutes to land safely, retail investors boarded the troubled airline company anticipating a take-off soon.

Table 2:- Retail investors: Are they ignoring problems of Jet Airways?

Month Number of retail investors Number of shares held % stake in the Company
Mar-2018 89,686 4,869,633 4.29
Mar-2019 137,524 12,972,794 11.42
Retail investors are individual investors holding share capital upto Rs. 2 Lacs
Data as on March 31, 2019
(Source: ACE MF, BSE)


Between March 2018 and March 2019, the retail shareholder base of Jet Airways increased by 2.27 lakh investors.

Interestingly, mutual funds offloaded 62.2 lakh shares. The net increase in the shares held by the retail investors is even higher. As on March 31, 2019, retail investors held 81.03 lakh shares more as compared to what they held as on March 31, 2018.

In simple words, unguarded retail investors absorbed the shares dumped not only by mutual funds, but also by other institutional investors.

In other words, no hedge funds stepped in and, apparently, there were no swap deals either.

Increasing retail shareholder base suggests that more retail investors are likely to be disappointed in the future.

Should they blame the stock market if they lose money?

Retail investors should note

Equity investing requires skills.

If you lack stock selection skills, you should seek expert advice or simply opt for the mutual fund route.

When you invest in stock market through equity mutual funds, you safeguard yourself from making wrong investment choices.

Jet crashed! Who's next?

Hopefully, not your portfolio.

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