Aviation Stocks

India’s civil aviation sector has experienced remarkable growth in the past 3years, making it one of the country’s fastest-growing industries. It encompasses scheduled air transport services covering domestic and international airlines and non-scheduled services like charter and air taxi operators. Additionally, air cargo services handle the transportation of goods and mail.

In 2014, the domestic passenger count was 60 million, and by 2020, it doubled to 143 million before the onset of the Covid-19 pandemic. International passenger numbers also saw a significant increase from 43 million to 64 million, marking a nearly 50% rise. Despite the challenges posed by COVID-19, the total number of aircraft went from about 400 in 2014 to 723 in 2023.

As of now, India boasts 148 operational airports, including 137 airports, 2 water aerodromes, and 9 heliports. This comprises 29 international, 92 domestic, and 10 custom airports. Addressing the growing demand for air travel, there’s a pressing need to expand airport infrastructure. Notably, 60 new RCS (Regional Connectivity Scheme) routes began operating between January 1, 2023, and December 21, 2023.

To meet the rising demand further, the government is committed to developing 100 airports by 2024 under the UDAN Scheme. Currently, 74 airports have been developed, with over 2.15 lakh UDAN flights conducted, benefiting more than 1.1 crore passengers. As of March 2023, a total of 473 routes and 74 airports have been put into operation as part of the RCS-UDAN initiative.

The anticipated surge in air travel within India is poised to drive an increased need for aircraft utilisation, consequently fueling the demand for Maintenance, Repair & Overhaul (MRO) services. Currently valued at approximately $900 million, the Indian Civil Aviation MRO market is projected to experience significant growth, reaching $4.33 billion by 2025, with a compound annual growth rate (CAGR) estimated at around 14-15%.

Simultaneously, the adoption of unmanned aerial vehicles, commonly known as drones, has gained widespread acceptance across various industries. Forecasts predict that the Indian drone industry is set to achieve a substantial turnover, reaching up to $ 1.8 billion by the year 2026.

Led by Prime Minister Narendra Modi, the Central Government has introduced a Production Linked Incentive (PLI) scheme for drones and components, aligned with the Drone Rules, 2021. With a total incentive of ₹120 crores and capped PLI at ₹30 crores per manufacturer, this aims to boost the drone sector. The 20% PLI rate for value addition is among the highest, with an estimated industry turnover increase from ₹60 crore in 2020-21 to around ₹900 crore by 2024-25.

When considering investment opportunities in the aviation sector, a comprehensive analysis of these factors will contribute to making well-informed and strategic investment decisions. Here are some things to consider before investing in the aviation sector:

• Market Trends: The COVID-19 pandemic has significantly affected the aviation industry. A McKinsey report suggests that the sector may remain smaller for a few years, with a return to pre-2019 traffic levels expected around 2024. Hygiene and safety standards will likely be more stringent, and digitalisation will continue transforming the travel experience.

• Regulations: Stay informed about the latest regulations governing the aviation industry. The International Air Transport Association (IATA) has established passenger and crew safety guidelines during the ongoing COVID-19 pandemic.

• Competition: The aviation industry is highly competitive. Despite challenges, the Indian aviation sector has shown signs of recovery, with increased travellers leading to a rise in the valuation of aviation stocks. In 2023, India’s domestic air passenger traffic grew to 1.20 crore.

• Environmental Impact: Consider the environmental impact of aviation and prioritise companies committed to sustainable practices. As the industry faces scrutiny for its environmental footprint, investing in environmentally responsible companies can align with long-term trends.

• Financials: Evaluate the financial health of potential investments. Assess a company’s stability and expansion plans before making investment decisions. Understanding the financial standing of aviation companies is crucial for informed investment choices.

• Fuel Prices: Monitor oil prices as they directly impact fuel costs, a significant airline expense. Fluctuations in fuel prices can affect the financial performance of aviation companies, making it essential to stay aware of market dynamics.

• Cost Structures and Efficiency: Examine airlines’ cost structures and operational efficiency. Companies that manage costs effectively and implement efficient operational practices are better positioned to navigate challenges and maintain profitability.

• Airline Alliances and Partnerships: Investigate alliances and partnerships formed by airlines. Collaborations with other carriers can enhance route networks and operational efficiency, providing strategic advantages and contributing to a company’s competitiveness.

To invest in sector stocks via Angel One, follow these steps:

• Log in to your Angel One account.
• Click on the search icon and look for your desired aviation sector stock.
• Now, place your buy order. Simply click on the ‘Buy’ button, enter your desired quantity, and select the order type.
• To complete your transaction, click on the ‘Buy’ button.

You can track the status of the purchase from the ‘Positions’ section in the ‘Orders’ module. Once the stock is delivered, you can track its gains and losses from your ‘Portfolio.’