SpiceJet shares plummet 11% after reports of Rakesh Gangwal denying stake acquisition

The shares of low-cost airline SpiceJet fell by almost 11% on October 16, changing the course of the aviation industry’s roller coaster journey in an unexpected way. Rakesh Gangwal, the co-founder and former promoter of India’s top airline, IndiGo, had reportedly been exploring buying a share in SpiceJet just a few days prior, according to sources. The initial reaction to this news was an almost 20% increase in share price for SpiceJet. The shares, however, fell just as swiftly as they had risen after bankers close to Rakesh Gangwal denied the claims’ veracity. The incident highlighted the aviation sector’s turbulence and confused investors and market observers.

Credits: MoneyControl

The Surging Rumor and the Swift Denial

On October 13, the rumor mill went into overdrive as reports circulated suggesting that Rakesh Gangwal might be looking to invest in SpiceJet, which has been grappling with significant debt issues. Investors and analysts speculated about the potential implications of this move, and the stock market reacted accordingly, with SpiceJet’s stock price surging by nearly 20 percent during the day.

However, the bubble burst just a few days later when sources close to Rakesh Gangwal refuted the claims, stating that he had no interest in acquiring a stake in SpiceJet. This abrupt reversal in fortune left SpiceJet’s shares reeling, down over 11 percent on October 16. The stock managed to recover slightly during noon trading but was still trading 8 percent below the previous day’s closing price.

Gangwal’s Response and Possible Regulatory Action

Rakesh Gangwal is said to be upset over the rumor’s quick and negative market response. According to sources, he is thinking about asking the Securities and Exchange Board of India (SEBI), the market watchdog, to look into the situation. This action is allegedly being taken to address what Gangwal believes to be the “misguidance” of retail investors caused by unfounded reports.

The decision to involve SEBI shows the devastating effects such rumors can have on the stock market, especially when connected to well-known people like Gangwal. It emphasizes the requirement for stricter laws to stop market manipulation and false information.

Gangwal’s Stake in IndiGo

Rakesh Gangwal is a prominent figure in the Indian aviation industry. As of June 2023, he and his wife Shobha Gangwal held a 13.23 percent and 2.99 percent stake, respectively, in IndiGo’s parent company, InterGlobe Aviation. Additionally, their Chinkerpoo Family Trust held a substantial 13.5 percent stake in the airline, according to exchange data. This makes Gangwal a significant player in the Indian aviation sector. It is worth noting that Gangwal had been in the process of exiting IndiGo, a move that had garnered significant attention from market participants.

SpiceJet’s Recent Performance

In the past six months, SpiceJet’s stock managed to rally by an impressive 24.51 percent. This performance outshone the benchmark Nifty 50 index. However, despite this recovery, the stock still traded below its 52-week high of Rs 43.30, which was achieved in December 2022. This indicates that while SpiceJet has made progress in recent months, it has not yet fully recovered to its previous levels.

SpiceJet’s Q1 Results

The financial performance of SpiceJet has improved recently. The airline posted a net profit of Rs 205 crore for the April-June quarter, a sharp improvement over the Rs 789 crore loss it suffered during the same period the year prior. Strong demand for air travel was cited as the reason for the turnaround; SpiceJet even achieved the highest domestic load factor in the sector of 90% during the first quarter of June.

Possible Impact of the Roller Coaster Ride

The recent roller coaster ride in SpiceJet’s stock price, triggered by the conflicting reports about Rakesh Gangwal’s potential stake acquisition, has a few noteworthy implications:

Market Volatility: The episode underscores the inherent volatility of the aviation industry and how market sentiment can swing dramatically based on unverified information. It also highlights the need for better information dissemination and market regulation.

Regulatory Scrutiny: Rakesh Gangwal’s reported consideration of involving SEBI in the matter emphasizes the significance of regulatory oversight in maintaining market integrity. It may lead to stricter monitoring of market rumors and their potential impact.

Investor Confidence: The “misguidance” of retail investors, as mentioned by the banker, can have serious consequences. Such episodes can erode investor confidence and lead to erratic market behavior, affecting not only the airline sector but also the broader stock market.