Retail investors have been buying into Jet Airways’ shares over the past six months, despite increasing signs of strain at the airline. Jet Airways stopped flying on Wednesday after State Bank of India (SBI) and other lenders said that they wouldn’t provide any more money to keep the airline afloat.
In a situation reminiscent of Kingfisher Airlines, which saw retail investors buying into the company on hopes of a turnaround, the number of retail investors in Jet Airways has increased by 11,680 in the past six months alone.
Retail investors are individuals who hold up to Rs 200,000 of share capital in the company. Their stake has increased from 9.82 per cent to 11.42 per cent over the same period. There were 138,000 retail investors in the airline as of March 2019. Jet had a net debt of Rs 7,299 crore as of December 31, 2018. The accumulated losses have now risen to Rs 13,980 crore.
The airline was supposed to initially get Rs 1,500 crore as interim funds from banks. However, there is said to have been lack of a consensus among the banks about this, which some of them saw as a losing proposition, Business Standard had reported earlier.
“Late last night, we were informed by SBI, on behalf of the consortium of Indian lenders, that they are unable to consider our request for interim funding. Since no emergency funding from the lenders or any other source of funding was forthcoming, it would therefore not have been possible for us to pay for fuel or other critical services to keep the operations going ... Over the last several weeks and months we have tried every means possible to seek funding, both interim as well as long-term, to keep our operations going. Unfortunately, despite the very best of our efforts, we have been left with no other choice today,” said Jet Airways Chief Executive Officer Vinay Dube in a statement on the company website.
The stock fell 31.08 per cent on Thursday, trading at Rs 165.75 per share. Investors should be wary of investing in such companies in which operations have stopped and the prospects of any turnaround are negligible, said Vinay Agrawal, chief executive officer of Angel Broking.
He said he had seen people similarly looking to make gains in the now-defunct Kingfisher.
The company closed down, and the stock was delisted. Investors should avoid making a similar mistake by betting on such companies, according to him.
“There is nothing left (in such companies),” he said.
Ashish Shanker, head of investment advisory at Motilal Oswal Private Wealth Management, said that just because a stock seemed cheap it did not mean it was a good investment.
A stock that has fallen 70 per cent can fall further, and there is no reason that it will bounce only because there has been a steep fall. Retail investors should stay away from companies whose business they don’t understand.
Otherwise it’s akin to buying a lottery ticket, according to him.
“It’s gambling,” he said.