Israel-Iran conflict: IndiGo shares crack 6%: 3 key reasons behind this fall

Shares of InterGlobe Aviation Ltd cracked as much as 6 per cent during the trading session on Friday on the back of multiple reasons which may impact its performance in the near-term. However, these reasons pertain to geopolitical and accidental issues, which are beyond its control.

The leading aviation player was hit hard by factors like rising conflict between Iran and Israel in the Middle East, a sharp and sudden uptick in the crude oil price and Air India plane crash in Ahmedabad, which led to a sharp fall in share prices of Boeing on Thursday in the US market.

Shares of InterGlobe Aviation (IndiGo) plunged 5.6 per cent to Rs ,5175 on Friday, with its market capitalization slipping below Rs 2 lakh crore market. The stock had settled at Rs 5,483.25 on Thursday. The stock is down nearly 10 per cent from its 52-week high at Rs 5,731.80, hit 3 days ago, on June 10.

The fall in aviation stock came after the international crude oil prices jumped more than 13 per cent during the day amid escalating geopolitical tensions in the Middle East after Israel launched airstrikes on Iran and targeted its key nuclear and military sites.

Fuel is a major cost component for the airlines companies. A rally in crude oil price raises operating expenses for the airline companies, pressuring stock prices. Besides this, the rise in the geopolitical concern in the Middle East may also impact its operations in the area, leading to a rise in its cost.

Shares of the Boeing Company sank sharply on Thursday following the fatal crash of an Air India Boeing 787-8 Dreamliner, which took off towards London from Sardar Vallabh bhai Patel International in Ahmedabad. The stock closed at $203.60, down nearly 5 per cent from the previous day’s close of $214.04.

Boeing is the manufacturer of the 787-8 Dreamliner. A flight crash may raise fears around air travel, which may have likely pushed down the stocks. Besides this, InterGlobe has given a major order to the Boeing company to increase its operations. Such accidents have a rub-off effect on both the stocks.

The Dreamliner, once touted as a technological leap forward in aviation, has faced multiple production quality issues and delivery delays, prompting heightened scrutiny from regulators and airlines. However, Boeing booked 303 gross airplane orders in May, the most since December 2023.

Kotak Institutional Equities sees initial signs of India facing a prolonged demand-supply mismatch—domestic metro-to-metro numbers declining yoy for the third consecutive month in April, despite healthy overall market growth; the country continuing to add and scale up new routes/airports; and IndiGo’s key peer capturing every suitable aircraft available on lease globally,

The domestic brokerage firm has increased its target price to Rs 6,700, suggesting nearly 30 per cent upside in the stock. Another brokerage, HSBC Global has raised its target price on InterGlobe Aviation. The global brokerage has increased its target to Rs 6,650 from Rs 5,975 previously. Both the brokerages have maintained a 'buy' rating on the parent company of IndiGo.