KFA - BUYERS EVEN WHEN PLANES AND PILOTS GO DOWN
By Ruma Dubey
KFA was down in the deep red today yet despite the spate of bad news - lessors having taken back about 32 aircraft in the past few weeks due to non-payments of rentals by the airline and with more planes expected to go, one would have expected the stock price to tank to the pits. Yet it did not exactly hit a new bottom, yet. Its 52-week low is at Rs.10.05, touched on 1st June 2012. And at the current price, there are more buyers than sellers on the counter.
This is really ironic – the company whose main business is flying planes and ferrying people across the country, is today facing an exodus of its pilots on one hand and on the other hand, its planes have also gone. So there are lesser pilots and even lesser planes. Yet, people on Dalal Street feel that one should buy this stock this rate.
Thanks to Satyam, there is a new breed of investors who thrive on bad news. Many have made a killing on Satyam and those who did not, well, they do not now want to miss the bus. On the day the scam broke out, the stock had hit its life time low at Rs.23 and today, it is at Rs.76 and not to mention the fact that it had hit a 52-week high at Rs.94.20 on 5th July 2011. These traders and investors got into the stock with the conviction that the company will not be allowed to sink; will not be declared insolvent and will get resurrected, though how and when, no one knew. It was just a belief and that earned them money.
Today, Kingfisher Airlines seems to be in the same boat. This is a company not hit by any scam but more about poor management, leading to perennial losses. It is facing insolvency and there are reports that its license could get cancelled. Its accounts are frozen, flights are grounded, salaries are not paid, bills for fuel are unpaid and it is a tax defaulter too. Thus today, fundamentally, KFA is a big no-no.
Yet, there are many who want to buy the stock today. In an ideal world, the stock price of KFA, under the present circumstance should have sunk to a new low. Yet, it held steady, it remained in the red, that’s about it. And today, there is no material change as such in its status, yet there are buyers.
So why are people buying this stock, which fundamentally does not even warrant a cursory look? Once again, it is the expectation of making a windfall gain. Many, who missed the bus in Satyam, want to make money. The hope is that as soon as any positive development happens in the company, the stock price will take off like a supersonic jet plane. But at this juncture, what possible positive news could come? Actually those who have brought into the stock, ask, what more could go wrong in the company, all the negatives have been discounted for. Once again, there is belief that the Govt cannot allow the company to sink; it just cannot afford it. There may not be any bailout from the Govt but there is belief that Mallya will get out of this mess; it is not like Ramalinga Raju. Many give the justification that Vijay Mallya’s United Spirits is the world's second largest liquor maker by volume and Mallya has loads of money. One company has failed but he is smart, he will arm twist the Govt for a bailout. He will raise the money or sell stake but he will not allow KFA to sink.
Despite the gloom and doom in the aviation sector currently, news that there were bidders - Etihad and Qatar Airways for a stake in Spicejet has also helped buoy the sentiments. If things are so bad, why are these foreign airline companies looking to pick up stake in loss making companies?
This buying against the trend, defying all sense of logic is contrarian buying. By definition, a contrarian is one who attempts to profit by investing in a manner that differs from the conventional wisdom, when the consensus opinion appears to be wrong. So wisdom takes a backseat while instinct works over time. And doesn’t this also fall into the Warren Buffett mantra of investing – buy when others are selling? Indeed, the spirit of the risk taking investor and the plays of the market are baffling; every day is a new learning!