Shares of private carrier Jet Airways jumped nearly 8% Tuesday morning, a day after it was granted conditional approval to sell a stake worth $349 million to Abu Dhabi-based Etihad.
Jet rose as much as 7.95 % to a high of Rs 445, reacting to the clearance of the deal by India's foreign investment panel on Monday.
The agreement must ultimately be approved by the Cabinet Committee on Economic Affairs chaired by Prime Minister Manmohan Singh.
The deal is regarded as a key test of India's ability to attract foreign investors to its ailing airline sector, after it began easing foreign investment curbs in sectors from aviation to retail last September.
The Jet-Etihad deal, the largest foreign investment proposal in India's aviation sector, was "cleared" but with some conditions by the Foreign Investment Promotion Board (FIPB), a finance ministry official said on Monday.
The riders relate to applicability of Indian law in case of shareholder disputes, a newspaper said on Tuesday.
Jet said in April it planned to sell a 24 % stake to Etihad, but the deal stirred wide political controversy in India amid questions about which country would control the Indian airline.
Several Indian ministries objected to the agreement over what it could mean for control of Jet Airways, India's second-largest airline with a market share of 22.5 %.
After the deal is ratified, Jet owner Naresh Goyal will own a 51 % stake of the airline, Etihad 24 % and the balance will be held by public shareholders, the newspaper said.