Shares of Indian airlines surged 7-12% ahead of a crucial meeting of a group of ministers in New Delhi that would consider allowing foreign carriers to invest in the beleaguered Indian aviation sector.
India's loss-making airlines are grappling with high jet fuel prices, low fares, and an economic slowdown. A federal decision that widely expected to open up the sector to foreign carriers would be a lifeline to domestic carriers.
The meeting will also have India's finance minister and the civil aviation minister.
"FDI seems to be the only source of money right now. Airlines have tried to raise money from other sources, but given that the finances are very tight, that would be difficult," said Sharan Lillaney, aviation analyst at Angel Broking.
India bars foreign carriers from buying into Indian airlines, but foreign investors are allowed to invest for up to 49%.
Local media reported that the civil aviation ministry has proposed to let foreign airlines take a 49% stake in Indian carriers.
The cash-strapped Kingfisher, in particular, has been lobbying hard for foreign investment rules to ease.
India's biggest carrier Jet Airways and Kingfisher have not been successful in tapping foreign investors in recent years.
BillionaireWilbur Ross invested in, and subsequently exited, budget airline SpiceJet in 2010, making it the only Indian carrier to get major foreign investment recently.
Analysts say unless foreign carriers are allowed to invest, there will be little enthusiasm in India's domestic aviation sector, because only carriers understand the business.
Budget carrier SpiceJet, whose CEO had said in November that his airline will evaluate selling stake to a foreign carrier if the government were to change FDI rules, rose 11.3%, while Jet provisionally closed up 9.7%.
Kingfisher, which has been struggling to pay salaries and make interest payments, rose as much as 7.3% ahead of the meeting. The stock closed up 4.8%.
Despite heavy losses, domestic air traffic increased 17.6% to 55 million passengers in the first 11 months of 2011, government data showed.
"India is one of the fastest growing markets today and nobody wants to miss out on the growth story. And foreign airlines will not come with a short term view of one year," Lillaney said.
British Airways has been speculated as a possible candidate to pick up a stake in beleaguered Kingfisher, which said last month that it would become part of the global oneworld alliance from February to help shore up its competitive offering and financial position.
"We are seeing traffic growth in double digits, unlike the European or US markets," said an airline analyst with a domestic brokerage, who declined to be named as he is not allowed to talk to the media.
"It makes sense for a British Airways, or a couple of US carriers to pick up a stake in an Indian airline. There is an untouched local market waiting to be tapped," he added.