European and Indian airline stocks soared on Monday, after the Indian government announced it is liberalizing foreign direct investment rules to allow overseas investors to own 100% of local carriers.
The move is part of a package New Delhi said makes India "the most open economy in the world for FDI".
But it comes as the markets also absorb the decision of respected, inflation-fighting Reserve Bank of India chief Raghuram Rajan not to fight for renewal of his contract, and is not as comprehensive as airline industry investors might have hoped.
Although foreign investors have complete freedom to invest in India's several airlines, foreign carriers themselves are not permitted to own more than 49% of any local player. Rules about that foreign investment mix beyond that 49% cap were unclear.
That means the likes of Abu Dhabi's Etihad Airways, which owns 24% of India's Jet Airways, can still increase their holdings in the local partner, but makes it less clear what the choices would be for Malaysian carrier AirAsia, which owns 49% of AirAsia India, a joint venture with Tata Sons and a smaller domestic investor.
By the end of the trading day on Mumbai's Bombay Stock Exchange, SpiceJet was up 7.4%, Jet Airways was up 6.6% and Indigo was up just over 6%.
Meanwhile in London, International Consolidated Airlines (ICAGY) , (BABWF) , which owns both the U.K.'s British Airways and Spain's Iberia, ascended 6%, while Germany's Lufthansa (DLAKF) , (DLAKY) was up 3% and Franco-Dutch Air France-KLM (AFLYY) was up 2.2%.
The move follows other liberalization announcements last week, making it easier for Indian airlines to start international flights, provided they also deploy a minimum of 20 aircraft on domestic routes.
But that decision, too, took with one hand while taking away on the other. Airlines will be required to pay a levy to pay for developing "no frills" airports and airstrips to boost connectivity between smaller cities and localities as yet unserved by any carrier, and there will be a cap of 2,500 rupees ($37) per flying hour on fares between such destinations.
Also in the aviation sector, Monday's decisions also permit full foreign ownership of the country's airport infrastructure. Until now, although foreign investors were welcome to build new airports from scratch, they needed government clearance for investment in existing airports beyond the current threshold of 74%.
Beyond civil aviation, Prime Minister Narendra Modi's government also announced rules further easing FDI in marketing and e-commerce for food produced in India, satellite, cable and mobile TV services, pharmaceuticals and private security companies. There were also further tweaks to the rules on animal husbandry and minimum levels of local sourcing for single brand retailing - long a bone of contention between big brand retailers such as Ikea Group - and successive Indian governments.