Why You Need Hospitality Sector Stocks in Your Portfolio?

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08 min read

India’s hospitality industry has emerged as a critical driver of growth in the service sector. It contributed around 6.8% of the GDP or around 13.7 lakh crore to the total economy in 2019. 

You would find the tourism and hospitality sector generating employment while being a primary foreign exchange source for the country. 

You will find aviation, transport and entertainment related to the tourism and hospitality industry. The coronavirus pandemic has severely affected the hospitality sector in India. However, stocks in the hospitality sector could bounce back once the pandemic eases, and people start spending again.

Why does your portfolio need hospitality sector stocks

Attractive investment for the medium term

You may consider investing in stocks in the hospitality sector for the medium term. It may be a part of your satellite portfolio which could boost the returns of your overall portfolio. You may find hospitality stocks battered after the coronavirus pandemic.

However, these stocks could bounce back as vaccinations commence across the country. You can focus on stocks of well-established companies in the hospitality sector as demand for hospitality services increases. 

The rise in disposable income

You may find disposable income rising in India as young people increase lifestyle spending. However, disposable income increased only 0.8 times in FY 2019-20. You will find disposable income increasing as the pandemic eases and people start spending on travel and tourism.

It will boost stocks of the hospitality industry as consumption rises in the economy. You could expect pent up demand in leisure and a focus on domestic tourism by the government, boosting the hospitality industry as it recovers from the pandemic’s impact.

Increase in domestic travel

You will find an increase in domestic vacations as the pandemic continues to hinder International travel. The government has continued its focus on boosting domestic tourism as people look to visit nearby tourist destinations. Moreover, hotels in India promote domestic travel and tourism through special initiatives such as work-from-hotel, staycation and F&B packages. 

You could find hotels focusing on sanitation, hygiene, social distancing and the latest technologies such as electrostatic disinfection misters and UV light interventions to increase room occupancy. You could expect the hospitality sector to bounce back after the work-from-home crowd returns to business travel.

The hospitality sector innovates to beat the pandemic

You can find hotels across the country, using assets to generate ancillary revenue. You have hotels focusing on new revenue streams such as food delivery services, housekeeping, warehousing and facility management to offer services to clients from the comfort of home and office. 

You may find hotels shifting focus from owning properties to better management of properties. It leads to higher revenue as hotels maximise land use and reduce capital costs over some time.

You will find hotels repurposing themselves as co-working spaces to generate additional revenue. It may partner with coworking operators to cater to professionals seeking offices close to home. Hotels could venture into partnerships with corporates and offer many services ranging from front office management to housekeeping services.

Sector mutual funds in the hospitality industry

You may invest in hospitality sector funds if you find it challenging to pick the right hospitality stocks. It puts money in stocks of one sector as the fund manager looks to generate capital appreciation over some time.

Risks in the hospitality sector

The pandemic has hit the hospitality sector in India as international travel restrictions continue to remain. You may focus on stocks of well-established companies in the hospitality sector as smaller players struggle to find their feet after the pandemic.

You can find the reduction in corporate travel and lack of significant events and programs and travel restrictions hampering growth in the hospitality sector for some time. C

You could diversify your satellite portfolio with hospitality stocks to boost overall return. However, you may focus on the medium-term to maximise the return from your investments. You may find the hospitality industry severely hit by the pandemic, and it may take some time to recover.

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