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Why Does Your Portfolio Need Hospitality Sector Stocks?

05 May 2022

Hospitality is a sector that’s here to stay. Hotels, motels, cruise lines—even the airline industry—are all considered part of the hospitality sector, and these industries aren’t going anywhere.

If you’re looking for long-term investments in stocks, a hotel chain or an airline company can provide you with some serious returns. Here are just a few reasons why you might want to invest in hospitality sector stocks:

  • People will always need to travel from one place to another, whether for leisure or business. This means that there will always be demand for some form of transportation (airline companies) and some form of lodging once the person arrives at their destination (hotel chains). This provides a long-term opportunity for consistent revenue and growth.
  • People will always take vacations, go on cruises, etc., which means there will always be demand for all aspects of the hospitality industry. Cruise lines, hotels, resorts—all of these are part of this sector, which helps diversify your portfolio while also allowing you to capitalize on the consistent growth and revenue generated by these businesses.
  • The hospitality sector has been growing steadily over the past five years, even during times when other sectors have seen dips in growth due to economic factors.

Hospitality Sector Facts

  1. The hotels and restaurants industry accounts for approximately 7 per cent of India’s GDP.
  2. The hospitality industry has huge growth potential.
  3. The hospitality sector employs nearly 39 million people.
  4. India’s hospitality sector is growing at around 12% per year, making it one of the fastest-growing sectors in the country. 
  5. India’s tourism receipts’ contribution is around 122 billion U.S. dollars to the country’s GDP, which is an impressive figure for a developing country like ours.

Reasons why the hospitality stock should feature in your portfolio

If you are looking for a way to expand your investment portfolio, then you may want to consider buying hospitality sector stocks. The hospitality sector is a booming industry that has proven that it can withstand economic downturns, which makes it a good investment option for those who are worried about the current state of the economy.

What is so great about investing in the hospitality sector? For one thing, this industry is projected to grow by leaps and bounds over the next few years. As of right now, there are over 39 million people working in the hospitality sector, and this number is expected to increase significantly over the next few years. In addition to this growth, there will also be several new jobs created as well.

Here are a few reasons that make investing in hospitality sector stocks a good idea:

  • Strong growth in business travel due to government reforms

The first driver for growth will be the strong increase in business travel due to government reforms. In 2017, Prime Minister Narendra Modi launched its Make in India initiative, which aims to attract foreign investment into India by making it easier for companies to set up their businesses here. With the implementation of this program, many foreign companies have set up their businesses in India, resulting in increased demand for hotel rooms as they need places to stay while they visit their operations.

  • The rapid expansion of international tourism

In addition, another driver will be the rapid expansion of international tourism. Tourism is one of the fastest-growing service sectors in India. According to data from the World Tourism Organization (WTO), it is expected that tourist arrivals worldwide could grow by 30% to 78% this year.

  • Domestic Travel on the Rise

India’s hospitality sector has been taking hits from the pandemic. However, as of late, more people are travelling domestically on holidays. The main reason so many Indians are now travelling is due to the end of COVID-19 lockdowns throughout India but international restrictions. The state of Kerala and parts of Maharashtra are also beginning to reopen to tourists.

Additionally, low airfares and relaxed restrictions have opened doors for domestic travel. Many airlines are offering discounts on flight tickets to boost demand as well.

  • Hospitality Industry Innovation against the Pandemic

India’s hospitality sector is currently making big efforts to get back on its feet during this difficult time. Hotels and resorts are taking extra precautionary measures like installing sanitisers and temperature checks at entrance points, thermal scanning devices at check-ins, minimal contact dining, and cashless payments. Additionally, hotels are going all out with services like airport transfers and delivery at home to meet consumer preferences during this time. 

This also means that you can expect even more people to be travelling over the next decade and beyond, which will translate into higher hotel profits than ever before.

  • FDI and Economy Boost

Foreign direct investment’s (FDI) interest in India’s hospitality sector is also on the rise. This is due to the country’s rapid economic growth rate and its favourable government policies. The FDI interest will lead to more jobs and economic opportunities throughout India’s tourism sector, which could make it an attractive investment opportunity for risk-averse investors who are looking for long-term returns on their money.

Risks of Investing in the hospitality sector

The hospitality sector in India is an area with a lot of potentials, but also several risks.

As the Indian middle class has grown and become more affluent, there are more people who are able to travel than ever before. While hotel demand has risen, the level of supply in India is still quite low. This means that there is a huge opportunity for investors who want to enter the sector and focus on hotel industry shares. However, there are also significant risks that need to be considered before investing in the industry. 

The first challenge is the lack of infrastructure in many parts of India. Because of this, it can be difficult for prospective customers to actually visit some hotels—which means less revenue for investors. 

Another issue is the difficulty of obtaining building permits and other approvals necessary to start creating new hotels. This impedes investment in the industry by making it more expensive and time-consuming to begin construction on a project. 

Next is that the hospitality industry relies on tourism. The pandemic has hit this sector hard, and international travel restrictions continue to remain. You should research and aim for stocks of well-established companies in the hospitality sector for now.

You may also find reduced corporate travel which means fewer business check-ins and fewer events which have led to a decline in the growth of this sector. 

You can also find that hotels are having difficulties finding customers due to their lack of occupancy rates. 

If you are considering buying hospitality shares, begin with researching the list of top hospitality companies available in the stock market. 

No matter what the investment market is risky. this means that you could potentially lose money on your investment if you aren’t careful about choosing where you want to invest your funds wisely. 

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