The travel, tourism and hospitality sector has off late made a mark in India.
Before we delve deeper with respect to the hospitality sector and why an investor should keep hospitality stocks in his/her portfolio, let us quickly brush up some facts regarding the Indian hospitality sector.
Facts about the hospitality sector
1. India ranks 3rd amongst 184 nations (in 2016), in terms of travel & tourism’s total contribution to GDP. The foreign exchange earnings from the sector have been growing at a healthy pace of 20-22%
2. In terms of GDP, the sector contributes around 7.5% of the overall GDP of the country
3. In terms of employment, the sector accounts for nearly 10% of the total employment opportunities generated
4. The sectors’ direct contribution to GDP is likely to grow at 8-10% per annum over the next decade, while the number of jobs created is likely to grow at 3-5%
We believe a long-term investor should not sell hospitality stocks, as it has an excellent growth opportunity in the coming years.
4 reasons why the hospitality stock should feature in your portfolio
1. Reciprocal relationship
The growth of the hospitality sector is linked with the growth of other sectors.
For example, if transportation is growing, there is a clear case of growth in the hospitality sector as well. Thus, with a dependency relationship, there’s a likelihood that the sector will continue to grow at a rapid pace.
In addition, the sector’s growth is directly linked to the growth of tourism in the country. If tourism has to flourish, the hospitality sector needs to grow at a similar pace.
The tourism sector has seen a significant growth of 14-16% over the past five years and this is a true reflection of the future potential of the hospitality sector.
2. Prospects of the hospitality sector
While the sector undoubtedly has good growth prospects, there are multiple transactions that are happening in the organized segment of the sector that clearly reflects the rising interest of investors.
A number of acquisitions have happened in the past that shows the renewed interest of the investor’s community.
3. Rapid innovation in the hospitality sector
The sector is poised to grow, as the innovation continues to unfold.
With multiple start-ups such as OYO Rooms and Zomato operating in the sector, there is huge potential for innovation.
With new start-ups being formed with innovative services, the investment scenario is rapidly improving in India.
4. Rising FDI interest
This sector attracts a significant amount of Foreign Direct Investment (FDI).
In addition, this sector is one of the most crucial net foreign exchange earners for India.
Thus, having shares of hospitality companies in your portfolio could prove to be highly profitable, given the bright prospects of the sector.
The Indian Hotels (part of Tata Group) is one such stock that has witnessed strong movement over the past five years.
Considering the above points, it is entirely possible that investors holding shares of hospitality companies will be rewarded handsomely.
If you don’t wish to invest in single stocks; you may choose to invest in mutual funds, where there is a higher allocation of consumption related sectors, such as hospitality.
Some consumption related mutual funds are
- Tata India Consumer Fund
- SBI Consumption Opportunities Fund
- Aditya Birla Sun Life India GenNext Fund
- UTI India Lifestyle Fund
- Mirae Asset Great Consumer Fund
Disclaimer: The views expressed in this post are that of the author and not those of Groww