The pandemic induced lockdowns were perhaps the first taste of enforced geographical bondage for most of us. We draw 2 inferences from this experience: First, our hunter gatherer predecessor generations left back an evolutionary trait within us that makes us want to travel. And second, the value of freedom.
In my opinion, there is no higher pent up demand than in the demand for travel. What would you not give to just travel to your ideal retreat with a close group of 3 to 5 friends, sipping your favourite beverage as you watch the sun set?
It is likely that once lockdowns ease demand for tourism will be at all time high levels. No, I am not making this claim based on analysts’ forecasts but observing already increasing flight travel data, and my personal interactions. But let the wanderlust in me not be taken over, as I intend t write this piece from an investing perspective.
Tourism stocks can be classified as: hotels and hospitality, alcoholic beverages, entertainment (non-media), and aviation. Some are more intricately linked to tourism than others, but this broadly covers most aspects. Both cover leisure as well as business tourism.
We analysed two year returns of 4 niche indices (TJI hotels and hospitality, TJI alcoholic beverages, entertainment and aviation) from Tijori Finance. They rank 45th, 49th 51st and 55th out of 59(Tijori Finance has 59 niche indices) in terms of stock returns over the last 2 years. Aviation and hospitality have posted negative returns. The highest among the four is 10.3% from alcoholic beverages which ranks 45th.
During the same time, NIFTY, NIFTY MIDCAP 150 and NIFTY SMALLCAP 250 have given returns of 16%, 27% and 28% respectively.
The sectoral underperformance is not shocking. An overview of the top companies in the space shows that the aviation and the hotels industry have been hit the worst, with not only losses mounting, but also debt levels rising in almost all cases. The entertainment stocks like Delta Corp and Wonderla are somewhere in the middle of the spectrum and the alcoholic beverages industry has done better. The alcoholic beverages industry is only partially dependant on tourism so its thematic downside is lesser.
Some of the companies in this list surely do seem to be in trouble, whereas some others may be very attractive at current valuations given the strength of their balance sheets and flexibility in operations.
How to Invest:
Any investment at this stage would be of a highly risky nature, but this is also where the highest reward opportunities could lie. We are making no recommendations here, but only presenting a monochromatic picture. There are several things to consider fundamentally other than revenues, profits, debt levels and share prices. If you do decide to invest, evaluate the fundamentals and consider the best case and worst case scenario prospects. There may be a 10 bagger in that list and as easily a stock that might just blow up to 0. Contrarian investments are risky so diversify.
When will the Tourism Bounce Back?
Federer is playing at Wimbledon 2021 as I am writing this article. The centre court roof is closed as its raining in London and the court is full of spectators not wearing masks. Britain has aggressively vaccinated a large proportion of their population and they seem to be all-in on the hope that it will stop all the virus mutations. Either ways, we will get a good idea of vaccine efficacy in a month or two from these countries that have almost entirely opened up. From there we can extrapolate when tourism will open up in India at full swing.
For the government’s part, it too has recognised the stress faced by the sector and has come up with schemes to make credit accessible to travel operators by capping interest rates and guaranteeing a proportion of the new loans. First 5 lakh international tourists are also set to receive a free visa.
With millions of hard working people rendered jobless by this massively employing sector, let’s hope it makes a rapid recovery very soon.
Happy Investing.