Experts say stay away from hotel, aviation sectors; here's why

Unlike aviation, the hotel industry had suffered highly due to the pandemic and the industry is still struggling to fill its 50 percent occupancy.

February 23, 2021 / 11:42 AM IST
 
 
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Consumer-facing sectors such as aviation, hotel and multiplex are still struggling to recover from the Covid-inflicted pain and the road ahead still looks hazy for them.

While these sectors were yet to attract the attention of investors, rising cases of coronavirus in the country and reports of partial lockdowns have posed a renewed set of worries before them.

At this juncture, market experts are advising staying away from these sectors.

"Hotels have never made money at the best of their time. Hotels and aviation are no-go territories. In the aviation sector, We have got one stock of value in this country, IndiGo. There is no investing theory behind these aviation stocks. Vistara is struggling, Air India divestment will happen," said Ajay Srivastava, CEO, Dimensions Corporate Finance Services, talking to CNBC-TV18.

There is no certainty as to by when complete normalcy will return to these sectors.

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"Q4 would be driven by a base effect and spillover of marriages and pick-up in the domestic travel activity which should aid retailers and hotel players to some extent, but a full-fledged recovery is quite some time away in our view," said Suvarna Joshi, Senior Research Analyst, Axis Securities.

Likhita Chepa, Senior Research Analysts at CapitalVia Global Research pointed out that during the fiscal year FY21, Indian airlines may report a net loss of more than Rs 20,000 crore due to travel restrictions and the effects on passengers traffic as a result of the coronavirus pandemic.

However, Chepa added that due to increased air travel, the net loss for FY22 may fell to below Rs10,000 crore.

Unlike aviation, the hotel industry had suffered highly due to the pandemic and the industry is still struggling to fill its 50 percent occupancy and we may expect that they may reach the pre-pandemic level by 2022-23, said Chepa.

"Hotels have had a profound impact on their earnings and hence it is most likely that they will get an EPS downgrade. However, aviation and retail segments have been functioning at an acceptable level and therefore the EPS is not expected to see a very steep fall," said Chepa.

Joshi of Axis Securities thinks EPS downgrades could be seen in Q4FY21 before turning constructive.

"This is more of a possibility for apparel retailers where we have downgraded our FY21E EPS, given the impending challenges like inventory pile-up, seasonality and occasion-driven demand, continuing the trend of WFH for majority offices," said Joshi.

However, there is some hope for the sector. With vaccination for Covid-19 picking pace, these sectors may see favourable trends. Experts believe new cases of Covid-19 may put pressure on the government to expedite the vaccination programme which in turn may boost the sentiment and boost these sectors.

Brokerage firm Prabhudas Lilladher pointed out sectors like aviation, hotels and retail can witness a decent appreciation in the coming days once the lockdown is completely called off.

"Hotels and tourism stocks will get a boost which has been underperforming as compared to other sectors. Aviation and retail also would regain their full-fledged business which would directly impact the stocks like DMART, Future Retail and IndiGo," said the brokerage firm.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
TAGS: #markets
first published: Feb 23, 2021 11:42 am

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