Reasons to keep hospitality stocks in your portfolio

With the disposable income of Indian citizens and the middle-class sector growing consistently, the hospitality sector, along with the tourism sector, is also gaining in value with each passing day.

Jun 17, 2018 09:06 IST India Infoline News Service

With the disposable income of Indian citizens and the middle-class sector growing consistently, the hospitality sector, along with the tourism sector, is also gaining in value with each passing day. They currently account for 7.5% of the GDP, and the hospitality sector alone is expected to grow at 16.1% to reach Rs2,796.9cr in 2022.
 
This growth will directly affect the valuation of companies in this sector, and their stock prices will rise. For investors, holding stocks of a good hospitality corporation can prove to be highly profitable in the future.
 
Why should you keep hospitality stocks?
 
There are several reasons why you should not sell the stocks of a hospitality company and should keep them for the years to come:
 
Reciprocal relationship
 
If you consider the growth of the hospitality sector, you will understand that it will keep on rising because of its reciprocal relationship with other areas of our economy. For example, sectors like transportation, aviation, entertainment, etc., heavily rely on the hospitality sector. As these sectors grow, they increase the demand for hospitality services, consequently increasing the value of these companies.
 
In addition to aiding these sectors, the hospitality sector and the tourism sector go hand in hand. The tourism sector can’t flourish in India if the hospitality sector’s demand is not met. The fact that our tourism sector has seen over 15% growth in foreign tourist arrival, throws light on the direction the hospitality sector will move towards in the coming years.
 
Extensive investment
 
Goldman Sachs, the world’s leading investment bank, invested heavily in the Indian hospitality sector. They bought a stake in SAMHI Hotels in 2016 by investing Rs441cro (US$70mn) in the company. This money invested was used by SAMHI to acquire hotel assets in all over India.
 
Apart from the extensive investment, the hospitality industry has also become a large job provider. The sector attracts the most amount in Foreign Direct Investment (FDI) inflow and is the most crucial net foreign exchange earner for India. Total FDI received by this sector was Rs1,060cr between 2000 and 2017. The mere fact that this sector is one of the most significant contributors to indirect tax revenue should be a reason for you to keep its stocks in your portfolio.
 
Growth potential
 
When everyone thought that this sector couldn't provide for innovation anymore, the start-up culture in India kicked in. Start-ups like OYO Rooms, Zomato, Swiggy, etc. have proved that there is so much more potential for innovation within the sector. The successes of these start-ups have increased the growth and demand for the services of the hospitality sector. New start-ups are being formed, and the innovative services they offer are becoming the key reason for the extensive investment scenario in India.
 
Having the shares of companies operating in the hospitality sector can be the key to huge profits in the future. When global investment banks like Goldman Sachs are investing in this sector, there must be something in it that makes them believe about its tremendous growth potential.
 
Future prospects
 
As far as investors are concerned, having shares of hospitality companies in the future can prove to be highly profitable. The main reason for this prediction is because of the sector’s bright prospects. After quiet years in the past, the sector has, in recent times, seen many big acquisitions. For example, Sarovar Hotels, India’s largest hotel management company was acquired by The Louvre Hotel Group. This acquisition alone set a new record in the Indian hospitality sector, and this is just the beginning.
 
With the start-up culture booming and new companies forming every day, the potential for big transactions and acquisitions is predicted for the future. Considering this, it is entirely possible that investors holding shares of hospitality companies will be rewarded handsomely.

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