Diversify Your Portfolio with Hospitality & Tourism Stocks: Top 5 Mutual Funds

December 19, 2023 Mutual Fund

India is a country rich in historical customs that entices visitors with a wide variety of experiences. Every part of this amazing country, from the sun-kissed beaches of Goa to the snow-capped Himalayas, promises a journey you won’t soon forget. However, two threads-tourism and hospitality-that really bring India’s brilliance are woven into this tapestry.

India’s tourism offers a wide range of activities to satisfy every wanderlust craving. History aficionados can admire the architectural magnificence of the Taj Mahal, while backpackers can explore Kerala’s green valleys. Foodies can travel the world tasting different cuisines, such as melt-in-your-mouth biryani in Hyderabad or hot curries in Chennai.

The Himalayas provide breathtaking heights for thrill-seekers, and Rishikesh’s tranquil temples are a haven for contemplative minds. There are yoga retreats for inner serenity and unique retail therapy offered by busy bazaars. India’s charm is found in its undiscovered treasures, which start in the colourful tribal settlements of the Northeast.

That being said, what really makes this country unique is the warmth of Indian hospitality. This attitude is based on the Sanskrit scripture ‘Atithi Devo Bhava,’ which means ‘Guest is God.’ Travellers from many nations also have a great deal of respect for Indian hospitality.

This hospitality is not just about service; it’s an art form. Be it the gentle hands offering fragrant garlands, the stories shared over steaming cups of chai, or the vibrant festivals that celebrate life with unbridled joy, every moment is an invitation to immerse yourself in the soul of India.

However, beyond the allure of India’s tourist destinations lies a booming Tourism and Hospitality sector, brimming with potential for investors.

Investing in India’s Hospitality And Tourism goes beyond just financial returns. It’s about being part of a sector that creates jobs, fosters cultural exchange, and showcases India’s rich heritage to the world. It’s about being a catalyst for positive change, empowering local communities and preserving their traditions.

So, if you are seeking an investment opportunity with a blend of high returns, cultural significance, and a chance to be part of India’s exciting growth story, look no further than its hospitality and tourism sector.

This article elucidates the reasons behind this exciting growth of the Tourism and Hospitality sector and explores how you can tap into it through Mutual Funds.

[Read: Navigating the Market Landscape: How to Approach Equity Mutual Funds in 2024?]

Tourism and Hospitality Industry of India…

Given that India is one of the most sought-after tourist destinations worldwide, the country’s tourism and hospitality sectors have emerged as major development engines for the country’s services sector.

The foreign exchange earnings from 2016 to 2019 grew at a CAGR of 7%, however, it dipped drastically in 2020 due to the terror of the COVID-19 pandemic. The pandemic cast a long shadow, leaving the tourism and hospitality industry grappling with unprecedented challenges.

The initial wave of the pandemic brought India’s tourism sector to a screeching halt. Travel restrictions, lockdowns, and health concerns kept wanderlust at bay. Hotels stood eerily silent, their once-bustling lobbies echoing with emptiness. Adventure trails lay untrodden, their silence broken only by the whispers of the wind.

However, with its inherent spirit of service and unwavering optimism, the tourism and hospitality industry refused to be swept away. The sector weathered this storm by embracing the virtual world, and hotels and travel agencies pivoted to online platforms. Virtual tours showcased hidden gems, and live cooking classes brought the flavours of India into homes.

Social media became the canvas to paint a picture of hope and wanderlust, keeping the travel dream alive. As restrictions eased, safety protocols became the new mantra. Hotels adopted stringent hygiene measures, contactless services, and social distancing norms. This unwavering commitment to guest safety instilled confidence and paved the way for a cautious return to travel.

With international travel restricted, the spotlight turned inwards. Domestic tourism took centre stage, with Indians rediscovering the magic of their own country. Recognising the sector’s importance, the Indian Government rolled out various relief measures.

With the help of financial aid, loan restructuring and tax breaks the businesses stayed afloat and prepared for the eventual rebound. The tourism and hospitality sectors have recovered from the shock of the pandemic and are now operating at pre-pandemic levels thanks to the persistent efforts of the central and state governments.

Although the path to full recovery is long, India’s tourism and hospitality industry is walking it with grit and determination. The lessons learned have shaped a more resilient and adaptable sector.

Government Measures to Boost the Expansion of the Sector

The Indian Government has taken several steps to make India a global tourism hub. When it comes to using digital technologies for travel planning, booking, and experience, India is the country with advanced travel infrastructure.

The expansion of both domestic and international tourism has been aided by India’s growing middle class and increased disposable income. In the Union Budget 2023-24, USD 290.4 million has been allocated to the Ministry of Tourism.

Under the Union Budget 2023-24, an outlay of USD 170.85 million has been allocated for the Swadesh Darshan Scheme in order to produce a comprehensive package of 50 tourist destinations that will facilitate a well-rounded travel experience.

By 2025, the Indian government aims to have built 220 new airports, and by 2030-2031, it expects to have 1.2 million cruise passengers in its domestic market. In addition, a number of state governments have implemented sensible measures to encourage the expansion of this industry and support India’s economy.

In 2022, the tourism and hospitality industry made about 7.5% of India’s GDP. By 2023, the Indian tourism and hospitality sector is expected to have a total market size of between USD 23.50 billion and USD 29.61 billion.

It is an appealing prospect for investors due to its big market size, varied tourist base, and encouraging growth forecasts. Here, we have listed the top 5 Mutual Funds that hold higher exposure to stocks from the tourism and hospitality sector.

#1 – Nippon India Large Cap Fund (Market Cap Fund)

Nippon India Large Cap Fund invests predominantly in equity and equity-related instruments of large-cap companies. The scheme invests across the market cap, and as of November 2023, it holds 81.97% allocation in large caps, 11.44% allocation in mid-caps and 5.68% in small caps.

Currently, the scheme holds an AUM of Rs 18,071.87 crore and is benchmarked against the S&P BSE 100 index.

Nippon India Large Cap Fund – Allocation to Tourism & Hospitality Stocks

Data as of November 30, 2023
(Source: ACE MF) 

The scheme holds a maximum exposure of 2.33% in stocks of The Indian Hotels Company Ltd., which is South Asia’s largest hospitality-focused enterprise. IHCL is a crucial component that stands for the Tata Group’s hospitality division. With more than 200 hotels throughout 12 countries and more than 25,000 rooms, IHCL provides first-rate hospitality.

The scheme holds fair exposure to other market leaders from the sector, such as – Chalet Hotels Ltd. and EIH Ltd., at 2.26% and 1.48%, respectively. Currently, the overall exposure to tourism and hospitality stocks accounts for 6.08% of the scheme’s assets.

#2 – Nippon India Multi Cap Fund (Market Cap Fund)

Nippon India Multi Cap Fund invests predominantly in equity and equity-related securities across the market capitalisation, like large cap, mid cap, and small cap stocks. The scheme currently has an AUM of Rs 22,695.37 crore and is benchmarked against Nifty500 Multicap 50:25:25- TRI.

Nippon India Multi Cap Fund – Allocation to Tourism & Hospitality Stocks

Data as of November 30, 2023
(Source: ACE MF) 

The scheme invests across the market cap, and as of November 2023, it holds 43.04% allocation in large caps, 25.74% allocation in mid-caps and 29.44% in small caps. Do note it has a higher allocation to mid and small-cap stocks, which are highly risky and sensitive to market fluctuations.

The scheme holds 3.01% in EIH Ltd., the flagship of the prestigious Oberoi Group, which operates as Oberoi Hotels & Resorts and Trident Hotels. EIH is known for its innovative and excellent service, and it has over 5,000 rooms spread across 30 hotels throughout six countries.

It also holds significant weight to IHCL Ltd. and Chalet Hotels Ltd. at 2.23% and 0.21%, respectively. Currently, the overall exposure to Tourism and Hospitality stocks accounts for 5.44% of the scheme’s assets.

#3 – SBI Small Cap Fund (Market Cap Fund)

Launched in 2013, SBI Small Cap Fund invests in a portfolio of equity and equity-related securities of small & midcap Companies. As of November 2023, the fund holds 0.63% in large caps, 12.68% in mid-cap stocks, and the majority 65.99% in small-cap stocks.

Since this is a small-cap scheme, investors may consider their suitability before investing in it based on risk tolerance, investment horizon and goals. Due to their inherent volatility, small-cap funds are more sensitive to market fluctuations and require a long investment horizon.

SBI Small Cap Fund – Allocation to Tourism & Hospitality Stocks

Data as of November 30, 2023
(Source: ACE MF) 

SBI Small Cap Fund has an overall allocation of 4.99% to Tourism and Hospitality stocks. The scheme holds a similar exposure of 2.50% to both the Chalet Hotels Ltd. and Lemon Tree Hotels Ltd.

Now, 7 five-star hotels are operated by Chalet Hotels Limited, a subsidiary of the K Raheja Corp Group, in Mumbai, Hyderabad, Bengaluru, and Pune. In addition, it owns well-known brands in Bengaluru and Mumbai, including Marriott and Four Points.

Lеmon Trее Hotеls that is India’s largеst mid-pricеd hotеl chain, opеratеs undеr Lеmon Trее Prеmiеr, Lеmon Trее Hotеls, and Rеd Fox Hotеls brands. With 8,000+ rooms spread throughout 80+ hotels in 48 cities, it prioritises hospitality and sustainability.

#4 Helios Flexi Cap Fund (Market Cap Fund)

The scheme endeavours to create a diversified portfolio by investing predominantly in equity and equity-related securities across market capitalisation.

However, given that the scheme was introduced in November 2023, it has no track record for performance. Thus, investors may consider their suitability and invest only after analysing a proven performance track record.

Helios Flexi Cap Fund – Allocation to Tourism & Hospitality Stocks

Data as of November 30, 2023
(Source: ACE MF) 

In terms of Tourism and Hospitality Stocks, this scheme holds an allocation of around 2.06% in Lemon Tree Hotels Ltd. The fund also has exposure to IHCL and IRCTC, which is the sole authorisеd providеr of online tickеting, catеring, and tourism services for Indian Railways, with additional ventures likе е-catеring, hotеls, and е-commеrcе.

The scheme invests across market segments such as – 58.12% allocation into large-cap stocks, 20.62% and 16.88% in mid and small-cap stocks, respectively.

Do note it has a higher allocation to mid and small-cap stocks, which are highly risky and sensitive to market fluctuations. Investors may consider their suitability before investing.

#5 HDFC Mid-Cap Opportunities Fund (Market Cap Fund)

HDFC Mid-Cap Opportunities Fund aims to provide long-term capital appreciation by investing predominantly in Mid-Cap companies. The scheme holds 8.42% in large caps, 70.03% in mid-caps and 15.48% in small caps as of November 2023.

HDFC Mid-Cap Opportunities Fund – Allocation to Tourism & Hospitality Stocks

Data as of November 30, 2023
(Source: ACE MF) 

The overall allocation to Tourism and Hospitality Stocks is around 4.03%, and there is significant exposure to market leaders from the sector, such as The Indian Hotels Company Ltd. and Mahindra Holidays & Resorts India Ltd.

Investors may consider taking a plunge into these mutual funds only after thorough market research and assessing their suitability based on risk tolerance, investment horizon and goals.

The Road Ahead for Indian Tourism and Hospitality Sector

The tourism and hospitality sector in India has enormous growth potential. By 2028, the sector is expected to have recovered significantly from the pandemic and reach an astounding USD 314 billion. Rising disposable incomes, increased domestic travel, and a slow but steady rebound in foreign tourism will all contribute to this development.

India is a top choice for travellers seeking wellness given its extensive history with Ayurveda and yoga. A rise in holistic packages, wellness resorts, and retreats is to be expected. Staycations, in which guests check into opulent hotels for a tranquil break to decompress, are said to be a rising trend.

Major Indian hotel chains, like Oberoi Hotels, Marriott International, and IHG Hotels & Resorts, are responding to these needs by launching staycation packages that let visitors select from a variety of carefully crafted hotel experiences. Additionally, this increases travel within the country.

The industry will continue to benefit from the Indian government’s ongoing emphasis on infrastructural development, visa simplification, and tourism promotion programmes.

The e-Visa program’s extension, which is anticipated to increase the number of visitors to India, is another development that the business is awaiting. It is anticipated that 30.5 billion foreign visitors will arrive by 2028, generating roughly USD 59 billion in revenue.

The Ministry of Tourism reports that, with a favourable growth rate of 132.5%, Foreign Tourist Arrivals (FTAs) increased from 3,42,308 in March 2022 to 7,95,827 in March 2023.

On the other hand, maintaining fair benefits for nearby communities, enhancing the skills of hospitality workers, and upgrading infrastructure continue to be significant challenges. Along with this, there are labour shortages, technology advancements, heightened competition, and changing customer preferences.

To conclude…

The future of Indian Tourism and Hospitality is in the hands of stakeholders, from policymakers and investors to hoteliers, travel agents, and local communities. Embracing sustainability, digital transformation, and catering to evolving traveller preferences will be key to long-term success.

This article first appeared on PersonalFN here