Aviation and hospitality stocks — value buy or false bottom?

Aviation and hospitality stocks are bearing the brunt of the meltdown but bottom fishing could be a tricky affair


The deadly coronavirus is a ‘ticking time bomb’ is what the boffins are saying, and investors around the globe would agree to that. It has been a rollercoaster year. What weakening economic growth, credit crunch and consumption slowdown together could not do in more than a year, the virus achieved within a week —triggering the sharpest fall in twenty years.

Just like the virus does not discriminate between the rich and the poor, the fear that it has caused has not discriminated between sectors. Be it defensive sectors such as FMCG and pharma or cyclical ones such as auto and infra, each one has succumbed to aggressive selloff, but may be we haven’t seen the worst yet. “There could be a significant earnings cut across the sectors as the economic growth recovery would be hampered and hence delayed,” says Rahul Singh, CIO of Tata Mutual Funds.

Most analysts fear the worst is due over the next few quarters. Axis Securities’ head of fundamental research Pankaj Bobade believes Indian equities will continue to bleed until global markets recover. “The number of (COVID) cases in India may be less when compared to the US or Europe, but these countries provide liquidity to our markets,” says Bobade. And as investors turn to cash and safe haven during these times of uncertainty, foreign investors have pulled out over Rs.580 billion from India in this month alone (as on March 26). The rupee has also not been spared either with the currency hitting a record low of 76.15 against the dollar on March 23.  

The contagious disease has forced several countries to implement a complete lockdown, making aviation and hospitality sectors the worst victims of this outbreak. “People are avoiding travel. So, hotel and aviation, which are heavily dependent on tourism (leisure and corporate), will be adversely impacted,” says Bobade. 

Stocks of companies such as IndiGo, SpiceJet, Indian Hotels and Lemon Tree Hotels have fallen anywhere between 30% and 55% over the past one month. But as legendary investor Warren Buffett says, “Be fearful when others are greedy and greedy when others are fearful,” investors can view the current scenario like a fire sale and pick good stocks once the market bottoms out.

Though the stocks are quoting 30-80% below their highs, in terms of valuations they are not exactly screaming buys.



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