Surge in travel, leisure stocks shows Street is betting on vaccine with gusto2 min read . Updated: 13 Aug 2020, 10:13 PM IST
Broadly, investors are betting that consumers would be less afraid of venturing out once there is a vaccine. This could result in better demand for services of travel and leisure firms, which have seen their revenues evaporate in the June quarter
MUMBAI : After Russia approved the world’s first covid-19 vaccine, named Sputnik V, travel and leisure stocks have skyrocketed. Shares of InterGlobe Aviation Ltd, which runs the IndiGo airline, have risen over 23% this week, while hotel chains The Indian Hotels Co. Ltd and Lemon Tree Hotels Ltd saw their stocks soar by 25% and 36%, respectively. Shares of cinema chains PVR Ltd and Inox Leisure Ltd have risen by over 11% each.
Note that these stocks have been the underdogs during the pandemic crisis, dropping 40-60% from their pre-covid highs. While some of these stocks continue to be 40-50% lower than their highs earlier in the year, shares of IndiGo are now just 23% lower compared to pre-covid highs, as investors expect it to gain market share with other airlines having deeper troubles.
Broadly, investors are betting that consumers would be less afraid to venture out when there is a vaccine. This could result in better demand for services of travel and leisure firms, which have seen their revenues evaporate in the June quarter.
But analysts said this improvement would at best start showing in the next financial year (FY22), with the first half of FY21 being a washout. Besides, the improvement will be gradual, as social distancing norms will prevail for quite some time. Further, with the income levels dropping, consumers are expected to cut discretionary spending.
Even so, IndiGo finds itself in a sweet spot in the aviation sector with ample cash on its books and a strong balance sheet. Plus, the airline intends to raise funds. This, at a time when its peers are struggling and are expected to lose market share. Not surprisingly, shares of smaller peer SpiceJet Ltd are still down 57% from their highs earlier in the year.
In the hotels sector, analysts said Indian Hotels is in a relatively better position as far as debt against peers goes, given its limited refinancing needs and strong promoter backing.
Some analysts are worried about Lemon Tree’s high debt. Even though Lemon Tree shares have seen a bigger rally this week, they are down 49% from pre-covid highs compared to a 34% decline in Indian Hotels’ shares.
Riding on the ‘vaccine theme’, shares of multiplexes PVR and Inox Leisure, too, have done well this week. However, shares of both companies are still 40-48% lower vis-à-vis their pre-covid highs.
To be sure, the momentum seen this week will only sustain if there is a meaningful improvement in demand. As such, most of these stocks are far away from their pre-covid highs seen earlier this year.
Moreover, it’s worth noting that companies that benefited from the work-from-home theme, such as Britannia Industries Ltd and Tata Consumer Products Ltd, are still flirting with their recent highs.
Some investors are hedging their bets.