Building multi-cap tourism stock portfolio as economy heads out of covid pain


A host of socio-economic factors in play now could sow the seeds of a rally in tourism and related industry stocks, often dubbed as the ‘back to normal’ trade. India’s economy is now beginning to get in the groove with growth projections being revised upwards for the next fiscal year; cases of coronavirus have not resurfaced in the form of a second wave; and vaccination drive is picking up steam. “As the economy is now coming out of covid induced pain, we expect tourism to witness sharp recovery in FY22E,” said ICICI Direct in a note. The brokerage firm has picked five stocks to build a multicap portfolio that could benefit from tourism activity getting back to its old normal.

In the aftermath of the pandemic, ICICI Direct expects a rising preference towards health and hygiene, which shall help boost the market share of branded players. The stock selection is based on an amalgamation of technical screeners and fundamental analysis. “These stocks are expected to provide handsome returns going forward with a favourable risk-reward proposition,” the note said.

The largest stock picked by ICICI Direct in their tourism portfolio is United Breweries. Currently trading at Rs 1,264, the stock price has surged 40% since November last year. Earlier this month, the company announced its quarterly earnings where it stated that volumes were up 31% on-quarter leading to 85% normalisation. After the third-quarter earnings, ICICI Direct had a target price of Rs 1,490 on the stock. In the proposed portfolio, United Breweries has a 24% weightage.

Hospitality major Indian Hotels has been assigned 20.9% weightage in the portfolio. The Tata group company had reported a 118% revenue growth during the October-December quarter. The stock trades at Rs 126 per share. VIP Industries is the third-largest stock, by weightage, that ICICI Direct has added to the portfolio. With 19.3% weightage assigned to VIP Industries, the portfolio adds 8 stocks of the company. Shares of the firm have jumped 37% since November to now trade at Rs 374 apiece.

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Oberoi Group’s EIH has been given 19% weightage by ICICI Direct. EIH reported a 159% on-quarter growth in the fiscal third quarter. The stock is priced at Rs 97.75 per share. The last share in the tourism portfolio is of Lemon Tree Hotels, with a 16.8% weightage. The company is treading on the recovery path with occupancy inching higher at 42% in the previous quarter, from 32% in the second quarter of the fiscal year.

The multi-cap portfolio is a medium-term high-risk portfolio with the initiation price range of Rs 15,500-15,800. Here, 55.1% of the portfolio consists of smallcap equities, 20.9% are midcaps, and the 24% large-cap stocks.