In the past few years post-COVID, travel and tourism have taken off majorly across the country. Initially, it may have just been due to the desire to take much-needed breaks after multiple lockdowns restricted movements in 2020 and 2021. Over the past few years though, all forms of business, leisure, pilgrimage and workcation (work and vacation together) related travel have increased sharply.
This has resulted in a host of companies in segments such as aviation, hotels, travel booking portals, and consumer products seeing heavy traction due to heightened demand.
Now, as a play on the broader tourism theme itself, we have a new Kotak Nifty India Tourism index fund that has been rolled out. The scheme is open for subscription till September 16.
Here is what investors must know before considering exposure to the scheme.
The tourism theme
As the India growth story unfolds, disposable incomes are on the rise for many sections of the population. Data in the presentation taken from a PRICE report indicates that there has been a 36 per cent increase in disposable income over three years leading to FY23.
India’s pilgrimage tourism is set to increase by 16 per cent compounded annually till 2030. The projected revenue by 2028 is around $59 billion. Business travel is set to grow at 7.7 per cent till 2032 and reach a size of $76.3 billion, according to data from the presentation.
Post-COVID Indian aviation’s capacity and utilisation have surged in the case of domestic operations, while it has steadily increased in the case of international operations. In FY24, the utilisation is nudging 84 per cent in both domestic and international aviation, according to an IBEF report.
Improved highway connectivity has meant that on-road commute for holidays has also increased.
The online travel market – air, train, hotels, bus and outbound – is likely to touch $31 billion in FY25, more than tripling from the levels in FY20.
In the hotel industry, the average daily rate, revenue per available room and occupancies are at decadal highs.
On the whole, the outlook for the tourism industry does look fairly healthy for the foreseeable future.
What’s the fund about?
As indicated earlier, the new fund is a passive scheme. It will track the Nifty India Tourism index. There is a Tata Nifty India Tourism Index fund that was rolled out a little over a month ago.
This index would comprise airlines, airports and airport services, hotels & resorts, restaurants, tour travel related services and plastic products for consumers (suitcase makers etc.).
The number of stocks in the index would be 17 presently and the constituents are rebalanced on a half-yearly basis.
Expensive, but worth a try
Numbers from NSE indicates that the Nifty India Tourism index has had a healthy run based on back-tested data. On a point-to-point basis, the index has delivered 42.8 per cent, 26.9 per cent and 25.2 per cent, respectively over one-, three- and five-year timeframes as of August 31, 2024.
The Nifty India Tourism index has outperformed the Nifty 50 and Nifty 500 by 3-12 percentage points over these periods.
But the tourism index is quite richly valued. At a price-earning multiple of 66.7 times and a price-to-book ratio of 23.5, the benchmark is quite expensive compared to most other indices, going by data from NSE as of August 31, 2024.
Given the expensive nature of the broader markets itself, and the index in particular, return expectations need to be highly tempered for the near future. This segment was the worst-hit in the COVID lockdown period. The sharp rally in stocks tracking the theme in the subsequent rally even as many were limping back to profitability may be the key reason for elevated valuations.
However, travel, aviation and hotel companies tend to have very low weightage or presence in regular diversified funds.
Those investors with a high-risk appetite and willing to bet on the growth in the overall tourism segment can invest in the Kotak India Tourism fund via tiny SIPs as a diversifier to their portfolios.
