Why Milind Karmarkar Is Willing To Bet On Hotel Stocks Amid The Pandemic
Hotel stocks are “relay runners”—those that are likely to given good returns in the medium terms, Karmarkar says.
The Covid-19 pandemic has taken a toll on the tourism and hospitality sectors. But that’s exactly what makes them an attractive bet on a short-to-medium term for Milind Karmarkar.
“I think hotels are an obvious choice,” the director and senior fund manager at Dalal & Broacha, told BloombergQuint in an interview. “I know this quarter has been bad. Next quarter can also be bad. But there’s a fair possibility that all these stocks hit extremely badly due to Covid-19 could bounce back pretty fast. Just a few months back most of these stocks were trading at least 60-70% higher than where they are now.”
Karmarkar’s bet is based on the widely held assumption that a vaccine for the coronavirus will be available by the end of the ongoing financial year. “I do expect if that happens then by FY22 we could return back to normal.”
While international tourism will remain hit for a while, the loss of business from that will be made up for by domestic travellers who may opt for ‘staycations’ after a long and winding lockdown. That, too, is based on Karmarkar’s observation that hotel stocks rose after the relatively less infectious SARS outbreak in China between 2002-04.
“History teaches you a lot. If you go back, between 2002 and 2007, post 9/11 and SARS, all these hotel stocks did fantastically well,” he said. “I do remember some going up around 6-8 times.”
Hotel stocks do bounce back and bounce back pretty fast.Milind Karmarkar, Research Head, Dalal & Broacha
The portfolio manager said that he would pick companies that have focused over the last few years on reducing owned properties and increasing properties that they manage. And that he would focus on well-established hotel brands, rather than the lesser-known ones since tourists would feel safer going there.
Hotel stocks, Karmarkar said, would fit in the category of what he calls “relay runners”—those that are likely to give good returns in the medium term.
“We’re still in the midst of the pandemic. Those worries will continue. But these relay runners could do well over a 5-6 month period,” Karmarkar said. “Yes, bulk of your portfolio should be marathon runners. However, at least 25% of your portfolio should be with relay runners.”
Watch the full conversation with Dalal & Broacha's Milind Karmarkar here: