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The Indian Spring and Tourism

The just-concluded state elections have vindicated the market’s stance on the anti-incumbency factor. Even as experts draw multiple scenarios for the 2014 General Elections, what with state elections shaping the permutations and markets remaining euphoric in the short term, all this may or may not really matter much to you depending upon various factors. It can be investment in India for a common investor, the feeling of removing corruption for the common man and for me both and a positive feeling that transforms to boom in Travel.



So after the Arab Spring, we now have the Indian Spring. Well what more could you call it after the recent success of Aam Aadmi Party (AAP) in the Delhi elections. Look at the statistics – The number of votes that the first timer, Arvind Kejriwal (44269) got is more than the combined votes of Sheila Dikshit (18405) and Vijender Gupta (17952).




If that’s some signal of things to come, I would term this as a good signal. Having said that, the overall win of BJP in the 4 state elections also came up with a positive sign for the economy.

Whatever be the outcome of general elections in 2014, economic reforms and fiscal improvement are the only ways out for any ruling government given the current state of affairs; failing which, the outcome can be too harsh to face for the nation. Hence, while the governance style could change, the direction of reforms may not vary much, come NDA or UPA or a third front. The only positive factor that I see is that now you will have party like AAP that will sit in opposition and challenge the ways of governance.

Yes, sentiments do play a pivotal role in changing the investment climate, both internally and for foreign inflows. To this extent, the State Elections appear to be setting the stage for positive sentiments.

Historically, markets do not wait for events to happen. They anticipate events and discount them. And here, we are not talking of just the elections; we are talking of the host of domestic macro and market factors that are slowly but steadily turning favorable. So, we are talking of markets reading into these changes.

The equity markets rallied as part of the Indian Spring by 14% between September and December 2013 – an indication that it was not just anticipating election results (too early then) but reading into early signs of what could be an economic recovery.

And these are some of the conspicuous signs that are purely data based and therefore can not be ignored:

  • After nearly 10 quarters, GDP growth in the September quarter was marginally higher than expectations. And more importantly, the demand side of the GDP, especially gross fixed capital formation (representing investment demand) and consumption demand grew better than the previous quarter after a slump.
  • Inflow of dollars has considerably eased the liquidity tightness and ensured better money availability for short-term borrowing. Huge dollar addition to the forex reserves through the swap window for FCNR (B) and bank borrowing has also helped stabilize the rupee at around Rs 62 to a dollar.
  • The current account deficit has drastically fallen to 1.2% of GDP from 6.7% not long ago on the back of higher exports and lower imports.
  • FII flows have remain buoyant through 2013, notwithstanding the constant fear of a US tapering. fii
  • While US Fed tapering may be a factor that could continue to weigh on markets, it is widely believed that this has been discounted to a large extent by the debt market, which saw large FII withdrawals in the second half of 2013 thus far.
  • While corporate earnings have been lack lustre for several quarters now, the September quarter earnings of Sensex grew in double digits, compared with the 4% decline in the June quarter.

And how does this all transform into travel and tourism. With all the inflow of funds, comes the travel and therefore contribution to the Tourism Industry.



The scenario for the coming months has been positive though the seasonal traffic will go down during the festive dates in December. These are times that will provide opportunities for investors to come in and explore opportunities. Having said that, will it impact the Average Rates for the hotels – that depends from city to city as there is plenty of supply that is ready to come in.



By March 2018, Bangalore will rival Mumbai’s as the city with the largest branded hotel room inventory in the country, as per a research note by one of the world’s leading hospitality consultants HVS. India’s southern metro city is expected to have a hotel room inventory of 16,581 by that year, higher than Delhi and second only to Mumbai. And the difference with Mumbai would be a mere 300 rooms. At present, Bangalore is the third largest hospitality market with 8,536 rooms, following Delhi with 11,338 rooms and Mumbai with 12,807 rooms.



Whatever be the impact of economic conditions, with that much supply coming in you are looking at a 100% growth in room supply. This not necessarily transforms to a growth in Room Nights. And hence puts pressure on Average Rates that in turn puts a lot of pressure on the ROI of these new hotel projects.



Look forward to a similar scenario with Aero City in Delhi. The industry fears aggressive competition, with the addition of 5,000-odd hotel rooms to the current inventory of 11,000 branded rooms in the Delhi-National Capital Region (NCR). This may result in pressure on ADRs. Hotels like Radisson Blu Plaza, which overlooks the Aero City and was the first Airport Hotel of the city has already invested in upgrading and renovating its property, expecting greater competition from the coming cluster of hotels in its neighborhood.





So while everyone agrees that there will be a short term pressure on ADR, there is also a feeling that in the long run this will convert to greater demand and therefore the ADRs will rationalize over time. There is a big emphasis on MICE business as well. With the capacity of the Delhi airport’s terminal-III expected to exceed 75 million after the completion of phase-I, hotel companies feel the airport would become a hub for long-haul routes passing through Delhi, for conferences and MICE (meetings, incentives, conferences and exhibitions) business.



According to HVS India, occupancy at upscale and luxury hotels in Delhi for 2012/2013 hovered at 60 per cent, with ARRs between Rs8,000-8,500 (US$130-138), a six to seven per cent year-on-year fall.



All in all a positive sign of times to come for the Indian Tourism. What you don’t want now are the external factors – Economy to be positive in US and Europe. A stable government as and when it comes in and a no nonsense business from our neighborhood (referred usually as external forces)!!




December 11, 2013 Posted by | Hospitality & Tourism, TOURISM | , , , , , , | Leave a comment