Burger King, PVR: Avoid these stocks as India sees second wave of Covid-19

Amid second wave of Covid-19 in India, analysts believe investors will be better off if they avoid QSR, multiplex, or travel-related stocks till the situation improves

Investments amid Covid-19 second wave in India: Even before completing one year of Covid-19 lockdown, announced on March 24, 2020, India is seeing Covid-19 related restrictions including night curfews across various states, and mandatory institutional quarantine after inter-state travels back in place. In a recent turn of events, the Bombay Municipal Corporation (BMC) on Friday ordered mandatory negative (COVID) test reports for mall visitors in Mumbai.

Amid this, sustainable recovery in stocks related to malls, multiplexes, quick restaurant services (QSR), and aviation is still some time away, say analysts, who believe that investors will be better off if they avoid these stocks till the Covid-19 situation improves. There are more lucrative options in the markets than these counters, they said.

“Given these latest developments related to fresh restrictions and capacity constraints, recovery in these stocks will be pushed back by a couple of quarters. It was expected that normalcy would return by first or second quarter of the new fiscal year (Q1FY22/Q2FY22); but with the rise in cases, sectors that rely on footfall of customers will suffer a little more,” says Deepak Jasani, head of retail research at HDFC Securities.  

At the bourses, shares of PVR and Inox Leisure slipped 6.4 per cent and 5 per cent, respectively while those of Jubilant FoodWorks, Burger King India, and Westlife Development traded weak in the range of 3.5 per cent to 6.5 per cent in Friday’s intra-day deals. Mumbai-based listed real estate players, Godrej Properties, Oberoi Realty, and Phoenix Mills, meanwhile, declined up to 15 per cent.

Earlier, analysts were warming up to these stocks after Covid-19 cases had reduced considerably in the country and vaccination drive had begun.

In this backdrop, Godrej Properties, SpiceJet, Jubilant Foodworks, and InterGlobe Aviation had outperformed the benchmark S&P BSE Sensex between March 24, 2020 and March 18, 2021 by rallying between 102 per cent and 136 per cent on the BSE, ACE Equity data show. While those of Westlife Development, Oberoi Realty, Phoenix Mills, PVR, and Inox Leisure gained in the range of 18 per cent and 75 per cent. In comparison, the benchmark Sensex advanced 89 per cent during the period.

However, since February this year, these stocks have performed largely in-line with Sensex, rising between 3 per cent and 11 per cent. The Sensex, meanwhile, is up 6 per cent.

BMC’s order, according to Gaurang Shah, senior vice-president at Geojit Financial Services, would be a set-back for retail stores with extensive offline presence, multiplexes, and travel-related or aviation-firms.  That said, he believes, the overall impact may not be as severe as seen in 2020 when the lockdown was more widespread and adherence stricter.

“These are micro-lockdowns dependent on the number of cases in each city or state as against a nationwide lockdown seen last year. Besides, India already has two vaccines in place, with four other in the pipeline, keeping the risk element in check. While fresh allocations to these stocks should be avoided, investors that have an appetite for risk may hold,” he said.

At the operational level, such lockdowns will hurt growth, believes G Chokkalingam, founder and chief investment officer at Equinomics research. Cumulative losses of over 4 to 5 quarters, he says, will weaken the balance-sheets of the related companies, as they either burn available cash or borrow to stay afloat without meaningful business getting transacted.

Likhita Chepa, senior research analyst at CapitalVia Global Research too believes that the near-term pace of activities or operations in segments like QSR, entertainment, transportation and travel might slow down which might induce certain deviations from the projected or expected growth.