Time to play the 'unlock trade'? Cautiously, say analysts

The fall in daily Covid cases across India over the past few days amid plans to slowly put the economic activity back on track over the next couple of months helped by a ramp-up in vaccination going ahead has seen investor interest come back in stocks such as hotels, recreation, travel & tourism etc.

At the bourses, 'unlock trade' has been playing out well over the past few weeks with stocks from the related sectors on a run. In the past one month alone, counters such as EasyTrip Planners, Kamat Hotels, Imagicaaworld Entertainment, SpiceJet, Taj GVK Hotels & Resorts, Thomas Cook (India), EIH Ltd, Speciality Restaurants, Indian Hotels, Lemon Tree Hotels, Burger King India and Wonderla Holidays have rallied 13 per cent to 41 per cent – outperforming the frontline indices, the S&P BSE Sensex, and the mid-and-small-cap indices on the BSE.

“Such stocks are a risky bet from a short-term perspective as we don’t know by when the second wave end will and will there be more such waves going ahead. The hope of unlocking of the economy can only provide a short-term relief to these counters. That said, if one has a horizon of three – four years, these stocks are attractive at attractive levels right now,” says Amarjeet Maurya, assistant vice-president for mid-cap research at Angel Broking.

Meanwhile, on Monday, India reported a net reduction of 84,683 in active coronavirus cases to take its count to 2,720,716. Among Indian states, Maharashtra, Uttar Pradesh, Rajasthan, Gujarat, and West Bengal are the top states in terms of vaccine shots administered, official data show.

As a result, some states have become early movers in rolling back lockdown restrictions and a calibrated re-opening is underway, reports suggest. Gujarat, for instance, is allowing shops, shopping malls and business establishments to operate for restricted hours during the day, while imposing night lockdowns. Haryana, too, is allowing standalone shops to operate during the day, while other shops will be allowed to operate on alternate days (based on an odd-even number system), with night curfews operational and malls still closed.

That said, the situation is not the same across states with some like West Bengal, Andhra Pradesh, Tamil Nadu, Odisha, and many Northeast states continue to struggle to flatten their respective pandemic curves. As a result, the lockdown status also differs across states. Many states have been extending lockdowns on an almost weekly basis, and most lockdowns are currently scheduled to last until May 31 / June 1.

“Just as the move into lockdowns was haphazard and heterogeneous across states, the exit is likely to be similarly chaotic. States still struggling with rising caseloads (like Tamil Nadu, West Bengal, Odisha, Andhra Pradesh, Assam) are more likely to proceed cautiously in rolling back restrictions, while states with longer periods of lockdown, and decreasing pace of pandemic spread, will likely be frontrunners in restarting the process of normalisation,” explains Sonal Varma, managing director and chief India economist at Nomura, in a co-authored note with Aurodeep Nandi.

Companies on their part, says A K Prabhakar, head of research at IDBI Capital have become smarter and have learnt to survive the pandemic and the lockdown.

“Over the medium-to-long term, these stocks can be a good bet as herd immunity kicks in once the pace of vaccination picks up. In the short-run, however, there could still be uncertainty – at least till the time there is clarity on how soon mobility curbs can be lifted. Remain cautiously optimistic on these stocks,” he says.

Anticipating progressive unlocking starting June, the Indian market, Dr. V K Vijayakumar, chief investment strategist at Geojit Financial Services feels, is likely to join the current risk-on in global markets.