Global markets were spooked today after scientists found a new variant of the Covid-19 virus in South Africa that might be able to bypass the immune system, thereby rendering present vaccines ineffective.
The variant is already the dominant variant in South Africa’s Covid cases, which have spiked 321 per cent week-on-week, and has also been found in Hong Kong, Botswana and some other countries. “Deeply concerned” by the development, the UK has suspended flights to six African countries. Several others have also imposed a ban on direct flights from South Africa to contain the spread of what seems like a variant of concern from the scientists’ point of view.
The renewed surge in Covid-19 cases across Europe, especially among the unvaccinated, and concerns over global growth have become more tangible now. Already, countries like Austria have entered a lockdown and Germany is on the verge of going into another one.
For the travel and hospitality sector, this is a repeat of the developments that happened earlier this year as the Delta variant of the virus swept across the world, leading to renewed lockdowns and a devastating second wave in India. At that time, travel and hospitality companies had just begun to find their feet as the first wave of the pandemic was ebbing and the country was opening up rapidly. People stuck in their homes for months came out with a vengeance and tourist hotspots such as Goa were filled to the brim.
The second wave stalled that progress. Recently, the sector saw a renewed vigour as higher vaccination rate allowed states to open up borders and allow resumption of tourism activity. India was looking forward to the arrival of international tourists for the first time since the pandemic began as this would have been a boost to the local hotel industry.
“Hospitality stocks can be the worst hit (again) if lockdowns are implemented in various countries and travel from affected countries like South Africa, Botswana, Germany and Austria gets impacted,” said Amit Kumar Gupta, portfolio adviser at Adroit Financial Services.
Shares of
, , Chalet Hotels, Indian Hotels, Lemon Tree Hotels, Delta Corp and Mahindra Holidays as well as those of most quick-service restaurant companies plummeted 5-10 per cent in today’s trade, reflecting investors’ “sell first, think later” sentiment.
That said, money managers said investors should not give in to the panic at this moment as the threat from the new variant was yet to be determined. The World Health Organization is due to meet later today to ascertain if the new mutation is a variant of concern or interest. In the case of the latter classification, the impact on the reopening of the global economy is likely to be miniscule.
“Right now, we have a wait-and-watch situation. What we are seeing today is a bit of a panic. In case there is no major effect, I think the valuation comfort becomes better,” said Pankaj Pandey, head of retail research at ICICI Direct.
Pandey said the variant could threaten the 2022-23 growth expectations of the market for the sector if it turned out to be threatening. If not, today’s steep sell-off would have given investors a better entry point in many of the stocks in the sector.
While the hospitality sector can’t escape the time loop by becoming a better person — as Bill Murray did in Groundhog Day — it can hope that the vaccine will withstand the latest test.
