The recent rally in the hotel stocks has been on the back of expectations of an improvement in the fortunes of the tourism industry once a stable government is in place. Besides, scattered fund buying, too, has pushed a number of hotel stocks northwards. Further, easing of tension on the border has also given hopes of improvement in the tourist inflow. As a result, most of the hotels stocks have been ridding high and have already scaled their new 52-week highs.

In the past couple of weeks, Indian Hotels has been a major gainer and has shot up from Rs 363 to Rs 570 in less than a month. The stock reacted marginally on Wednesday from Rs 570 to 562. During the same period, EIH Ltd has gained close to Rs 91 from Rs 204 to Rs 291 to fell marginally to Rs 271.Asian Hotels in the past few sessions has zoomed from Rs 136 to Rs 180. Scrips of ITC Hotels, Hotel Leela and Bharat Hotels too have appreciated in the past few weeks. Bharat Hotels' stock has almost doubled from Rs 31 to Rs 55.

The current rally in the hotel stocks is unlikely to be sustained. The recent rally in hotel stocks has more to do with the overall bullish sentiment in the market than the improvement in the performance of hotel sector.

Although even after the recent rally in hotel stocks, most of them are currently trading at a reasonable discounting, but considering a negligible improvement in the tourist inflow over the past couple of years coupled with low tariff rates, investment in this sector is not advisable at the current levels.

An entry into the hotel stocks should only be considered after the second quarter or the first half performance is out. Improvement in the financial performance, if any would only be visible in the second half of the financial. The second half beginningSeptember is considered a better half for the Indian tourism industry and any improvement in the tourist inflow would be reflected in the second half figures. The woes of the hotel industry continue and the companies are still reeling under low occupancy levels. The poor tourist inflow coupled with low tariffs has taken its toll on the company's bottomlines for the past two years. Not only the fall in business has affected the revenues, the profitability margins, too, have taken a knock. As a result, these stocks are unlikely to pick up soon unless their is improvement in tourist inflow.