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India's hospitality and tourism sector delivered a structurally resilient 4QFY26 despite the disrupted inbound foreign travel, airline operations, and Gulf-linked MICE demand in Mar’26. The disruption proved to be a temporary speed bump rather than a structural inflection point. Across the sector, the following key trends emerged.

* 1QFY27 demand trends point to a gradual normalization in travel activity (RevPar growth expected to be 10-12%), with business momentum improving through May following the recovery of deferred demand after March's disruption. Coupled with a favorable base effect from last year’s demand softness, domestic tourism, repatriation of outbound discretionary spending (the loss of domestic outbound leisure travelers was 24x the quantum loss of FTAs in Mar’26), recovering MICE activity, and robust destination wedding demand are expected to support healthy double-digit RevPAR growth during the quarter.

* The growth opportunity remains anchored in leisure and luxury travel, with India's leisure tourism market projected to expand from ~USD32.5b in CY25 to ~USD58.4b by CY34 (according to Imarc), while luxury travel is expected to expand at ~10.8% CAGR from USD79.7 to USD179.7b over CY26-33 (according to Grandview Research). With luxury room supply remaining limited (HVS estimates ~30k luxury keys nationally; demand is growing ~2x faster than supply) and ongoing expansion into high-growth leisure destinations, the demand-supply backdrop remains supportive of sustained occupancy and pricing strength.

* Further, Rajasthan is emerging as a key beneficiary of India's domestic leisure travel upcycle, driven by its diversified tourism ecosystem spanning leisure, heritage, wildlife, weddings, and religious travel. With tourist arrivals rising ~10% in CY25 to ~254m (~99% was domestic tourists), the state is witnessing accelerated capacity additions by branded hotel operators, positioning it as a significant hospitality growth market over FY27–FY30.

* We remain positive on the Indian hospitality and tourism sector over the near to medium term, led by healthy structural tailwinds, favorable demand-supply dynamics, and rising domestic travel fueled by increasing MICE activity, weddings, cultural events, and leisure and corporate travel. We reiterate our BUY rating on IH (TP: INR820), LEMONTRE (TP: INR150), VENTIVE (TP:780) and INDIGO (TP: INR5,850).

Beneath the volatility, a stronger demand cycle emerges

* According to our channel checks, 1QFY27 is expected to witness healthy 10- 12% RevPar growth, driven by improving business momentum through May following the recovery of deferred demand after March's disruption. Growth will further be supported by a lower base, as demand in the previous year was impacted by Operation Sindoor. Business recovery was visible through Apr-May and June, although MICE demand remained relatively softer compared to the strong 2HFY26.

* Nevertheless, expansion in occupancy rate is expected to remain healthy, serving as the primary driver of 10-12% RevPAR growth during the quarter. On the cost side, overall inflation is likely to remain in high single digits, lower than RevPAR growth, indicating limited margin pressure in 1QFY27.

* A defining theme in 4QFY26 commentaries was the resilience of domestic demand, which materially absorbed the impact of external shocks. Weakness in foreign tourist arrivals, MICE activities, Middle East-linked travel, and airline crew business in Mar’26 was offset by resilient domestic leisure, weddings, and domestic corporate travel, which collectively sustained occupancy levels and pricing power despite volatility (according to HVS Anarock, industry ARR growth 12%; OR contraction 70bp YoY in 4QFY26).

* This resilience is increasingly structural rather than cyclical. According to HVC Anarock, India’s domestic tourism recorded ~4.5b domestic tourist visits in CY25 (expected to reach 9.5b in CY30) and ~339m domestic air passengers, indicating that hospitality demand is now overwhelmingly driven by domestic mobility.

* This shift is visible in the customer mix of premium hospitality chains. LEELA indicated that domestic travelers now account for ~60% of its guest mix versus a significantly lower share historically, with spending behavior broadly comparable to international guests across rooms, dining, and experiences. Similarly, EIH noted that domestic premium travel offset weakness in foreign arrivals, while CHALET described domestic leisure demand as ‘exceptionally healthy’, supported by weddings, staycations, and premium family travel.

* An additional emerging driver is the repatriation of outbound discretionary spending, with ~327m Indians traveling overseas in CY25 (according to Ministry of Tourism), and ~43.5% of outbound trips were leisure-oriented. While FTAs declined 2% in Mar’26 (quantum loss of 12.1k), outbound tourism dipped 27% YoY to 1.8m travelers (~74% of quantum loss due to UAE and Saudi). Assuming leisure travelers accounted for 43.5% of the reduction (289k), the resulting demand displacement was 24x the quantum loss of FTAs in Mar’26 (refer to Exhibits 8 and 9).

* Even a partial redirection of this outbound leisure spend toward domestic destinations represents a meaningful incremental demand opportunity for hotels and resorts. * A particularly important sub-trend is the shift in destination weddings and large-format social events back to India, partly influenced by geopolitical uncertainty in the Middle East. Operators indicate that this is not a substitution within India but incremental demand creation, directly benefiting luxury resorts, palace hotels, and destination leisure markets.

* At the same time, the industry is expecting a clear backlog-release cycle in MICE demand in Jun-Jul’26. Events, conferences, and corporate gatherings deferred in March and early FY27 are being progressively rescheduled, creating a visible pipeline that should support both occupancy and banquet revenues through the quarter.

* Overall, the key takeaway from 4QFY26 into 1QFY27 is that domestic demand has evolved from a cyclical buffer to a core structural pillar of India’s hospitality upcycle. Supported by improving demand quality, rising premiumization, constrained supply, and a visible MICE backlog pipeline, the sector appears well-positioned for sustained RevPAR expansion over the coming quarters.

Valuation and view

* FY26 witnessed healthy YoY growth of 19%/14% in revenue/EBITDA (refer to Exhibits 23 and 24), driven by ARR growth and an improving occupancy across key markets and players. Demand trends remain healthy across India in 1QFY27, supporting healthy RevPAR growth (in the range of 12-15%). We anticipate hotel companies to deliver healthy growth in FY27-28E (9-11% RevPar growth is expected in FY27), supported by higher ARR, resilient occupancy, and diversified demand drivers.

* Our medium-term (2 to 3 years) outlook for the Indian hospitality sector remains positive, underpinned by sustained occupancy at elevated levels and healthy ARR growth. Favorable demand-supply dynamics and rising domestic travel, led by a healthy MICE activity and destination weddings, are expected to drive momentum

* We reiterate our BUY rating on IH (TP: INR820), LEMONTRE (TP: INR150), VENTIVE (TP:780) and INDIGO (TP: INR5,850).

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