India's travel sector is poised for stabilization in 2026 after navigating significant challenges throughout 2025, according to Jefferies' latest sector outlook. The brokerage has positioned airports as the clear winners, followed by airlines and hotels, based on earnings visibility and operational resilience.

Sector Challenges Define 2025 Performance

The travel industry faced multiple headwinds in 2025 despite a strong start to the year. Key disruptions included a fatal Air India crash in June, escalated geopolitical tensions between India and Pakistan, an extended monsoon season, and a year-end scheduling crisis at IndiGo. These factors collectively dampened travel sentiment, forced capacity reductions, and weighed heavily on sector stock performance.

The impact was evident in operational metrics, with air passenger growth decelerating sharply to just 1.00% year-on-year in the first half of FY26, including further slowdown in December. Hotel performance similarly moderated, with RevPAR growth easing to 6.00-7.00% in the September quarter, a significant decline from mid-teen growth rates recorded over the previous four quarters.

Airports Lead Recovery with Strong Fundamentals

Jefferies maintains its most optimistic outlook for the airport sector, citing multiple growth drivers that position these assets favorably for 2026. The key factors supporting airport outperformance include:

GMR Airports emerges as a standout performer within the airport category. Per-passenger spending continues scaling up at both Delhi and Hyderabad facilities, while progress in airport-adjacent real estate projects provides an additional earnings catalyst. Jefferies projects an impressive EBITDA CAGR of approximately 28.00% for GMR Airports over FY25-28, with regulatory clarity offering potential upside to these estimates.

Airlines Navigate Structural Industry Reset

The airline sector enters 2026 amid what Jefferies characterizes as a fundamental structural transformation. Revised flight duty norms, persistent pilot shortages, and intensified regulatory oversight have shifted industry priorities from aggressive capacity expansion toward operational stability and safety compliance.

Rising operational costs driven by rupee weakness and higher crew expenses are pushing airlines to implement strategic changes:

• Enhanced yield management practices
• Expanded ancillary revenue streams
• Greater focus on premium cabin offerings
• Accelerated international route development

IndiGo's upcoming Airbus A321XLR aircraft induction is expected to bolster its international expansion capabilities, while the airline's FY27 available seat kilometer guidance remains a critical factor for sector estimates. Jefferies anticipates capacity constraints will ease gradually through calendar year 2026, though demand-supply dynamics should remain balanced, supporting a favorable pricing environment.

Hotels Face Growth Moderation After Strong Run

The hotel sector is projected to experience measured growth following four consecutive years of robust post-Covid recovery. While underlying demand drivers remain intact, a high comparison base and improving supply pipeline are expected to moderate growth trajectories.

Jefferies forecasts RevPAR CAGR of 7.00-8.00% over FY25-28, translating to EBITDA growth of 13.00-16.00% for the period. Among hotel operators, Indian Hotels is positioned favorably due to its diversified revenue streams and more cycle-resilient portfolio composition.

Investment Hierarchy for 2026

Jefferies' clear investment preference ranking reflects where the brokerage sees the strongest combination of earnings visibility and operational resilience. Airports top the list based on their defensive characteristics and multiple growth catalysts, while airlines benefit from structural improvements despite near-term challenges. Hotels, while maintaining positive fundamentals, face the most significant growth deceleration among the three segments after their exceptional post-pandemic performance.

Jefferies remains constructive on India's consumer durables sector, highlighting a favorable medium-term demand outlook across cables, wires, and air conditioners. Despite near-term margin pressures from rising raw material costs and rupee weakness, the brokerage advocates a selective approach with Polycab and LG Electronics India emerging as top sector picks.

Polycab: Strong Structural Opportunity in Cables Segment

Jefferies maintained a Buy rating on Polycab India and raised its target price to ₹9,230 from ₹8,960, citing strong structural opportunities in the cables and wires segment. The brokerage expects 2026 to be a "sweet spot" for the industry, driven by healthy demand from industrial capex and housing, alongside 6-8% price hikes to offset higher copper costs.

The demand-supply dynamics present a compelling investment case:

Jefferies estimates this supply-demand imbalance, combined with price hikes implemented during October-December 2025, will support margins and near-term volumes through channel restocking. For Polycab specifically, the brokerage pencils in 15-20% year-on-year sales growth in FY27E for the cables segment.

Air Conditioner Segment: Recovery Opportunity Ahead

Within air conditioners, Jefferies sees recovery opportunity following weak fiscal 2026 performance, when industry sales declined 15-20% in the first half due to unseasonal monsoons and GST-related demand deferrals. The brokerage notes that historically, excess rainfall rarely persists for two consecutive years during the critical March-May period, while mean temperatures continue trending higher.

Inventory levels have normalized to around 45 days from peaks of nearly 60 days earlier, aided by revisions in BEE norms helping clear older stock. Against this backdrop, Jefferies expects normal summer in 2026 to act as a key catalyst for LG India, Voltas, and Blue Star.

Margin Pressures From Rising Input Costs

The brokerage flagged rising raw material costs as a key headwind for margins across consumer durables. Copper and aluminum prices rose 21% and 10% year-on-year respectively in Q3 FY26E, while the rupee weakened around 5% between July and December 2025.

Given that compressors, largely imported, account for 25-30% of an air conditioner's bill of materials, Jefferies expects lag in price pass-through, leading to near-term margin pressure in second half of FY26E. However, it estimates the earnings impact to be relatively modest at 2-5% over FY27-28E.

Emerging Growth Drivers: Data Centers and Solar

Beyond core appliances, Jefferies highlighted data centers and solar products as emerging growth drivers. Blue Star and Voltas, which provide mechanical, electrical and plumbing solutions for data centers, are well positioned. Data centers already form about 20% of Blue Star's order book and are expected to contribute up to 30% of Voltas' projects revenue over the medium term.

Data centers also create incremental demand for power and optical fiber cables, benefiting players such as Polycab. On solar, government-led schemes such as PM Surya Ghar and PM Kusum are driving opportunities across rooftop solar, pumps and related products, with several consumer durable companies gradually building exposure.

Jefferies maintained a Hold rating on Havells and cut its target price to ₹1,560 from ₹1,620, citing margin sensitivity to raw material volatility.