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India's hospitality sector is expected to expand at a compound annual growth rate of 10.5 percent in the next three years, as the country emerges as a global tourist destination, according to an analysis. 

In its latest analysis, Axis Securities said that the growth of the Indian hospitality industry is driven by domestic travelers, international tourists, and visitors who fall under the Meeting, Incentives, Conferences and Exhibitions (MICE) segment. 

The report said that domestic travelers will contribute 50 percent to this significant growth, while international visitors and travelers in the MICE segment will account for 30 percent and 20 percent, respectively. 

"These factors are expected to remain sustainable over the next three years, and will significantly drive sector growth," added Axis Securities. 

Supply Remains an Issue in India's Hospitality Sector

According to the report, despite high demand, supply remains constrained, particularly in luxury rooms in India's hospitality landscape. 

The report noted that the Indian hospitality industry comprises 212,000 rooms, valued at Rs 82,000 crore. 

The analysis added that demand is likely to outpace supply in the Indian hospitality sector in the coming years. 

Tier II and Tier III Cities Witnessing Rising Demand

Citing a report by Hotelivate Research, Axis Securities said that demand is expected to rise at a CAGR of 10.8 percent annually, while supply is projected to expand by 8 percent. 

The analysis revealed that demand growth in India's hospitality sector is not just confined to Tier I cities, but Tier II and Tier III cities are also witnessing robust appetite among travelers. 

"Enhanced road connectivity and expanded railways are fueling growth from rural to urban areas, further boosting demand. The Indian hotel industry is strategically positioned to capitalize on these trends, contributing significantly to the tourism sector and overall economic growth," added the report.