Ambit Capital’s Biggest Mistakes Over The Last 12 Months

Ambit Capital is back with its biggest bloopers survey. The brokerage house has detailed the mistakes it made over the last 12 months—ranging from its wrong election results prediction to stocks that didn’t perform as expected.

Borrowing a quote from Indian cricket team captain Virat Kolhi, the brokerage said, “When things don’t go our way, we need to show character,” assuring investors that it was accepting and learning from its mistakes.

Here's what Ambit Capital says were its biggest mistakes last year:

The Only Wrong Exit Poll

Ambit Capital’s analysis of 2019 general election claimed that while the National Democratic Alliance would return to power, it would only win around 190-210 seats on a pan-India basis. It cited this prediction to estimated change in voting patters due to the government’s poor economic performance.

Ambit admitted that this was its biggest mistake. The Narendra Modi-led NDA not only won a clear majority like last year, just the Bharatiya Janata Party won 303 seats, compared to 282 seats in the 2014 election.

The Zee Horror Show

The brokerage acknowledged that it faltered on Zee Entertainment Enterprises Ltd. and Dish TV Ltd., blindsided by the promoter pledge issues in the company and the ripple effect of the IL&FS debt default crisis.

Both stocks corrected sharply as lenders dumped their shares in large quantities. “We have now become more rigid in our corporate governance filters, keenly monitoring promoter pledge levels and insider transactions.”

Lost Appetite

Execution hiccups combined with poor market sentiment led to underperformance of Prataap Snacks Ltd. The brokerage had initiated coverage on the stock with a bullish rating at the start of the year. The scrip is down over 17.5 percent so far this year.

“We learnt market share retention is as important as product development,” Ambit Capital said in its note.

The Big Quess-tion Mark?

Ambit said it was the only research house that deep dived into the financials of Quess Corp Ltd. The brokerage, however, did not turn seller as it was enticed by the growth opportunity in different industries (e.g. general staffing, FM, security) Quess operated in.

Key lesson: Balance sheet is more important than profit and loss!

Caught Off Guard

Ambit admitted to being caught off guard by the private lender’s exposure to some of the stressed groups. “We now intend to have a more close watch on new corporate stress emerging and ascertain the bank’s exposure to it,” the brokerage said.

Brands Matter Until They Don’t

Weakness in urban consumer discretionary items along with forced regulatory price hikes impacted brand Royal Enfield in the second half of the previous financial year. “We learnt that even a strong brand like RE is also very much open to market cyclicality.”

Eicher Motors, the parent of the Bullet maker, is down almost 34 percent in the last 12 months.

Cheap ≠ Better Returns

Ambit bet on Ambuja Cements Ltd. over UltraTech Cement Ltd. and Shree Cement Ltd. as it was available at a cheaper price. But limited volume growth kept investors away from the counter, while its more expensive peers outperformed post the price hikes in the last quarter.