Jakarta, 3 September 2024 – PT Mandiri Sekuritas (Mandiri Sekuritas) on 28 August 2024, raised its projection for the Indonesia Stock Exchange Composite Index (IDX Composite) at the end of 2024 to 7,800 with a bull case reaching 8,000. Previously, Mandiri Sekuritas' projection was 7,460 with a bull case of 7,640. The new projection is after considering more aggressive interest rate cuts by the Fed and BI.

Adrian Joezer, Head of Equity Analyst and Strategy at Mandiri Sekuritas, said, "The further strengthening of yields will make the IDX Composite an attractive asset class with an 8% return and a 5% dividend yield. With improving market coverage and positive earnings revisions for both large and mid-cap stocks, the IDX Composite remains attractive, especially given the strengthening of the rupiah exchange rate in this quarter. Among the rate-sensitive proxies, positioning remains light in the consumer cyclicals sector (retail, automotive, technology) and towercos."

"We project the IDX Composite could reach 7,800-8,000 at the end of 2024. Mandiri Sekuritas has raised the IDX Composite target from 7,460 because we have raised our assumption for the Fed rate cut from 25bps to 50-75bps, with a more aggressive 50bps BI rate cut, not 25bps. The market is now ignoring a 100bps Fed rate cut this year, which could still change. The valuation of the IDX Composite, especially large-cap stocks, is still relatively cheap. Although the yield on the INDOGB10Y has decreased from 7.2% to 6.6%, further declines to low levels of -6% and <6% will make the IDX Composite an attractive asset class domestically, given the 8% return and 5% dividend yield," Adrian explained.

Market breadth has also improved, unlike in 2023 when the 4 major banks were the drivers of the index, earnings revisions, and foreign flows. Large-cap and small-to-medium-cap (SMID) companies have seen an increase in their EPS revision ratios in the last two months. Meanwhile, a 5% appreciation for rupiah in this quarter and stable year-on-year declines in coal prices will reverse the year-on-year growth in corporate ex-bank EBIT to positive.

Strengthening the rupiah will provide room for easing domestic policies, such as a 50bps interest rate cut expected in 2024 and liquidity expansion compared to the first half of 2024. This will have a positive impact on banks' cost of funds, as well as on companies with high leverage.

The 2025 State Budget (APBN), with stronger revenue growth of 6.9% and slower expenditure growth of 5.9%, resulting in a lower-than-expected fiscal deficit of 2.5%, is favorable for bonds and the rupiah. Although some consumption proxy stocks remain the main choice due to supportive social safety nets, fiscal prudence is a good sign for the strength of the rupiah exchange rate, which supports upper-middle-income proxies, driven by potential discretionary spending recovery. Plans to raise the VAT and tax reforms may pose short-term growth headwinds but are expected to improve the tax ratio and economic strength in the medium to long term.

Based on July 2024 data, domestic mutual funds have strong positions in the consumer non-cyclicals, infrastructure, Big-4 Banks, and property, telecom, towercos, and consumer cyclical sectors that benefit from interest rate cuts and rupiah appreciation.