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Mandiri Sekuritas Predicts That The IHSG Will Be Stronger By The End Of 2024

On August 28, 2024, PT Mandiri Sekuritas raised its year-end projection for the Composite Stock Price Index (IHSG) to 7,800, with a bullish scenario reaching 8,000. Previously, their forecast was 7,460 with a bull case of 7,640. This adjustment comes after considering a more aggressive rate cut from The Fed and Bank Indonesia. Adrian Joezer, the Head of Equity Analyst and Strategy at Mandiri Sekuritas, mentioned that the strong returns make IHSG an attractive asset class right now, offering an 8% income and a 5% dividend yield. With improved market coverage and positive earnings revisions for both large and mid-cap stocks, IHSG remains appealing, especially with the strengthening Rupiah this quarter. Among the rate-sensitive sectors, they are keeping a light position in consumer cyclicals like retail, automotive, and tech, as well as tower companies. "We project IHSG could hit 7,800-8,000 by the end of 2024. We’ve raised our target from 7,460 because we adjusted our Fed rate cut assumption from 25bps to 50-75bps, along with a more aggressive 50bps cut from BI instead of 25bps. The market is currently overlooking a potential 100bps Fed rate cut this year, which could still change. The valuation of IHSG, especially for big-cap stocks, remains relatively cheap. Even though the yield on INDOGB10Y has dropped from 7.2% to 6.6%, any further decline to below 6% would make IHSG an attractive asset class domestically, considering the 8% income and 5% dividend yield," Adrian explained. The market breadth has also improved compared to 2023 when four major banks drove the index, earnings revisions, and foreign flows. Both large-cap and small-to-mid-cap (SMID) companies have seen an increase in EPS revision ratios over the past two months.

The 5% appreciation of the rupiah this quarter, along with the steady decline in coal prices year-on-year, is set to turn the year-on-year growth of corporate EBIT, excluding banks, into positive territory. A stronger rupiah will also create more room for domestic policy easing, like a projected 50 bps interest rate cut in 2024 and increased liquidity compared to the first half of 2024. This is likely to have a positive impact on banks' funding costs and benefit companies with high leverage. The 2025 State Budget (APBN) draft shows stronger revenue growth at 6.9% and slower spending growth at 5.9%, leading to a fiscal deficit lower than the expected 2.5%, which is good news for bonds and the rupiah. While some consumer stocks remain top picks due to social safety nets, fiscal caution is a positive sign for the rupiah's strength, supporting middle-to-upper income earners driven by potential discretionary spending recovery. Plans for VAT hikes and tax reforms might pose short-term growth challenges, but they are expected to improve tax ratios and economic strength in the medium to long term. As of July 2024, domestic mutual funds are well-positioned in non-cyclical consumer sectors, infrastructure, major banks, and real estate, telecom, tower companies, and cyclical consumer sectors that stand to gain from lower interest rates and a stronger rupiah.

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Tag: APBN EPS Mandiri Sekuritas SMID