Too Broken For Frontier: Indonesian Markets Suffer Worst Rout Since 1998 As MSCI Threatens The "Argentina Treatment" zerohedge.com/markets/too-br…

Indonesia's largest cinema chain Nusantara Sejahtera Raya (CNMA IJ) down another -7% this morning. I reckon 2H2026 will be quite strong given The Odyssey / Spider-Man: Brand New Day. Though you would have to believe in the future of cinemas. The projected dividend yield is now 13%.

#IDX It's time to dust off our #Indonesian watchlists #JKSE Plenty of < 5x PEs and > 11% Dividend Yields to be had.....as these move to < 4x and > 15% we will commence a scale in for 3x returns over 3-5yrs ......another -25% to go

MSCI planning to remove Indonesia from emerging markets group. That resulted in a massive crash in already cheap market. So much so that MSCI Indonesia back to Oct'07 levels!!! That was 19 yrs ago. The index is trading <10x PE and ~1.5x BV. Buffett ratio (Mkt cap / GDP ) ~45% I am given to understand that the country is full of high dividend paying companies. And in terms of currency it's as cheap as India if not more under the Penn-Balassa-Samuelson effect I am sure if a smart fund manager goes in, they can find 5 - 10 decent risk reward names. It's time for someone to launch a tax efficient Indonesian fund. @NileshShah68 @KalpenParekh @SunilBSinghania Are you listening??

What's going on in Indonesia re MSCI? The simple summary is this: Locals cornered and wash traded a bunch of stocks up, artificially boosting market cap & liquidity with the goal of achieving index inclusion & unloading into passive buying. In other words, they tried to game MSCI. This went on for years and was succeeding, but it eventually reached utterly egregious levels where almost half the market cap was "saham gorengan" (deep fried shares), and some of the said stocks were trading at P/E ratios of 500x. Retail investors also jumped in, as did local institutions who feared underperforming the local market cap weighted index (JCI). The market distortions eventually became so blatantly obvious that even blundering MSCI eventually realized they were being gamed, but their blunt processes were not equipped to differentiate between "real" and "fake" prices (pro tip MSCI, real stocks trade at 5-10x PEs and fake ones >100x). MSCI decided if their systems can't differentiate between the two, the easiest and most bureaucratic option was to just boot Indonesia out of the indices. The lack of appropriate domestic market supervision & safeguards against market manipulation can be criticized. However, OJK (the local regulator) has already been taking action. The prices of many saham gorengan have already fallen 80% since MSCI announced earlier this year it was freezing new inclusions and considering downgrading Indonesia to FM (frontier). However, manipulation is not always that easy to clamp down on, some of the activity has moved to offshore vehicles, Indo retail and local benchmark hugging institutions also participated, and, it must be said, some of the players are politically connected, putting OJK in a difficult position. But they have been moving in the right direction & progress has been made. That is what makes MSCI's most recent escalation of threatening to kick Indonesia not just out of EM into FM, but excluding it from FM as well, a little puzzling and draconian. MSCI's behaviour is in a way not that surprising though, as like rating agencies, it is bureaucratic and usually behind the curve. They kicked Nigeria out of the frontier index for instance after years of currency convertibility problems (during which it should have been excluded), but they did so right at the point when a new government had been elected and had just floated the currency. My take is that while Indonesian conduct bears a meaningful portion of the blame, so does MSCI/passive. With passive growing to become such a large force in financial markets, it was only a matter of time before it was gamed, and what we are also seeing here is some of the stuctural problems/limitations of passive investing. Passive works best when its a small part of the market that can free ride reasonably efficient markets driven by active investors. However, when passive grows to become sufficiently large it can become distortionary, and capable of driving major market inefficiency and being gamed/arbbed. Recent developments potentially provide a substantial buying opportunity for long term benchmark unaware investors, though it will require a long term focus and volatility tolerance to benefit from. Exclusion from major indices will structurally raise the Indonesian cost of equity and result in a potentially durable valuation discount. Long term investors can benefit from that in the form of higher returns priced into stocks, but that doesn't mean a fast (or even any) recovery in valuations will necessarily occur (though it could). There is still 8mths until MSCI's final decision so the market may be oversold short term (active might not dump until its actually excluded from indices), but there could also be a wall of forced selling coming mid next year. Indonesia has other problems to be sure (governance under Prabowo), but that is not the proximate cause of the recent sell-off - it is purely fears of downgrade triggering passive and offshore active outflows (if Indonesia is small, off benchmark, and not a good news story, many active instos won't bother with it), and investors are thus front running those anticipated outflows. I for one am a buyer.

Inasmuch as market participants over-analyse domestic liquidity from lens of SIP, equally important to “over-analyse” non MF scale up in last few years. In 2024 and before, such flows used to be less than 20% of MF flows, now almost at 65%. (Source: Elara Research)

Ujjivan continues to surprise positively. Absolutely cracker of the numbers

Harsh, most of your arguments are well reasoned. This one is not. A strong currency doesn’t have to deploy capital controls. Unfortunately, higher controls work in reverse. Eventually more money will try to leave. Rupee is overvalued. Well check this in a year. Marking this post

Ujjivan continues to surprise me on the upside. Stellar set of numbers. Asset quality also holding up well. This is one of the "goldilocks" stock. Both part of value and momentum. Last 1 yr performance is also >40% And trading at ~10x FY27 earnings. It can rally another 50% in 6 months and still not be expensive!!

S&P Research Forecasts ₹ at 100/$: Impact on GDP & Markets (a) Import buffer lowest since 2013 (b) FCNR-B reduces RBI's cover by $200B (c) Oil @ $100 Impact on GDP -1%; CPI +1% (d) NIFTY earnings decline 2-3% Per $10 Above $90 Oil. (e) Here’s the data: ₹ Forecast for Next 12 Months a. Reuters Report: Reuters spoke to economists & FX traders at 6 banks. They said India has already used up half of $140B it mobilized through FCNR-B and other special measures to create a war chest. b. Ambit Report: FCNR-B has created forward dollar commitments of $200B. (Means: $200B is now a future debt on RBI’s books, which must be paid back when NRI Fixed Deposits mature.) This had reduced RBI’s reserve cover, leaving the rupee vulnerable to further depreciation. c. Nomura Report: There is a sharp fall in India’s usable forex reserves, after adjusting for forward shorts & gold. Meaning: India’s headline forex reserves are $725B. Out of this, $200B is a debt obligation (raised from NRIs). Another $106B from this pool is gold reserves. So, the net firepower of RBI to defend the rupee is much lower. d. S&P Global Report: Head of S&P Global Market Intelligence, Asia-Pacific: RBI’s steps cannot fully offset the rupee’s fundamental pressures. S&P Research sees ₹ at 97 in next 3 months, at 98 by mid-2027, and 100 is “not excluded” in 2027. e. Anand Rathi: Indian businesses should stress-test their forex exposures. NOTE: India’s corporate forex debt (external commercial borrowing) is $273B. This has to be paid back in dollars. This debt gets costlier as ₹ weakens. Import Cover Lowest Since 2013 Lower import buffers reduce investor confidence in a country’s macro-economic stability. Healthy buffer for emerging markets is 10 months. a. India’s import cover has declined to 6.2 months. Meaning: India’s forex reserves can only pay for 6.2 months of imported goods (including critical oil imports). This is the lowest economic buffer since the global shock of 2013. b. India’s $725B forex reserves look impressive on paper, but in reality rising import costs have eroded its purchasing power. Plus, oil consumption has become faster. So, these reserves can cover lesser imports than the headline figure suggests. c. In 2013, the US Fed had cut down monetary stimulus, triggering investor panic (“Taper Tantrum”). Foreign investors pulled out dollars from India, crashing the rupee. India’s import cover fell below 7 months, and India was grouped into “Fragile Five” economies. Oil Impact on India’s GDP Assuming crude oil @ $100 per barrel for the next 12 months: a. Inflation: RBI’s historical data shows that every 10% jump in oil prices adds 0.2% to 0.3% to headline inflation. At $100 for a year, India’s consumer price inflation (CPI) will go up by 0.7% to 1%. b. Govt has to fight inflation at all costs. RBI has shifted its stance after 8 yrs from “neutral” to “calibrated tightening” (raising interest rates). This will make FDs more attractive, loans more expensive, and hurt businesses & real estate. c. GDP Growth: Standard accepted analyst benchmark for India is that 10% rise in oil price causes 0.25% decline in GDP growth. By this measure, India’s GDP growth for next 12 months will decline by about 0.75%. d. India’s pre-Iran war oil price was $70. At $100, it adds $55 billion to India’s annual oil import bill. This is a direct extra hit @ 1.3% of GDP. Calculating from this metric, transmission to real GDP growth is negative 0.7% to 0.9%. Impact on Nifty Earnings a. Consensus EPS growth expectations for Nifty 50 (Motilal Oswal and others) for FY27 were originally in the range of 14-17%. b. Bernstein Research estimates Nifty earnings decline by 2-3% per $10 oil price increase beyond $90. This decline was about 1% per $10 from $70 to $90. Assuming oil price of $100 for the next 12 months, the estimated EPS decline will be -4.5%. That leaves India Nifty 50 earnings growth at only 11-12% for the next 4 quarters. c. If Nifty 50 PE stays constant while earnings (E) decline by 4-5%, the Nifty prices (P) will have to decline by 4-5% from here. If there is further PE de-rating due to lower growth (forward PE is based on future growth), then Nifty may decline 10% or more. NOTE: These Nifty calculations assume oil remains at $100 for 1 year. Investor Strategy: Watch crude prices. In the short run, markets may rise or fall due to any reason. In the long run, only crude will decide Nifty’s destiny. ENDQUOTE “Over the long term, it is hard for a stock to earn a higher return than what its underlying business earns.” – Charlie Munger, USC Business School Speech, 1994 @arabicatrader

GS: Excluding the two largest memory stocks, the South Korean stock market is now trading below 7x forward P/E, the lowest level in the past decade

MSCI planning to remove Indonesia from emerging markets group. That resulted in a massive crash in already cheap market. So much so that MSCI Indonesia back to Oct'07 levels!!! That was 19 yrs ago. The index is trading <10x PE and ~1.5x BV. Buffett ratio (Mkt cap / GDP ) ~45% I am given to understand that the country is full of high dividend paying companies. And in terms of currency it's as cheap as India if not more under the Penn-Balassa-Samuelson effect I am sure if a smart fund manager goes in, they can find 5 - 10 decent risk reward names. It's time for someone to launch a tax efficient Indonesian fund. @NileshShah68 @KalpenParekh @SunilBSinghania Are you listening??

🚨 The YES Bank AT-1 bond saga is a complete mess. So many media houses are spreading complete misinformation on this issue It threatens YES Bank’s revival plan and creates a massive problem for its new Japanese acquirer, SMBC. Let’s deep dive into the complete AT-1 saga 👇 In 2020, YES Bank was nearly bankrupt. RBI devised a reconstruction plan: 📈 Banks like SBI and HDFC Bank pumped ₹10,000 crore into the bank. 📈 At the same time, ₹8,415 crore worth of AT-1 bonds were cancelled. Everyone, including top banks, mis-sold AT-1 bonds. These bonds behave more like equity than traditional debt: 📌 No maturity date. 📌 Interest payments are discretionary (banks can skip interest payments). 📌 Bonds can be completely written off if a bank goes bankrupt. What has the Supreme Court said? The Supreme Court has ruled that: 📈 Writing off the ₹8,415 crore AT-1 bonds was “impermissible” and illegal. 📈 The court highlighted aggressive mis-selling by YES Bank. 📈 It said the RBI-appointed administrator acted erroneously in cancelling the bonds. The original principal of the bonds must be reinstated, together with any interest accrued on it. What does this mean for YES Bank? The outstanding principal in 2020 was ₹8,415 crore. Since interest payments are discretionary, YES Bank will choose not to pay interest for the six years, leaving the principal unchanged. YES Bank earns around ₹3,000–4,000 crore annually, with a CET1 capital ratio of around 14%. Reinstating these bonds could hit its capital by 300–400 basis points and potentially wipe out 4–5 years of profits. YES Bank may only end up paying the principal, Not the accumulated interest. Meanwhile, Japan’s SMBC is scheduled to infuse nearly ₹16,000 crore into YES Bank. The BIG question: How will SMBC view this massive liability? Will it ask RBI to separate the liability from YES Bank, or could the acquisition deal itself fall through? The reinstatement of AT-1 bonds could be extremely negative for YES Bank’s revival. RBI must step in to find an immediate solution so that the acquisition of Yes Bank by SBMC isn't hindered,

India has $735bn in forex reserves. The RBI can use far less of it. Nearly $200bn is owed back on forward contracts. Take that and gold out, and usable reserves are about $432bn. That covers about 5 months of imports, the lowest since 2011. This week's measures, a dollar window for oil companies and curbs on hedging, are paid for from the same pile. Two tools are left: a sharp rate hike, or an LRS cut. In 2013, LRS went from $200,000 to $75,000. Source: Ambit Capital Note, 14 Oct 2026

Highest gap in growth of EPS of Sensex companies and Sensex in a 5 year period. Last seen this kind of gap was in Sept 99! Data Source : @WhiteOakCap @AashishPS Vijai Mantri Financial Services Pvt. Ltd. AMFI Registered MFD ARN Number 346147 AMFI Registered SIF Distributor APMI Registered PMS Distributor. vmantri.com

Ahead of their MF launch, @khemani_swati @vikaskhemani and Carnelian Capital write on the smallcap space in India - some interesting takeaways -59% of small-cap profits come from India’s domestic, non-financial economy, compared with 32% for large caps, highlighting the segment’s strong linkage to domestic consumption, manufacturing and other structural growth themes. -279 small-cap companies compounded profits at more than 20% annually between FY16 and FY26, compared with just 13 large-cap companies. The top quartile of small caps also delivered 27% annual profit growth, versus 18% for large caps. Clearly, the note seems to highlight that the opportunity in small caps is closely linked to the breadth of India’s economic growth, with sectors such as industrials, healthcare, consumer discretionary and materials offering potential avenues for long-term growth.

The number of active companies in India has risen by a third in three years: 1.6mn to 2.2mn. Whether due to formalization of existing businesses or creation of new firms, this can only be due to i) easier regulations; ii) falling cost of capital. Much distance to travel on both fronts, but side-effects are already showing on the second one. As the gradient of cost of capital reverses (global cost of capital is up, India's is down), capital flows are scarcer. The lazy recommendation is to raise rates, or to raise fiscal spending. A more prudent approach would be to i) further ease capital inflows (e.g. the recent relaxation for bond investors); ii) raise demand for local capital (i.e., create more opportunities locally) - e.g., Rs6 trillion of fund-raises likely this year. My column today in the Economic Times: tessellatum.in/?p=632

Its often not realised but Western india with 800 million people now is as rich as ASEAN with PcGDP PPP of $18K in 2025. In a decade this regions PcGDP PPP will approach $50K making it richer than even Malaysia today($45K). This demand will drive 🇮🇳 next industrialisation.