Nomura Equity Research said a correction is likely in Indonesian stocks in the second quarter of 2013 following an expected softness in first quarter earnings due to cost and competition pressures.
"We are reluctant to push our index target higher as we do not expect major consensus earnings upgrades for the rest of 2013, thus further upside in JCI would have to come from valuation multiple rerating, which is less predictable," Wilianto Ie, Nomura's Jakarta-based head of research, said in a note on Tuesday.
The research house kept its target for the Jakarta Composite Index at 5,000 with state-controlled companies as top picks, such as toll road operator Jasa Marga Persero Tbk, cement maker Semen Indonesia Tbk and lender Bank Negara Indonesia.
"Our long-term outlook of Indonesia remains solid with above 6 percent GDP growth but some near-term issues such as, removal of fuel subsidies, the appointment of a new minister of finance, and inflation, need to be fully digested before the market can move forward," Nomura said.
Shares of Jasa Marga rose 1.61 percent at 6,300 rupiah and Semen Indonesia were up 0.56 percent at 17,850 rupiah. Bank Negara Indonesia's shares were down 0.51 percent at 4,925 rupiah. The broader index was up 0.17 percent.
Reporting by Andjarsari Paramaditha; Editing by Anupama Dwivedi