Capital Market Falters

EghtesadOnline: The capital market’s role in the economy declined in the first six months of the current fiscal year (March 21-Sept 22) as the bear market drags on.

News ID: ۷۸۷۲۱۲

27 October 2021

Data released by the Securities and Exchange Organization show that the capital market contributed 2,382 trillion rials ($8.8 billion) in H1.

This was down 27% than the 3,270 trillion rials ($12b) in the corresponding period last year, Tehran Chamber of Commerce, Industries, Mines and Agriculture (TCCIM) reported on its website using SEO data.

Equity financing and debt financing are two main methods of the capital market. Data has it that the poor performance of capital market was due largely to the steep decline in equity financing.

Equity financing dropped sharply from 2,300 trillion rials ($8.5b) in the first six months of the last fiscal year to 1,050 trillion rials ($3.8b) this year -- down more than 54%.

The downturn is due to the prolonged bearish stock market stuck in panic selling and large scale capital outflow by retail investors.

The decline came after a historic rally in the beginning of the last calendar year when liquidity flowed into the market from  new investors causing bubbles in share prices.

The benchmark of Tehran Stock Exchange, TEDPIX, climbed fourfold in five months of the previous fiscal. It has pared about half the gains and the whole market has gone sideways for more than a year with no sign of recovery.

Despite the decline in equity financing, data show that debt financing grew in H1. The debt market contributed 1,330 trillion rials ($4.9b) to post 37% rise compared to the 970 trillion rials ($3.5b) in the similar period last year.

Equity financing is the method of raising capital by selling company stocks while debt financing occurs when a firm raises money by selling debt instruments to individuals and institutional investors.

Capital increase by listed companies and initial public offerings are the main components of equity financing while debt financing is the function of government bonds.

Capital increase accounted for 42% of the total capital market followed by bonds at 55% and IPOs 3%.

Funding from IPOs reached 69.8 trillion rials ($258m) in the first six months of the fiscal year, down 64% from 194 trillion rials ($715m) in the corresponding period last year.

Likewise, capital raise declined from 2,300 trillion ($8.5b) to 1,050 trillion rials ($3.8b) down 54% in the course of the year.

In the reviewed period, the government sold 1,220 trillion rials ($4.5b) in bonds, including treasury bills worth 760 trillion rials ($2.8b) and 340 trillion rials ($1.2b) in bond sale in weekly auctions. In addition, government-affiliated companies generated 120 trillion rials ($440m) from standard salaf contracts.

Apart from bonds sold to finance the government spending, companies sold bonds worth 107 trillion rials ($395m) in H1.

While bank’s role in financing businesses diminished during the corresponding period last year amid a fast-pacing stock market, data suggest continuity in the reliance on banks for funds.

Lenders granted loans worth 12,410.8 trillion rials ($45.5 billion) in H1, up 57.9% compared with the same period last year, the Central Bank of Iran reported.