The study, published on TSE's website, assesses government fiscal policies and the budget articles directly or indirectly related to the capital market, including the amount of Islamic bond issuance, state divestitures, the US dollar's designated exchange rate, oil prices and government investment in industries.
Among other things, the study refers to the steep decline in the government's access to bank loans and the National Development Fund of Iran (the sovereign wealth fund) which it says will slow the growth of liquidity and thus lower inflation.
The decline in inflation, observers say, will help lead to economic stability from which the capital market can benefit, according to Financial Tribune.
On the other hand, the rise in foreign exchange rates will lead to 41% increase in oil revenues (although the volume of oil exports is set to fall) an that is a boon to oil and refinery companies considered among bellwethers of the local stock market.
The USD exchange rate has been calculated at 57,000 rials in next year's budget, up from 38,500 rials this year. But authors of the study infer from the current market trends that forex rates in the open market will be way higher than the rate mentioned in the proposed budget.
Rates on the supervised forex platform known as Nima are also expected to be higher than the budget rate as is the now the case.
A weaker national currency has two facets: it both increases the cost of machine and equipment imports (read production costs) for firms, but it also means more rial revenue for export-based companies.
According to the study, companies with a smaller share in foreign trade will be affected most by the inflationary pressures resulting from a weaker rial. But it adds that by adjusting for inflation, the foreign exchange rate will register a decline in the next fiscal.
Another factor influencing the capital market is the 12% growth in the volume of Islamic bonds to be issued compared with the current year. The value of Islamic bonds is forecast to reach 45 trillion rials and it is evident that "share of the capital market in financing the real sector of the economy is of the descending order with the expectation being that the issuance of this volume of bonds and diversifying them will help boost the debt market."
Besides, the government can issue another 50 trillion rials and $3 billion in foreign exchange bonds to repay bonds that mature in the coming fiscal. The administration is also allowed to issue up to 20 trillion rials of Ijarah Sukuk next year.
Too Soon to Tell
On a less positive note, the study implies that the anemic (2.86%) growth in government investment in machinery and equipment sector (given the galloping inflation), no boom can or should be expected in this sector next year.
As for divestitures, the study says since its volume is set to decrease and information about the methods is scarce, no firm analysis can be made about it. However, it states that any floatation of state companies' shares -- albeit small scale – can be effective in strengthening the capital market.
Lawmakers last week approved the measure that allows the Oil Ministry to issue $3 billion in Islamic bonds. Lawmakers approved parts of the proposed budget that allow state-owned companies to issue up to 45 trillion rials ($333.3 million) worth of Islamic bonds. Lawmakers also allowed municipality-affiliated organizations to issue Islamic bonds up to 80 trillion rials ($592.5 million). The figure is higher than the initial 55 trillion rials proposed by the government.