The managing director of Securities and Exchange Organization says provisions of the fiscal budget (March 2021-22) should be enforced with extra caution because it could have mixed effects on the stock market.
Reckoning the merits and flaws of the budget, Ali Dehqan-Dehnavi pointed to the permission given to banks and investment funds to boost investment in the share market as a positive that can potentially lift the struggling market.
Investment funds affiliated to banks are given more operative leeway in the bourse. The regulator earlier increased their investment ceiling in the share market by 500 trillion rials ($2 billion) up from the previous 300 trillion rials.
However, the government’s decision to supplement its tight budget by selling bonds and sell its stakes in listed companies are causing concern, the SEO boss said.
"There are some key challenges vis-à-vis the budget such as the provision calling for increasing the volume of bond sales, which is the function of the Central Bank of Iran by implementing open market operations and managing interest rates," he was quoted as saying by Securities and Exchange News Agency.
Another concern is increase in the price of feedstock offered to key listed companies, including refineries and petrochemical companies.
"We propose feedstock prices increase gradually to avoid a negative impact on share prices," he said.
Bonds vs Shares
Stock market authorities have often urged the CBI to regulate bond rates to levels that won’t undermine the bourse and the appeal of stock investors.
In recent months they have highlighted the role of the CBI in the market crash accusing it of “manipulating bond rates and interbank interest rates.”
Observers say the steep decline in interbank rates was a “positive signal to the stock market” and the primary cause of the departure of liquidity from banks to the bourse.
Conversely, unusual increase in interbank rates would have an opposite effect on the share market as seen last year when interbank rates began to rise steadily from around 10% in May 2020 to 23.2% late October. The pattern was said to be a determining factor that hammered the stock market.
The government sold bonds worth more than 1,700 trillion rails ($6.8 billion) in the previous fiscal year, 1,257.4 trillion rials ($5b) of which were Murabaha bonds sold via 42 weekly auctions held by the CBI.
Bond sale is high in this year’s budget as the government plans to generate 2,980 trillion rials via assorted financial assets, including selling stakes in listed companies and bond sale worth 1,250 trillion rials.
As per the budget law, the government expects to generate 950 trillion rials ($3.8 billion) by selling shares in state companies. This is almost eight times the 115 trillion rials ($460 million) in the last budget.
