The Securities and Exchange Organization (SEO) cannot alone reverse the extended frustration that has cast a shadow over the capital market while other sectors of the economy make it ever harder for the stock exchange to function normally, head of the board of directors of Alborz Asset Management Company said.
Pointing to the recent support package to the stock market, Azim Sabet, told the news agency SENA that reviving the bourse demands, among other things, that the government’s Economy Council come up with a concrete and holistic approach to all sectors of the economy.
“Though the package which came into effect on Saturday is well-intended and should have a positive impact on the market, it is more like a tranquilizer,” Sabet said.
A comprehensive package designed to support the stuttering stock market came into effect on Saturday.
One of its key clause is the paramount need for effective interaction between the Central Bank of Iran and the Economy Ministry to control interbank rates.
At the same time when the supportive package is being implemented, Sabet noted, banks continue to offer interest rates on deposits higher than those set by the Central Bank of Iran and also are issuing a variety of bonds.
“This overshadows the stock market and reduces its appeal to potential investors”.
Stock market authorities have often complained about the harmful effect of high interbank rates on the bourse. This was conveyed in unequivocal terms in July to the CBI boss Ali Salehabadi by the head of the SEO, Majid Eshqi.
The CBI says it will continue to control rates in the interbank market in line with the government’s declared policy to support the capital market now struggling for more than two years.
Interbank rates are under scrutiny by the regulator and in this fiscal year (started late March) remained in the 21% bracket set by the CBI.
Dire Conditions
“Moreover, we are grappling with the government’s contractionary monetary policy. The damage inflicted on businesses is deep. Companies were already facing dire conditions trying to find working capital.
With higher interest rates the price of money increases for businesses. They not only cannot grow but are forced to pull back and cut production capacity.”
Add to all this, Sabet complainaed, the state imposes prices for goods and services which nibbles away profit margins. This is noticeable in company reports for the first half of the current Iranian year (March 21-Sep 22).
“The stock market’s problems are external and without addressing it we could be waiting endlessly for some miracle.”
The latest support package was unveiled following successive decline in the Tehran Stock Exchange main index. TEDPIX shed more than 46,281 points in the month to Oct. 22 and plunged 3.41% to settle at 1,308,960.
The support plan says henceforth the portfolio of private persons, worth up to a billion rials ($3,000) for each person (this is valid for 96% of private codes active in the bourse) will be insured through the issuance of put options.
As per the plan, new resources will be made available from state funds for share purchase and increase gradually. Also, money allocated to the capital market in the 2022-23 budget to the tune of 50 trillion rials ($151 million) will be deposited with the Capital Market Stabilization Fund (CMSF).
Legal persons, including semi-public companies and financial institutions, retirement funds, military organizations are responsible, according to the new support package, to regularly monitor share prices under their management and avoid selling until market conditions are stable. They have been recommended to take supportive measures such as purchasing shares and publishing put options.
