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With the capital market dominated by a prolonged bearish trend and incessant capital outflows, its role in the national economy is diminishing.
Total capital market contribution fell 43% in the first two months of the calendar year (March 21-May 20) to 404 trillion rials ($1.07 billion), compared to 713 trillion rials ($3.3 billion) in the same period last year.
To raise capital for companies, companies have two options, namely equity financing and debt financing.
Citing data released by the Securities and Exchange Organization (SEO), the Tehran Chamber of Commerce, Mines, Industries and Agriculture (TCCIM) said the setback was mainly due to the decline in equity financing, while debt financing increased. .
Accordingly, equity financing fell from 631 trillion rials ($2.6 billion) in the first two months of the past fiscal year to 284 trillion rials ($1.2 billion) in the corresponding period this year, representing a 55% drop. indicates.
Debt financing rose more than 31% to 120 trillion rials ($510 million), up from 82 trillion rials ($348 million) in the first two months of the previous fiscal year.
Equity financing is the method of raising capital by selling company shares while debt financing occurs when a company raises money by selling debt instruments to individuals and institutional investors.
Equity financing has no repayment obligation and provides additional working capital that can be used to grow a business. Debt financing, on the other hand, does not require giving up a portion of the property.
As for key financing methods, the TCCIM said publicly traded companies meet more than 70% of their financial needs through capital increases. Bonds contributed 29.7%, while fund raising through IPOs was meagre in the two months.
bearish trends
Dent in the capital market’s role in financing companies in distress means investors are loathing the struggling market after the stock market collapsed last August and liquidity fled to the disappointment of millions of investors who joined the exchange last year.
Publicly traded companies saw an influx of fresh liquidity from swarms of retail investors, leading to historic gains, especially for large-cap stocks, risking a devastating burst of price bubbles.
Tehran Stock Exchange’s benchmark, TEDPIX, rose 300% in less than five months before dipping deep into the red, wiping out nearly half of its gains.
In the one-month period ended June 15, the TEDPIX lost nearly 3%, while it posted a staggering 32% growth in the same period last year, followed by a mind-boggling 46% gain a month later.
With bubbles starting to burst in August, the market decline continued. However, the government has said it is reviving the market and has offered investors a glimmer of hope in recent weeks.
In May, SEO announced a package of 10 measures to support the struggling stock market. The measures are seen as a serious government measure to try to restore the rapidly failing health of the stock market and were approved by the Supreme Council of Economic Coordination, the highest economic decision-making body made up of the heads of the three powers.
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