Iran Weekly Market Report - May 06, 2016

The Tehran Stock Exchanged started the first week of May with low volatility, similar to the previous week. The TSE All-Share Index closed at 78,033 on Wednesday, 0.5% low¬er than the previous week. The major sectors had mixed performances, while the Ma¬chinery & Equipment sector (+6.0%) gained the most. The deepest fall was witnessed in the Other Financials sector (-4.2%). Similar to previous weeks, Automotive (+2.2%) was the most popular sector for investors in regards to recording the highest trade volumes this week. The value of trades in this sector reached USD 151 million, 28% of the whole traded value of the market. However, the weekly increase of the Automotive sector fell from 13.1% to 2.2%, continuing its recent volatile weekly returns. The uptrend of the All-Share Index has paused since the start of April 2016. In the meantime, Non-Metallic Ores (+4.3% this past week) and Insurance (-2.2% this past week) sectors have been the top performing major sectors by increasing by +15.17% and +11.87% respectively.

In a technical analysis point of view, the All-Share Index has followed the previous week’s range with limited changes between 77,938 and 78,585. The TSE’s main index is still moving below the 50 day EMA by 1.4%, while the next support level is at 75,000. Howev¬er it is still possible that the index follows its uptrend after a two month break by moving forward to the next resistance at 81,500.

The Index of the thirty largest companies by market capitalization, the TSE30 index, de¬creased by 1.1% to close at 3,224. In the top 30 stocks, the highest weekly growth was recorded by Iran Khodro (IKCO +13.44%) and Telecommunication Company of Iran (MKBT +7.57%). On the other side, the weakest were Parsian Bank (BPAR -5.11%) and SAIPA Group (SIPA -4.13%) by falling the most. Last week, SAIPA Group was the sec¬ond top performer in the top 30.

The Average Daily Trade Volume (ADTV) of the market has gone up by 32% to reach USD 107 million. The ADTV’s increase could have been lower if RighTel’s lease notes were not issued this week. On Tuesday, USD 57.8 million of RighTel’s 21% lease notes were sold on the TSE, which pushed up the traded value considerably. RighTel, the third mobile operator in Iran, has issued the new series of its Sukuks with four years maturity and monthly coupons. In the first week of May, the shares with the highest weekly traded value were Iran Khodro (IKCO +11.7%), Iran Khodro Diesel (KAVR +4.3%) and Shiraz Petrochemical Co. (PSHZ 0.0%) with USD 71, USD 35 and USD 34 million worth of trades respectively.

In the FX market, the Central Bank of Iran increased the official rate of the US Dollar by 0.1% to IRR 30,327. In contrast, the free market rate of USDIRR dropped by 0.7% to 34,475. The Euro gained the most versus the Iranian Rial this week. The official rate of Euro was quoted at IRR 34,827 by CBI, 1.3% higher than the last week. EURIRR’s free market rate went up by 1.2%, reaching 39,750. The British Pound Sterling experienced the least change as the CBI announced its official rate at IRR 44,507 with no change from the previous week. While the free market rate of GBPIRR stood at IRR 50,350, re¬cording a 0.2% weekly increase.

On Monday, the Central Bank of Iran published the information of the given loans by the banking sector in the previous Iranian Calendar Year, ending on March 19, 2016. Accord¬ing to the CBI’s report, the total new loans have been USD 121 billion USD. These loans have been mostly distributed in the services (38%), industry (29%), business (13%), housing (10%) and agricultural (8%) sectors. In total, 63% or USD 76 billion of the loans have been taken to deal with working capital requirements of companies. The housing sector is an exception in this case. 37% of the given loans in the housing sector have been granted for purchasing purposes, while 20% have been provided in order to satisfy the working capital needs. It’s been two years that lack of available cash has put Iranian firms under pressure to provide the required working capital. Two years earlier, the total given fresh loans were reported at USD 60 billion, whereas 60% of those were taken to meet the working capital needs of the companies.

Furthermore, the Central Bank of Iran had published another report on the previous Thursday, announcing the accumulated amount of the existing loans at USD 205 billion, by the end of February 19 2016. The report has revealed that the total amount of the loans has increased by 13% in the first 11 months of the previous Iranian Calendar Year. Also, the government’s debts to the banking sector have increased by 13% on a yearly basis, reaching USD 34 billion. The growth rate of the private sector’s debt to the banks has been 13% too, amounting to USD 207 billion. In the same period, the deposits of the private sector in the banks has increased by 26% Y-o-Y to USD 274 billion. Meanwhile, the government deposits have been USD 8.5 billion, 21% lower on a yearly basis. Moreo¬ver, the money supply has been reported at USD 283 billion by the CBI, recording a 25% growth on a yearly basis. According to the CBI report, the monetary supply of the country has surged by 43% in two years.

The high growth rate of the money supply amount has raised experts’ concerns regard the possible outcomes. Almost 27% or USD 78 billion of the country’s money supply is not provided to economic sectors, which may lead to speculation in different areas. The stock market, FX, gold and housing market have been the traditional targets for specula¬tors in the Iranian economy over the years. To survey the scale of this amount in the Ira¬nian economy, it should be borne in mind that the Tehran Stock Exchange’s total market capitalization is already USD 98 billion. Some economists believe that this issue may make the Money & Credit Council even more hesitant in pushing for further declines in the interest rate; nevertheless the inflation rate is dropping.