What makes us more optimistic about Iran’s economic situation and therefore the country’s capital market in the post “Joint Comprehensive Plan of Action” period is the change in Iran’s economic stance with respect to the structure of the economy. Presently, the major predicament is the decline in oil revenues and the low economic efficiency of capital in Iran that has been due to the inappropriate distribution of oil revenues during the past years.
Studying different decades of Iran’s economic history reveals that during the periods of shortfall in resources, economic decisions have been taken more efficiently in the country. Moreover, regarding Iran’s experiences during sanctions, it might be plausible that in the face of the present sharp fall in global oil prices, Iran might demonstrate the most reasonable reaction among oil exporting countries, evidenced by the reduction in the share of oil revenues in the country’s budget.
Also, facing these conditions and considering Iran’s need for the arrival of international resources in order to attain economic growth, it seems that attracting foreign investment is possible to achieve for Iran due to its two major advantages, first the arrival of foreign investors will be accompanied by a change in production technology and transfer of technical knowledge, and secondly the existence of foreign partners in economic projects will lead to an improvement in economic efficiency and optimization of macro managements of projects at the time of launch and operation.
What should be taken into consideration in this study is the prospect for change in technological and economic structure of Iran. To attain development in the country’s stock market, it is essential to convert Iran’s economic environment from selling raw materials to selling middle and final products for end users, bearing in mind that Iran’s current economic style leans towards selling raw materials while there is no positive outlook for raw products in international markets. As a result, with a change in production technology and production of high-tech productions, Iran will reach a very different economic position in the region as well as globally, and it seems like exporting electricity, medications, automobiles, information technology services and technical and engineering services industries will replace the export of raw products in the future of the Iran’s economy.
Moreover, stock market and the general atmosphere of businesses in Iran in the period subsequent to the “Comprehensive Plan of Action” will be transformed by the issue of reduction in the interest rate. Probably the most significant problem that faces the business environment in Iran is the very high interest rates, which has been extremely harmful to the attraction of risky investment opportunities in Iran, and on the other hand has imposed high financial costs on companies.
In the period following the “Comprehensive Plan of Action”, due to the release of financial resources and an agenda of fiscal discipline, on one hand interest rates will decline and the demand for investments will rise and on the other hand in a short period of three to six months the effects of reduced interest rates will appear in financial statements of companies, since in many companies the cost of interests that are being paid can even rise up to 70% of their operational profit. This shows that in order for any reform to take place in the flawed structure of financing in Iran, it requires a decline in interest rates as well as more diverse financing resources, which in turn can lead to higher profitability for firms and therefore increased stock prices.
In general, if we want to summarize the leading industries within the stock market in a broad spectrum, we can identify the following categories:
The pharmaceutical industry is a reliable industry for investment during periods of stagnation. It is one of the largest and most profitable industries in the world and one of its major characteristics is a relatively stable increasing trend and low volatility. The rising trend in populations and people’s incomes and their basic and sensitive need for health has been the main reason behind this industry’s growth.
What is apparent in Iran’s pharmaceutical industry is the lack of capability to produce specialized and brand medications for particular diseases. In this regard, companies that have the capacity to attract investors and license from abroad will enjoy higher profit margins.
Considering sanctions on SWIFT and also the increasing amount of non performing loans, banking industry has been dealing with many problems and obstacles. Therefore, the upcoming elimination of sanctions will help banks to benefit from reopening of SWIFT more than anything.
In addition to this, and regarding the government’s policy in reducing inflation and also Central Bank’s positive approach in reducing inter-bank rates and legal deposit rate for banks with more solid and optimal structure, it seems that banks can gradually improve their structure and perform their banking activities more efficiently. In this regard, banks with most claims from the government and its contractors will be considered as the main options for growth.
Automobile industry is one of the industries with a very positive and hopeful prospect. Considering the imminent removal of sanctions, the automobile market of Iran has become highly attractive for global automobile producers and examining the conditions for investment and cooperation with various foreign companies makes news everyday. Iran’s high potential in the field of hardware in the automobile industry and manufacturing of parts, and the existence of large domestic markets inside the countries as well as its neighbors, have been key factors in leading major automobile manufacturers in the world to try to seize a large share of such intact market by transferring knowledge and technology to the country.
In case the car industry was selected for allocation of capital, it seems that companies with a higher potential for cooperation with foreign car manufacturing companies will have more attractive shares for investment. Also, those car producing companies that aim at manufacturing commercial and industrial vehicles like tow trucks, lorry trucks and pickup trucks will have immense potential regarding the high domestic demand in the country.
Technical and Engineering Group
Another group that has drawn the attention of analysts and other players in the capital market these days is the technical and engineering sector. Considering the fact that many large projects of the country are performed by this sector and the main employer of these projects is the government itself, therefore as a result of the dire economic situation of the country and government’s lack of commitment to its obligations, these companies were forced to obtain amenities in order to answer their cash flow needs, which resulted in an increase in their financial costs. At present, taking into consideration that government has started publishing bonds and also the economic situation is showing signs of recovery, it appears that these companies will gradually be able to acquire contracts in the fields of oil and gas, electricity and in general the sector of energy with the government as well as foreign contractors and therefore establish more appropriate conditions for themselves.
Another point that seems interesting when studying this group is that considering the activities of some of the engineering companies in the country’s power industry and regarding the downward trend in the prices of oil and gas, the profitability of companies that are contractor and owner of power plants seems promising. This is due to the fact that the decline in global prices of oil has resulted in a reduction in the cost of electricity production, while the high demand for electricity inside the country and in the region has kept these prices stable. Therefore, because of the rising trend in the prices of electricity these companies can enjoy an increasing profit margin. Moreover, since neighboring countries do not possess the technical capability to compete with the Iranian companies, Iran can be hopeful to become a major pole in providing electricity to the region.