BSEC efforts bear no fruit for capital market

The BSEC's assurance that it will not lift the floor price immediately or its efforts to increase liquidity with the help of other market intermediaries do not appear to have moved the capital market much.

The participation of institutional investors in the market has not increased much, but pressure to sell shares is very high. DSEX, the broad index of the Dhaka Stock Exchange (DSE), fell 8.99 points to settle at 6193 on Tuesday.

But the good news is that the turnover on the country's premier exchange increased by 9% from the previous day.

Investors who bought shares with margin loans are in trouble due to the floor price. They are not even able to sell shares because of the floor, although the interest on loans continues to mount.

As a result, even though the share price does not look about to fall for the time being owing to the floor, the loss of investors is increasing. Currently, an investor can take out a margin loan at a 1:1 ratio, the interest rate on the loan being 12-14%.

According to stakeholders, the floor price has led to chaos in the capital market. As a result, institutional investors cannot be active.

The commission held an urgent meeting with market intermediaries and institutional investors on Wednesday. After the overall discussions, the commission urged stakeholders to be active in the market.

Although there was buying pressure in the insurance and cement sector shares in the market on Thursday, there was more selling pressure in pharmaceuticals, paper, and printing shares.

The share prices of 132 companies declined due to heavy selling pressure. The share prices of 170 companies remained unchanged, while the share prices of 36 companies increased. Shares of 171 companies were traded at floor prices.

EBL Securities said in its daily market commentary that the equity indices on the DSE failed to maintain the upbeat momentum from the previous two sessions as investors got enticed into profit-booking amidst prevailing concerns regarding the market outlook.

The market witnessed volatility since sellers dominated the trading floor as investors perceived every bounce back as an opportunity to exit the bearish market.

Investors' willingness to take long-term positions in equities has been weakened owing to the dismal performance forecasts of the listed companies due to adversities on the macroeconomic front.

DSE Brokers Association President Richard D' Rozario advocated lifting the floor price in these market conditions.

"Lifting the floor will have a big impact on the market, but it will bounce back. As a result, the floor must be withdrawn to improve the capital market."

Rozario said, for example, that at the beginning of the coronavirus outbreak, the stock market index gradually fell below 5,000 points, but later it bounced back and rose much higher.

"The index will go up and down, that is the rule. If you force it hard, it will fall further," he added.

Rozario, who is also managing director of Global Securities Ltd, said the floor was set up in a transitional period amid the pandemic, which was the right decision.

"But now it is not necessary. In 2010, when the market worsened, forced selling was halted. People still have to bear the wounds of not being able to sell the shares."

Pointing out that the condition of investors who bought shares with margin loans is worse, Rozario said, "Although shares are stuck at the floor price, interest is not stuck. As a result, the condition of the investors is worsening day by day due to the mounting interest."

Sayadur Rahman, president of the Bangladesh Merchant Bankers Association, described an increase in turnover on the day after the meeting of the commission as positive.

"There is a liquidity crisis in the market. Gradually, the market will get better."

Regarding margin loans, he said, "Those who have invested with margin loans are in danger, and those who have given margin loans are also in danger. That is because investors can't sell shares because of the floor, and we don't get paid either."

He said that now investors are given margin loans at the rate of 1:1. That is, if someone has an investment of Tk100, he can invest another Tk100 with a loan.

"The investor repays the loan only after selling the shares. But because of the floor, the shares cannot be sold. As a result, as investors are in a crisis, the lenders are also in crisis."

Investors investing with margin loans are currently exposed to higher losses than ordinary investors, he said, adding, "therefore, we always discourage investing with margin loans."