DSE turnover again shrinks to a 20-month low

Having eight in every ten scrips suffocated on floor prices, while the remaining ones are in continuous price corrections, the stock market seems to have embraced a hibernation before this winter as trading activity dries up.

Reflecting investors' market averseness nowadays, daily turnover in the Dhaka Stock Exchange (DSE) hit below Tk300 crore on Tuesday for the first time this year and the Tk272 crore daily transaction was the lowest since 5 April 2021.

Amid investors' confusion about the market direction, DSEX, the broad-based index of the premier bourse, has been hovering above the recent bottom of 6,180 points for the last three weeks.

On Tuesday, the market had seesaw movements until some bargain hunters came up to cautiously bag some oversold stocks that helped DSEX close 0.26% higher at 6,229.

But, their confidence did not seem to be enough for making big bets, neither for the shorter term nor for the longer term, in the market and turnover in the DSE declined by 21%.

It was a huge contrast to the market scenario observed just three months ago as the DSE registered over Tk2,800 crore turnover on 20 September this year.

The standstill pains

Stock brokers said as the market trading is drying up every day, the industry is struggling to meet their minimum operational costs as their commission income drops with turnover slowdown.

To explain the standstill situation, a number of brokerage officials said the majority of investors are stuck on a floor that is artificially saving them from capital erosion since the end of July. But those who need cash are in serious trouble as 80% of scrips have no buyer at or above the floor price.

The few dozen trendy stocks were generating decent market turnover until the market nosedived again at the end of September and the majority of investors, continuously facing capital erosion in the speculative stocks during the last leg of the market correction, are refraining from buy-sell nowadays.

Even institutional investors are not buying enough shares in the declines that could have helped increase turnover in the bourses.

Banks are in tightening liquidity, businesses and families are also in need of more funds to cope with the inflation and also capital market intermediaries are also having fewer funds from their lenders and clients in such a situation.   

However, not all investors are running out of funds and that never happens. They are cautiously looking for opportunities and safer bets in the stock market. 

Experts also blame the floor price as it did not allow stocks to correct in line with the macroeconomic adversities, deteriorated corporate earnings and a declining fund flow in the market.

Investors who want to pour money into stocks are refraining from triggering their buy decisions as they are in fear of capital erosion if the floor price is withdrawn at some point.

In a recent seminar on the prospects and challenges of the capital market, the Bangladesh Securities and Exchange Commission (BSEC) chairman expressed his frustration about the macroeconomic adversities triggered and fuelled by the Ukraine war alongside the majority investors' behaviour to chase only short-term gains, ignoring long-term potentials for bigger gains.

Acknowledging the unconventional nature of the controversial market intervention through the floor price, he said it was for the sake of protecting unsophisticated retail investors from being victims of adverse, uncontrollable global events.  

A good sign

DSE Director Shakil Rizvi, also managing director of brokerage firm Shakil Rizvi Stock Ltd, said the extreme decline in turnover on Tuesday was a "good sign for the market."

"I feel, after a series of price declines, investors are not selling off their shares at a cheap price," he said adding, "My experience suggests, after such extremes, the market tends to reverse for a better match between buyers and sellers."

Stocks had a sharp rebound on the very next day of the previous turnover dip of Tk237 crore in the DSE on 5 April last year.

Long-term serious investors, who look for sound fundamentals of companies and expect a decent dividend and capital gain over years, are trying to take some positions in good stocks, he observed.

On Tuesday, 50 scrips advanced in the DSE, 25 declined, a few remained unchanged over the floor price and 318 were stuck on the floor price.