A rumour that wiped out last week's gains in a day

The recovering stock market has had a big selloff on Tuesday that wiped out almost all the gains over the past seven sessions.

DSEX, the broad-based index of the Dhaka Stock Exchange (DSE), fell by 0.63% to 6316, the biggest fall since 20 November last year.

Stockbrokers said the market was advancing through its usual course of short-term rallies and corrections over the last two months and the morning on Tuesday was not a difference.

But suddenly, a confusion whether the individual investors' capital gains from listed shares would remain tax-waived or the upcoming Income Tax Act would repeal it started to get louder among investors.

It came at a time when many investors were looking to book some of the profits they gained over the recent weeks, especially when the cloud on the macroeconomic and political grounds was concentrating again after the interim relief over the recent months.

After 1:00pm, a huge selloff came and almost all the stocks including the big winners of the morning nosedived.

Only 25 DSE scrips managed to stay afloat while 157 declined during the closing bell.

As the majority of the average investors were confused and perplexed, turnover in the premier bourse dropped to Tk1,087 crore that was Tk1,256 on Monday.

Market capitalisation at the DSE, the total market value of all the listed securities, declined by Tk2,323 crore on Tuesday alone.

The rumour busted later

During the mid-session, some investors got panicked hearing the rumour that the 2015 Statutory Regulatory Order (SRO) by the National Board of Revenue (NBR) that waived individual's capital gain from listed shares would be repealed after the draft Income Tax Act getting passed at the parliament, said stockbrokers.

"Nothing was official, just confusion and rumour and you cannot make panicked people think rationally," EBL Securities First Assistant Vice President and Chief Financial Officer Asaduzzaman told TBS after trading hours.

The Act was supposed to be placed before the parliament on 4 June and now there was a delay, he said, adding that the new simplified Act would replace its predecessor Ordinance, not to repeal every single SRO that detailed thousands of tax related matters.

"We told our clients that the Act alone would not withdraw the stock market capital gain tax waiver for individual investors."

When the new VAT Act came earlier, all the previous SROs were restored to implement the new act and the same should be for the new Income Tax Act, said Asaduzzaman who is an accounting professional, who also has an income tax practitioner licence.

Stock market is sensitive to such fears regarding any change that might hurt investment flow, and the overreaction reflected it.

Earlier in August-September last year, stock market suddenly had a big selloff as some large investors misinterpreted the leaked version of Income Tax Paripatra that the individual investors' capital gain tax waiver in stocks would not remain anymore and they sold off a lot of stocks to stay ahead of the curve.

However, in the afternoon on the same day, following the closing bell on the bourses, the official Paripatra said only the gains from government issued securities would be taxed, not all listed stocks and the market resumed its rally in the next session. 

NBR Second Secretary for tax policy Bapan Chandra Das told TBS on Tuesday afternoon, "The new Income Tax Act itself won't repeal the previous SRO that waived individuals' capital gain tax from listed shares."