Stock indices plunge after five recovery sessions

With no clear development regarding unresolved issues between the regulators of the money and capital market in the finance ministry meeting on Tuesday, stock indices in both the bourses of Dhaka and Chattogram plunged on Wednesday.

As a group of investors was hopeful that the meeting might positively discuss the issues the capital market is facing nowadays, DSEX, the benchmark index of the Dhaka Stock Exchange (DSE), had bounced back to 7,050 points from 6,700 in the previous five sessions.

As soon as investors learned that the meeting yielded no concrete development regarding the calculation of banks' exposure in the capital market, which the securities regulator has been blaming for market volatility, stocks began to face selling pressure from the early hours on Wednesday.

DSEX fell 1.37% on Wednesday to close at 6,952.

Investors started to take profits to avoid corrections as solutions regarding banks' investment in the capital market remained unclear after the finance ministry meeting, EBL Securities said in its daily market commentary.

Following very sharp corrections over the last two and half months, some small-cap scrips were bouncing back sharply during the last five-day leg of market recovery.

On the other hand, most of the large-cap stocks were subdued and remained the same on Wednesday.

Investors' participation in daily trading which drastically dropped to below Tk900 crore at the DSE earlier this week, declined 13.4% on Wednesday to Tk1,152 crore.

The banking sector kept contributing the maximum in daily turnover although the sector faced selling pressure on Wednesday.

Against banks' nearly 18% contribution to the DSE turnover, the pharmaceuticals made 13.6% and miscellaneous sector 10.6% of the daily transaction value at the country's premier bourse.

Except for the low-cap jute and paper sectors, all suffered market capitalisation contraction, while financial institutions, miscellaneous, cement led the sectoral decline table with each losing more than 2% of their market capitalisation.

Out of the 374 scrips traded on the DSE, 97 advanced, 257 declined, and 20 remained unchanged.

The Chittagong Stock Exchange also settled in the red terrain as all the indices were down at the end of the session.

The volatility

The Business Standard talked to several market professionals and investment analysts to learn their thoughts on the market scenario nowadays where the stock indices are moving randomly.

They said the market had a significant rally over the 15 months till September this year riding on better than expected economic and corporate performance while the government support – including the monetary easing and stimulus loans, a moderate corporate tax cut for listed firms – helped the rally a lot.

After the DSEX more than doubled in 15 months from its abnormally depressing low in early-2020, the money market began to lose its ultra-liquidity while businesses started to ask banks for more money.

A large number of smart investors began booking profits from the stock market, even though analysts believe many blue-chip and other fundamentally sound stocks were in buying ranges.

On top of that, the central bank found some banks to have violated their capital market exposure limit, mainly due to the market price basis of exposure calculation which forces banks to sell off stocks when the prices go up.

The Bangladesh Securities and Exchange Commission (BSEC) and some capital market associations were urging the central bank to follow other countries for banks' capital market exposure calculation and adopt cost price basis, on top of their requests to exclude bonds from banks capital market exposure calculation and some others.

However, as the exposure calculation was a matter of the Bank Companies Act, the discussion with the central bank did not bear any fruit for the market.

Participants in the finance ministry meeting on Tuesday were trying to brief the press with positive concluding notes that the room for discussion remains open there. But, investors on Wednesday seemed reluctant to risk their capital.

The BSEC's most recent generosity to the risk-taking informed investors through offering them more margin loans for buying more shares out of borrowed money in any market condition seems not to be well responded to by the majority as most of the top-tier brokerage firms told TBS that their total disbursed margin loans came down in the last two and half months of market volatility.

Again, that might prove to be an underlying strength in the market as investors now have more room to invest aggressively if their confidence rebounds and the market gets some fresh triggers for a fresh move, said the analysts.