Stocks correct after four winning weeks

Following four consecutive winning weeks, stocks closed lower in the last one as investors opted for profit booking and portfolio rebalancing for a better return.

DSEX, the broad-based index of the Dhaka Stock Exchange (DSE), having three red sessions against two green ones, closed 0.69% lower at 6,515.

Blue chip index DS30, on the other hand, suffered a bigger 1.25% correction over the week as it had significantly outperformed the DSEX in the previous week.

The equity indices of the Dhaka bourse mostly experienced corrections this week since investors did not concentrate their focus on particular sector-specific stocks and instead rushed to chase quick-gaining stocks, wrote EBL Securities in its weekly market commentary.

Stock brokers and analysts said, amid uncertainties regarding the earnings to be disclosed in the coming days, investors were rebalancing their portfolios—selling low-potential stocks to buy more potential ones for a higher return or to minimise risks.

The profit-booking tendency was evident in some large-cap stocks, taking advantage of the recent price appreciation in the market as investors opted to rebalance their portfolios, EBL Securities wrote.

"However, a buying spree from bargain hunters on some particularly lucrative stocks in the last session of the week tried to instil some positive momentum in the market," it added.  

Stocks suffered selling pressure last week following the central bank loosening its grip on interbank exchange rate of US dollar that officially appreciated 11% overnight to the actual market rate on Tuesday.

A short-lived confusion regarding an income tax circular also might have fuelled the selling pressure in the stock market on Wednesday when the DSEX fell by 0.77 as some investors misunderstood that all capital gains from listed securities would be taxed, including that by individual investors.

However, the National Board of Revenue clarified that no capital gains by individual investors from listed securities would be taxed and that helped confidence restoration on Thursday when the market inched up.

As many investors preferred to watch the market carefully before triggering buy-sale decisions, average daily turnover in the DSE dropped by 22.1% to Tk1,417 crore.

Investors were most active in the pharmaceutical and chemicals sector as the sector contributed 22.2% of the week's total trading turnover, followed by miscellaneous and engineering sectors.

Amid the correction of most large-cap stocks, some small and mid-cap stocks soared last week.

Jute led the sectoral gaining table with a 21.7% increase in market capitalisation, while the cement sector suffered the maximum 4.7% correction.

At the end of the week the average price to earnings (PE) ratio in the DSE stood at 14.7, down from 14.8 a week ago.

The ratio theoretically reflects how many years a stock might take to pay back its secondary market investors out of its annual profits.

Listed securities were trading 1.7 times higher on average than the underlying net asset value.