Stocks in free fall as investors panicked

Stock market free fall is now panicking mass investors, prompting them to demonstrate in front of the stock exchange building in Dhaka, reminding the depressed days over the last decade.

DSEX, the broad-based index of the Dhaka Stock Exchange (DSE), has lost more than 7% from its 10 October historic peak since the index was launched in 2013.

Of the last 10 sessions, the index had an upward close only last Thursday and again nosedived on Sunday that continued afterward.

Unlike the recent sessions, the market opened with an intensified selling pressure on Monday and the DSEX broke below the 7,000-mark instantly to dip below the 6,850 level before 1pm.

Some retail investors, demanding policy actions to put a brake on the sharp fall, took to the street during the trading hours.

They suspect the unusual fall is a result of manipulation by insiders and called for regulatory efforts to stop that.

However, a slight rebound helped the market close above 6,885 – the lowest since 2 September and still a 120 points or 1.72% daily fall.

Retail investors' panic is understandable as only 47 scrips advanced in the DSE against a decline of 307 while the price of 22 remained unchanged.

Nothing works: An upside-down picture

In the last week, there had been a sudden rumour that Professor Shibli Rubayat-Ul-Islam is going to resign from his post of the chairman of the Bangladesh Securities and Exchange Commission (BSEC), which was busted by the regulatory officials on the same day after they met stakeholders to announce some measures for market support.

The BSEC instructed stockbrokers and dealers to apply for corporate bonds so that they can utilise the money in their investment accounts. Also, the regulator announced a five-year extension of the government-funded refinancing scheme worth Tk850 crore for small investors who have been affected by the stock market fall.

In his several recent speeches, the BSEC chairman urged investors not to panic and sell off their stocks as he is optimistic that the market has a lot of room to go up in the future following the natural corrections after huge gains over the previous 15 months.

But none of these proved to be sufficient to stop the fall, rather, the fall sharpened after a single gaining session.

In recent days, many large-cap companies such as Square, Beximco, BSRM, Renata disclosed stunning growth in their annual sales and profits that helped them recommend very high dividends, compared to previous years.

But, all but a very few companies failed to retain their stock price.

On the other hand, companies that posted earnings deterioration are literally in free fall in the stock market.

Maruf Hasan, a retail stock investor, told this correspondent on Monday, "The market scenario is now exactly an upside-down picture of what we have come through over the last leg of the market rally during the April-September period."

"Stocks were not demanding anything to go up then and now it needs no reason to fall," he expressed his frustration as his capital eroded by over 24% in October alone.

Low-cap stocks which dramatically gained up to mid-September, are now leading the fall as some came down by 30-50% from their recent peak.

Why?

Equity analysts are not too surprised like Maruf.

Most of the experts still consider the ongoing fall as a correction to the gains since mid-2020.

Indices more than doubled over the 15 months, fuelled by record low-interest rates, the then idle money in the economy while businessmen were conservative to expand their businesses amid the economic uncertainties.

But now, the interest rate, especially against deposits, has begun to go up moderately amid the central bank stance for a fair interest against fixed deposits, increasing economic activities that are increasing the demand for money.

All hint at a potential halt in fresh money inflow to the stock market, said analysts.

The earnings disclosure season also appeared to be a factor that unnerved many investors as they preferred some profit booking and observed the developments from the side-lines.

On top of all, the Bangladesh Bank gave a clear message to the banking industry that it would not allow excessive investment in the rising stocks. In recent months, the central bank also penalised some banks for overplaying in stocks.

In conjunction, analysts find no fresh trigger that can push the market further higher right now, according to EBL Securities market commentary on Monday.    

Dr Osman Imam, a stock market expert and a professor of finance, has recently told The Business Standard that the market is heavily dominated by investors who tend to frequently trade on a daily basis following trends and that creates a linear pressure on prices, both while going up and down.

The DSE daily turnover came below Tk1,500 crore nowadays, which was raging between Tk2,500-3,000 crore during the rise in recent months.

Analysts said the market must correct any mispricing and a drastic fall in prices at some point tend to attract buyers when they find stocks cheap or anticipate return of the buyers and that is the source of hope to all investors who still hold onto their stocks tightly.