Is stock market getting back to life?

Leaving behind the fear factors — risk of a massive slide in case of floor price withdrawal, or getting funds stuck for months if the floor remains, and of course, the threat of economic deterioration — that suffocated the stock market earlier this year, investors are increasing their bets in the stock market nowadays.

The major equity indices and trading turnover have already reached the highest levels since the second week of November, following several months of rare opportunities to buy-sell stocks for capital gains.

In the last four months, 105 company shares and mutual fund units at the Dhaka Stock Exchange (DSE) have gotten rid of the floor prices that left investors' capital stuck for months as there had been no buyer at the artificially held price.

It's impressive that investors have been increasingly active in the stock market, especially since the early April, said DSE Brokers Association Senior Vice President Md Sajedul Islam.

The stock market, as well as the investors, nowadays has got some breathing space, he said.

"In early February, over three-fourth of the stocks had no buyer at the floor prices as investors were neither clear about the fate of the floor restriction, nor the economic direction."

"When the regulator made it loud and clear that the floor price will be there, it helped attract trading capital that keeps looking for opportunities," he added.

In the last two-three months, many stocks, mostly the small-cap ones, had sharp rallies from the floor prices to unfold the trading opportunities in the market.

Meanwhile, the economic impact of the Ukraine war – global commodity price rise, the depreciation trend of Taka, drops in corporate profitability, local energy crisis – that prevailed over the last nine months of 2022, eased to a moderate extent earlier this year, according to Akramul Alam, head of research at brokerage firm Royal Capital.

"It is in the DNA of the stock market that prices will go up and down and so many negative updates in a row had already dragged most of the stocks' prices down and settle at a level where investors agreed to enter," said Md Sayadur Rahman, President of Bangladesh Merchant Bankers Association (BMBA).

EBL Securities Research Head Rehan Kabir said till March this year, the number of listed companies posting year-on-year decline in profits was higher than those posting growths, but a recovery from the big dents in the previous quarters was apparent.

Meanwhile, the regulatory gestures have been positive enough to let risk taking investors make big bets thanks to the relaxed margin loan regulations, and the plan for Tk250 crore funding to the market intermediaries for investment.

Sayadur Rahman believes the two measures helped boost investors' confidence.

The debated rallies 

After declines, the market generated 20-40% or even more capital gains from a number of low-cap stocks in the March-April period, and a similar return from insurance stocks in May. A few cult stocks including Emerald Oil, Legacy Footwear, and Rupali Life Insurance even doubled or tripled investors' money in less than three months.

Daily turnover in the DSE, which dropped below Tk300-400 crore amid investors' reluctance earlier this year, has crossed Tk1,000 crore this week on average.

Stock market expert Abu Ahmed, a former professor of economics at the University of Dhaka, however, was yet to believe that the market was getting back to life.

"The market looks unhealthy," he said, adding that because of leaving the good stocks in hibernation at floor prices since the end of July last year, speculative capital became overactive in weaker company shares nowadays.

On Tuesday, 23 of the 30 DSE blue-chip stocks had no buyer.

Echoing him, Sajedul Islam expected that the market would correct its behaviour at some point.

"Capital getting free from the small-cap scrips after profit booking, gradually, tends to chase large-cap stocks and blue-chip stocks offering lucrative investment opportunities who want to hold them for a long term," he said.

Both Sajedul Islam and Sayadur Rahman believe investors should be cautious in chasing quickly rallying stocks, especially which have already run far from their deserving prices.

DSEX, the broad-based index of the premier bourse, closed at 6,345 on Tuesday.

213 of the 401 DSE stocks, mutual funds and corporate bonds were stuck on the floor price during the closing bell.