Why efforts to cheer up institutional investors went in vain
DSEX hits one-month low
The cluster of efforts by regulators to ease some rules for the capital market intermediaries, so that they can boost the market, has failed to create any impact in the bourses.
Spiraling down for weeks, DSEX, the broad-based index of the Dhaka Stock Exchange (DSE), fell below the psychological threshold of 6,200 to close at 6,193, the lowest in a month.
Turnover in the premier bourse declined 14.3% to Tk272 crore as the market pushed many of the shaky investors on the sidelines. On the other hand, trading turnover at the port city bourse Chittagong Stock Exchange (CSE) has dropped by 41% to Tk42 crore.
Following various macroeconomic developments and market factors, the DSEX initiated recovery several times, but ultimately failed due to selloffs.
The efforts for more institutional participation
Upon request from the capital market intermediaries that include broker-dealers, merchant banks, asset managers, the Bangladesh Securities and Exchange Commission (BSEC) in February offered institutional investors a relief by relaxing the compulsion to park some of the funds into listed Treasury bonds.
Earlier, the regulator asked all intermediaries and mutual funds to invest at least 3% of their funds in Treasury securities. But then it was reduced to 1% on 19 February, while the deadline for compliance was deferred to 30 June, 2023.
Later, the intermediaries got another relief through the extension of the deadline to ensure provisions against unrealised portfolio losses.
Meanwhile, the Bangladesh Bank halved the lenders' provisioning requirement to 1% against the loans made to capital market intermediaries that made borrowings by broker-dealers and merchant banks easier.
Intermediaries, depending on their creditworthiness, have been borrowing from the central bank-refinanced revolving scheme being handled by the state-owned Investment Corporation of Bangladesh.
Finally, in the last commission meeting, the BSEC planned to make Tk300 crore available from the Capital Market Stabilization Fund (CMSF) as loans to the intermediaries so that they can use the money to invest in quality stocks.
The news was published on Tuesday and the market continued to keep falling.
Instead of counting on any fresh funds, both institutional and individual investors preferred liquidating some of their portfolio shares for some cash in hand and this is what led to the fall on Tuesday, said market people.
The stubborn depression in the market
DSE Brokers Association President Richard D' Rozario, managing director of brokerage firm Global Securities, said most of the capital in the market is stuck due to no exit opportunities at floor prices, even worse fact is everyone is in fear of getting their further funds stuck.
During the closing bell on Tuesday, 301 of the 399 DSE scrips had no buyer to quote any price.
"As the floor price restriction prolongs, the fear keeps intensifying and it needs to go for the sake of attracting capital," he said, adding that some of the stocks fell much in the recent months and those could turnaround much faster if the fear of getting stuck on the floor had not been there.
Nowadays, the needed belief that the market can go up is weakening so much that some updates on fund injection, or even actual injection of fresh funds is barely helping.
A number of brokerage and merchant banking executives told The Business Standard that the loan they availed from the refinancing scheme through the ICB needs to be repaid on a quarterly basis. And, since the October 2021 market peak, they barely gained through investing the borrowed money in the market to pay the interest.
Also, the banking industry is not keen to lend to the stock market firms, while taking loans for the uncertain investments was not lucrative to many firms.
Rozario, however, said any fund dedicated to the capital market more or less helps the market and it needs to be big and flexible enough to help set market trends.
Also, the market needs investors' confidence to come out of the ongoing depression, he added.