DSEX, the benchmark index of Dhaka Stock Exchange (DSE), on Monday collapsed below the 5000 mark, as the stock market continues to bleed.
Investors’ panic has grabbed the entire market, as they felt the pain of steadily losing their capital. The drop in the DSEX on Sunday was the sharpest since February, 2018, said floor traders, adding that Monday morning appeared to be more dominated by panic sellers.
“Sell at any price” was the mantra in the early trading, as the sellers wanted to save the remainder of their capital.
The heavy sell pressure from more and more investors accounted for a 25 percent increase in trading volume over the day amid another big -- a 1.34 percent - drop of the DSEX.
Analysts believe falling price, accompanied by rising volume is a bearish sign.
“Sellers became more desperate since the opening bell, and there were signs of some forced sell from margin accounts,” said Abdullah-Al-Mamun, a trader at Al Muntaha Securities Ltd.
Investment accounts that allow investors to borrow from brokers for buying more shares are called margin accounts. Most of the investors using margin accounts are in a pressure to liquidate their holdings as their own equity has already eroded or about to erode due to continuous price fall.
On a freefall for weeks
Since June 13, the key stock index of the country lost more than 500 points, a 9.2 percent drop within the span of just 26 trading days.
A number of analysts have blamed simultaneous negative events and policy decisions, which pushed the outlook and market sentiment down, for such freefall.
The government has recently increased gas price for industries by 38 percent, raising serious issues among manufacturers concerning their profitability.
Meanwhile, the Finance Ministry has approved central bank’s proposal to liquidate Peoples Leasing and Financial Services Ltd. The liquidation will be the first of its kind in the country. The development has caused panic among the investors concerning investment in the financial stocks.
In case of liquidation of a poorly performing company, shareholders are the last group to receive anything from the firm after meeting all other liabilities at the end of the process.
Government recently made it mandatory for a listed company to pay dividends that is equal to 30 percent of its annual net profit; otherwise, a 10 percent tax on the profit retention amount will be imposed.
Investors had calculated possible effects of dividend related tax measures on listed companies, identifying most of the companies that may suffer from the issue.
Listed companies are also forced to pay cash dividends equal to stock dividends in the same year to avoid the 10 percent tax on stock dividend issuance.
Several analysts believe that the new measures, imposed to encourage payout of cash dividend instead of bonus shares, are going to put more pressure on at least two-thirds of listed companies that already have capacity constraints.
Almost all the scrips, excluding the cash-rich insurance industry stocks and previously undervalued mutual fund units, have been losing their prices since the beginning of the last downturn.
On the verge of losing everything
A large number of ‘investment accounts’ are on the verge of losing everything, as these are being subjected to forced sales by brokers, confirmed sources from different brokerage firms.
“Investors don’t deserve the fate they are faced with in this phase of stock market downturn, because most of them are yet to recover from losses incurred from the 2010 crash,” said small investor Nazmul Hasan.
Finance Minister AHM Mustafa Kamal had recently expressed his surprise over the continuous drop of the stock prices despite the economic growth of the country that attracted the attention of international communities.
Small investors on Monday organised a human chain in front of the DSE building, urging policymakers for taking positive action to save the stock market.
Last week the investors submitted a memorandum to the Prime Minister’s Office, suggesting more than a dozen measures to stabilize the stock market.