Liquidity crisis fear triggers a selloff dragging down indices

An intensive selloff dragged down the indices of both the country's stock exchanges on Monday as investors fear that a liquidity crisis may happen.

Some analysts deem that the central bank is under pressure to increase the lending rate as the interest against deposits surges due to rising inflation.

On the day, the benchmark index DSEX of the Dhaka Stock Exchange (DSE) lost 32 points to close at 6,665 and the blue-chip index also went down 13 points to settle at 2,435.

The port city bourse Chittagong Stock Exchange's index's (CASPI) all share prices fell over 100 points to close at 19,531.

The DSE observed the turnover increase by 4% over the period from the previous session and stood at Tk1,258 crore as investors were active to sell off their holdings.

During the session, 380 companies' shares were traded, wherein 130 advanced, 205 declined and 45 remained unchanged on the DSE.

A senior officer at a leading brokerage firm said, "The index was stable till 1 pm today. But then the pressure to sell shares in the market increased. The fall would have been deeper had it not been for the circuit breaker's lower limit of 5%."

Analysts in the stock market said that when the news that the lending interest rate of banks may increase in the afternoon spread, it led to an increase in the pressure to sell shares.

According to them, banks' deposit interest rate is currently fixed in parallel with inflation. However, according to the Bangladesh Bureau of Statistics, inflation was 6.22% last month. But the lending rate is the same as before or 9% fixed. So there is news that bankers want to increase the lending rate.

They said that if the interest rate rises, there will be a liquidity crisis in the stock market. Many are selling shares for fear that the market may fall again.

Meanwhile, EBL Securities Limited said in its daily market review, that the stock market index has risen in the last two days. Many have taken short-term profits by selling shares on Tuesday.

On Tuesday, the textile sector contributed the highest 17.4% of the DSE's total turnover, followed by the pharma and engineering sectors.

Beximco Limited dominated the scrips-wise turnover board and contributed 3.3% of the total turnover, followed by ACI Formulation and IPDC Finance.

Investors received the highest return from jute, which was followed by the textile and general insurance sectors on the DSE.

ACI Formulation was in the top position on the gainer list, where its share price jumped 10% on that day, which was followed by Bangas and National Feed Mill.

Besides, Imam Button was the worst share on the DSE as its share price fell over 5%.