Bangladesh’s capital market experiences a turbulent year

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The country’s capital market had another turbulent year with the main stock exchange’s core index returning 25% despite wrangling between the two regulatory bodies over some political issues.

In the outgoing year 2021, the Dhaka Stock Exchange (DSE) also showed a decade-long high daily turnover value along with an increase in the market capitalization to GDP (gross domestic product) ratio.

Daily turnover, an important indicator, averaged 14.75 billion taka in 2021, up 127% year-on-year.

The DSE recorded the second highest turnover ever, exceeding Tk 3.54 trillion, posted in 240 trading sessions – executed over the coming year.

The DSE to GDP market capitalization ratio stood at 18.01%, while the market P/E (price gains) stood at 17.58 at the end of 2021.

Faruq Ahamd Siddiqi, former chairman of the securities regulator, said the market had a good year as it saw a rise in the index and turnover value.

“But manipulation was the weaker side of the market. Small cap stock prices rose abnormally for no reason.”

He focused on mastering manipulation while increasing the number of quality IPOs.

A steady rally helped the DSE broad index – DSEX – stay above 6,700 points as momentum boosted stock indexes despite concerns over virus-induced shocks to the country’s economy in first half of the year.

The DSEX closed the year at 6,756, up 1,354 points or 25% year on year, on Thursday, the last trading day of 2021. In 2020, the DSEX returned 21%.

Strong investor participation, consolidating stock prices, comparatively high corporate profits and low interest rate on bank deposits were the main reasons behind the decent year for the Bangladesh capital market.

While speaking on market indicators including performance and price rise of small cap companies, Managing Director of IDLC Investments Md. Moniruzzaman said the market had had a good year.

“The idle funds, which were injected into the market during the Covid period, have come out. So the challenge in the new year is to maintain the spontaneous participation of investors thanks to the good functioning of the market”, he said. .

Although the stocks of many underperforming companies saw an unusual price rise over the year, large-cap companies contributed the most to the index’s rise.

All major sectors have posted strong returns over the past year, with the heavyweight banking sector posting the strongest performance with a 15% gain. It was followed by the pharmaceutical industry with 14.9%, telecommunications 14.4%, engineering 11.8%, electricity 9.5% and food 9.30%.

Many stocks with poor dividend-paying histories and trendy insurance stocks have also soared this year. But their contribution to the index was insignificant, said an analyst at a major brokerage firm.

Among the low-key companies, Tamijuddin Textile Mills recorded the highest increase of 1,158%, followed by Paper Processing & Packaging 1,140%, Sena Kalyan Insurance 603%, Sonali Life Insurance 485% and Fortune Shoes 321%.

Banks and some institutional investors pumped money into the market. They favored stocks with sound fundamentals, which ultimately propelled the index higher.

The market consolidated throughout the year, but momentum accelerated in October. The index broke through the psychological barrier of 7,000 points to reach a record high of 7,367 points on October 10.

Market experts said weak money market yield, several regulatory reforms aimed at creating a vibrant capital market, enlistment of some quality IPOs and undisclosed money investment opportunities in stocks have contributed. to the substantial growth of the market index and turnover.

The market was bullish amid growing investor confidence – driven by the regulator’s various market support measures, which prompted investors to park new money in stocks.

Regulatory initiatives to restore market governance and other reforms, including the removal of the price floor and the re-listing of OTC companies, have had a positive impact on the market.

The introduction of the SME board of directors, corporate restructuring, sukuk and bond market development initiatives, new IPO allocation rules and circuit breaker change for IPOs stock market have contributed to the creation of a dynamic capital market.

“This current sentiment will only be sustained if we overcome the hurdles of financial indiscipline and the scarcity of diversified products in our capital market,” said a senior official at a major brokerage firm.

The market capitalization stood at 5,421 billion taka, with an increase of 21% compared to the previous year.

The port city stock exchange’s CSE All Share Price Index (CASPI) also posted a positive return of around 26% year-on-year, to end the year at 19,666.

The stock market’s selective category index – CSCX – also posted a 25.6% growth to 11,813 for the year.

2021 was also one of the best times for bond markets and IPOs. Corporate borrowers have turned to the bond market instead of traditional bank loans for their financing needs.

In 2021, the Bangladesh Securities and Exchange Commission (BSEC) authorized 23 institutions to raise Tk 125.73 billion through bonds and Sukuk.

Fund raised through initial public offerings (IPOs) also peaked in the year since 2011, as 19 companies raised a total amount of funds exceeding Tk 21.80 billion in 2021 .

Of these companies, 14 raised Tk 12.30 billion through IPOs, four banks raised Tk 2.0 billion through perpetual bonds and the last raised Tk 7.50 billion through Sukuk.

Among the IPOs in 2021, Union Bank – a fourth generation private commercial bank – raised Tk 4.28 billion through an IPO, which is the largest IPO in the banking industry so far. day.

Among all sectors, it is the fourth largest IPO after Robi Axiata (Tk5.23 billion), Grameenphone (Tk4.86 billion) and MJL Bangladesh (Tk4.60 billion), according to EHR data.

However, over the past year, the number of BO (beneficial owner) accounts has decreased by 20.29% or 0.52 million to 2.03 million, and most of them have been used to apply IPO shares.

Market traders said the number of BO accounts has decreased as it is not possible for IPO seekers to maintain many accounts due to the mandatory provision of having a minimum investment of 20,000 Tk in listed securities to apply for IPO shares worth Tk 10,000 each. .

During the year, the first DSE exchange issued 54 new TRECs (Trading Rights Certificates).

The special facility to legalize undisclosed income in stock market investments in the current financial year (FY), 2021-22, also had a positive impact on the market.

Improving pandemic situation, extension of credit facility, gradual economic recovery and low interest rate on bank deposits have prompted investors to maintain confidence in the market, Khairul told FE. Bashar Abu Taher Mohammed, CEO of MTB Capital.

He said the corporate tax cut for listed manufacturing companies in the current fiscal year has further boosted investor optimism.

The special facility to legalize undisclosed income in stock market investing also had a positive impact on the market.

He noted that many good issues were still lucrative, but investors should be careful about buying overvalued stocks to avoid misfortune.

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