Capital market turning around after election

Mahfuz Emran : The recently departed year 2023 did not go well for the capital market of the country. At this time, the participation of investors in the market and the volume of transactions decreased significantly. Share prices of well-founded companies, including multinationals, remained flat due to floor prices.
The returns from the capital market at this time are meagre. In this situation, the question has arisen among the market participants whether the capital market is turning around after the election.
They are of the opinion that, along with improvement in the dollar situation, withdrawal of floor price and looking at reforms and good governance in the capital market will help to turn around the capital market.
The overall index of Dhaka Stock Exchange (DSE), the main capital market of the country, DSEX has increased by only 6.6 percent in 2023. During this period, the average daily transaction was Tk 580 crore, which is about 40 percent less than the previous year. Only positive returns came in January, April, May, June and December last year. DSE returns were negative in the remaining seven months. Last year only two companies were listed in the capital market.

The fluctuation of the index was limited to 200 points. Due to the imposition of floor price (share price floor) a large part of the shares in the market were not traded and this reduced the liquidity of the market. A report by EBL Securities revealed that the market capitalization of companies stuck at floor prices was about 60 per cent of the total market capitalization (excluding debt securities).
The performance of shares of multinational companies in the country’s capital market last year was disappointing. Shares of most of the 13 multinational companies were stuck at floor prices. Overall, only 10.2 percent returns have come in the shares of these companies. The highest return came in shares of Heidelberg Cement. On the other hand, the biggest negative return was in shares of Unilever Consumer Care. In addition to multinationals, the top 20 companies in terms of market capitalization have returned only 7.7 percent. The market capitalization of these companies is 50 percent of the total market capitalization of the capital market. Apart from shares, the asset value and unit price of most of the funds have decreased in the last year in the case of mutual funds.
Managing Director of Dhaka Stock Exchange (DSE) ATM Tarikuzzaman told, “There is an expectation among all that the new government will give importance to financial sector and capital market reforms after assuming responsibility through elections. Along with the reforms, if the good governance situation of the capital market improves, it will help to increase the confidence of the investors and the market will also turn around.
A review of the sector-wise return situation in the capital market shows that there was no return in the shares of the telecommunications, power and energy and financial institutions sectors. Engineering and textile sector returned 1 percent and banking sector shares returned 2 percent. On the other hand, negative returns have come in medicine and ceramic sector. However, returns in small cap companies like insurance and jute sector were in double digits. The depressing picture of the capital market situation is also reflected in the listing of new companies. Only two companies have been listed on the stock market this year, while nine companies were listed last year.
Market analysts say that due to the overall macroeconomic situation, there has been a lack of interest among investors in investing in the capital market throughout the year. On the other hand, the shares of small capitalization companies have seen an increase due to the fact that the shares of the foundation and large capitalization companies are stuck at the floor price. A class of investors flocked to these shares hoping for quick profits. Due to continuous devaluation of rupee and rising inflation, the profits of the listed companies have been seen to decrease and this has also had a negative impact on the capital market. On the other hand, the central bank announces tight monetary policy to control inflation, which in turn increases interest rates. This also reduced the liquidity flow in the capital market. Moreover, due to the heated political situation surrounding the national elections, investors were more inclined to observe than to invest.
Saiful Islam, President of DSE Brokers Association (DBA) told, “It is always seen that elections bring momentum to the capital market. It is expected to be seen after this election. Floor price acts as a barrier for capital markets. It has been informed that it will be withdrawn by the regulatory body. In three to six months, we expect the market to pick up transactions as well as return to investor confidence. The biggest problem in our capital market is that the supply of good shares is very weak. The supply of good new shares is expected to increase after the elections. If these are implemented then the capital market will turn around. Also, if our dollar crisis is over and the currency is not devalued then foreign investment in the market will increase. This will also help to restore the confidence of investors in the capital market.
According to EBL Securities’ report on how the capital market situation may be in 2024, the country’s capital market may turn around in 2024. An improvement in the political situation along with an improvement in macroeconomics will help restore investor confidence. Besides, BSEC also expects to withdraw the floor price this year. If it is withdrawn, immediate stock market price correction may be seen. However, it is hoped that it will turn around again. If the floor price is withdrawn, the DSEX index may fall to 5,500 points and later it may rise to 6,500 points, the report said. The report on the performance of sector-wise listed companies said that companies in FMCG, pharmaceuticals and chemicals, banking and insurance sectors could do well in 2024. Also, companies in the engineering, construction and textile sectors may return to profitability. However, concerns have also been expressed that companies with high debt and high dependence on raw material imports may face challenges in terms of income and profitability.
The floor price era in the country’s capital market began in March 2020. The Bangladesh Securities and Exchange Commission (BSEC) imposed a floor price on March 19 of that year to prevent the sharp fall in the capital market due to the impact of the Covid infection. The floor price was withdrawn on June 17, 2021 after more than a year. However, when the instability in the country’s economy started due to the effect of the Russia-Ukraine war, BSEC imposed the floor price in the second phase on July 28, 2022. After five months, the floor price was withdrawn for 169 companies. However, when the share prices of these companies started to fall, the floor price was imposed again on March 1 last year two months later, which is still in force. FTSE Russell, a subsidiary of London Stock Exchange Group, has downgraded the rating of Bangladesh’s capital market due to the control of share price fluctuations through floor prices.
Executive Director and Spokesperson of BSEC Mohammad Rezaul Karim told, “It is expected that interest rates and exchange rates will stabilize after the election. Capital market participants have demanded the withdrawal of the floor price. The Commission is considering lifting the floor price under favorable circumstances. Everyone feels that if the floor price is withdrawn, there will be an increase in transactions in the market. If the participation of investors in the market increases, it is expected to contribute to the development of the capital market situation.