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Corporate - March 1, 2023

Fear growing in stock market

Many cos trapped in floor price

Mahfuja Mukul: The crisis in the stock market is increasing day by day. Shares of most companies without buyers. The market has been stuck at the floor price (minimum) for seven consecutive months. That is, trying to hold the market with artificial support. There are no buyers for the shares of more than 200 companies. As a result, the transaction has come down to Tk 200 crore. There is no new hope. As a result, a section of the investors got frustrated and took to the streets again.
Those concerned say that the crisis that is going on in the economy as a whole is having an impact on the stock market. There is little that the government or the regulatory body can do in the current market to improve the situation. As a result, the floor price should be removed and the market should be allowed to run at its own pace. However, the regulatory body Bangladesh Securities and Exchange Commission (BSEC) says otherwise.
BSEC Chairman Professor Shibli Rubaiyat-ul-Islam told, “I hope the market will be positive soon.” Because where the valuations of various companies are at the moment is attractive to any investor. However, he said, the floor price is not being raised for now. Because if it is given up the index will decrease. As a regulatory body we cannot put investors at risk. He said that the floor price is not an obstacle in the development of the market. Because if the index goes up a bit it will go up.
Analysts say that the current state of the stock market is unusual, but not unexpected. Because overall the state of the economy should be the same as the state of the market. According to them, the market problems of last 10 years are similar. There hasn’t been much change. They say the economy is under major pressure due to the Corona situation and the war in Ukraine and Russia. It has a direct impact on the stock market. The commission imposed the floor price for the second time on July 28, 2022 due to poor economic conditions.
This means that a company’s share price cannot fall below this limit. Apart from this, there are previous problems in the market. For example, in 2010 there was a market crash. There are several places in the current market that are similar to that period. Margin loans were unlimited in the market at that time. The number of good companies was less. Investments were based on rumours, not company fundamentals. The rise of the index was very rapid. Share prices of weaker companies rose abnormally. The rise in capital markets was not matched by other indicators of the economy.
On the other hand, the expectation of a section of investors is that the government will support the market to satisfy the investors keeping ahead of the national elections. However, sources say that if there are 10 priority sectors in front of the government, the stock market is not even at number 10. That is, the importance of the stock market has decreased for the government. On the other hand, another source says that the market will not be positive if the floor price is not raised. On the contrary, the crisis will increase. According to them, those who have invested with debt have the biggest problem due to the floor price.
Because the loan interest is increasing every day. Apart from this, merchant banks and brokerage houses who have given loans are also in danger. However, the commission is thinking of alternatives for market development. For this reason, importance is being given to fundraising. There are plans to use the Capital Market Stabilized Fund to support the market in this regard.
It should be noted that, normally, a company’s share price can increase or decrease by a maximum of 10 percent in a day. That is, if the price of a share is Tk 100, its price may increase up to Tk 110 taka tomorrow. If the price falls again, it will not be able to fall below Tk 90. In stock market parlance this is called a circuit breaker. But due to various reasons including instability in the economy, the market has fallen continuously. For this reason, new rules have been introduced to prevent instability during the Corona period. Its name is the ‘floor price’ of the share.
In this case, the price of a share will be based on the average price of the last transaction (closing price) of the previous 5 days. A company’s share price cannot fall below the floor price. But the price can increase up to 10 percent. Although the floor price was later lifted, the BSEC imposed the floor price on the capital market for the second time on July 28 this year to prevent the fall in prices due to the Ukraine-Russia war. And already the transactions of more than two hundred companies have been blocked due to the floor price.

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