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Bank & Finance - Corporate - January 4, 2024

Foreign investments halved in capital market

Effect of Floor Price

Staff Correspondent : The capital market plays an important role in keeping the wheels of the economy moving in the developed world. But the opposite is the case in Bangladesh. Investors are losing money in the clutches of the manipulation cycle. Foreign investment has also halved. But to attract foreign investment, ‘road shows’ were held in 15 cities of 8 countries of the world.
Market analysts say that the share price fixing (floor price) is responsible for this poor condition of the capital market. Markets have been crippled by floor prices. Investors will not come even if you give hundreds of speeches in front of foreigners by doing road shows. If you can gain the trust of the investors by stopping the manipulation, the investors will come on their own initiative.

According to the source of Central Depository Bangladesh Limited (CDBL), which is known as the capital market database, the number of Beneficiary Owners (BO) account holders on January 1, 2023 was 18 lakh 45 thousand 329. In December of the same year, 17 lakh 54 thousand 329 came. That is, 4.92 percent or 91 thousand 206 BO accounts have decreased.
Initial public offerings (IPOs) have seen the biggest crash in recent memory. Only 2 companies sold shares in IPO in 2023. However, in 2020 and 21, a record amount of money was withdrawn from the capital market through IPO. Although slightly lower in 2022, it was still higher than the previous year.
To attract foreign investment, Bangladesh Securities and Exchange Commission (BSEC), the regulatory body of the capital market, organized road shows in 15 cities in 8 countries of the world, including the United States, Europe, and the Middle East. It is supported by Bangladesh Investment Development Authority (BIDA). But the purpose of this road show has failed. According to the data of Bangladesh Bank, the investment of foreign individuals and companies decreased by 20.8 percent to $2.33 billion in the financial year 2022-23. In the financial year 2018-19 which was $4.5 billion. In other words, foreign investment has decreased by $2.17 billion or half in the span of five years.
$1.12 billion of the investment made in the financial year 2022-23 came in various bonds.
The average daily turnover of the Dhaka Stock Exchange (DSE) has decreased by 40 percent to Tk 792 crore in the last financial year due to the decrease in the participation of investors in the capital market. The previous year which was Tk 1,328 crores.
When asked, the former chairman of Dhaka University’s economics department and capital market analyst Professor Abu Ahmed said that BSEC itself knows that foreign investment will not come through road shows. Under specific projects, BSEC has completed their duties by conducting road shows. Foreigners never invest on hearsay. It will not work even if you give a speech in front of them a hundred times. Capital markets have been crippled by floor prices. Regulators think they can get away with floor prices, but that would mean paralyzing capital markets. Foreigners will not come to invest in stagnant market.
He said, if there was no floor price, the share price would have fluctuated. Shares were trading at lower prices. Now it cannot go below the specified price. Investors are not able to buy shares at their expected price. Shareholders cannot sell at a lower price if they want to sell. But it is also true that floor price manipulation is a barrier to the cycle.
In July 2022, the BSEC set a floor price for each share to prevent the index from falling freely amid the economic uncertainty created globally by the Corona pandemic. However, in December last year, this system was removed for 169 institutions to make the market transaction oriented. But in March this year, floor prices were again introduced for all stocks. The floor price stalled the market as most of the stocks went untraded.
Analysis of market data has shown that, among the companies participating in the capital market transactions, about 60 percent of the company’s shares tumble at the floor price. Shares of these companies are not traded. This situation has been going on for the past one year. As a result, the share price is not falling much. Similarly, the shareholders are not able to sell at low prices.
When asked about this, Executive Director and Spokesperson of Bangladesh Securities and Exchange Commission Mohammad Rezaul Karim said, due to increase in interest rate, dollar crisis, there has been some negative impact on the capital market. Apart from this, there is an apprehension about the elections. Hope the stock market will be good after the election. Then the liquidity crisis will be over.
Meanwhile, Al-Amin, Associate Professor of Accounting and Information Systems Department of Dhaka University, considers the devaluation of taka against the dollar responsible as another reason for the decrease in foreign investment. He said, foreign investors don’t like such markets where investments can get stuck. Taka depreciates against dollar. Due to the devaluation of the rupee, the value of their assets decreased even though the share price remained unchanged. So foreign investors are selling shares.
According to Bangladesh Bank data, the rupee has depreciated by 21 percent in the last one year. As a result, the dollar rate increased from Tk 86.45 to Tk 108.50.

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