Capital market passed yet another gloomy year as the core index of the Dhaka Stock Exchange (DSE) lost 26.56% year-on-year in FY2020, as stocks never encountered this much bad time after its big collapse in 2010-11. The fiscal year 2020 was a complete mess for the stock business and a year of disappointment for the stock market, as the market index, turnover, and fundraising from the market all touched rock bottom. The DSEX, the benchmark index of the country’s prime bourse, concluded the year, losing 26.56% or 1,432 points to close at 3,989.08 points on Tuesday. The DSEX was at 5,421.62 points on June 30, last year. Average turnover stood at Tk381 crore in each session in FY20, which was Tk614 crore last year. Market capitalization at DSE has shed Tk87,850 crore in the last fiscal year to stand at Tk3,11,966 crore.
Why the downward trend
The market has been in the doldrums for almost two years amid a host of reasons including woes in the banking sector, lack of good governance in the capital market, and Grameenphone’s dispute with the Bangladesh Telecommunication Regulatory Commission over an audit claim. Investors suffered from a lack of confidence for long, while disappointing data on major macroeconomic indicators badly dampened investors’ confidence. In the final quarter of the concluding fiscal year, the overall market situation was gloomy due to the coronavirus pandemic, and poor confidence in trading. Apart from a lack of confidence in the regulators, investors grappled with a number of issues including rising non-performing loans and liquidity shortage in the financial sector. Sell-offs by foreign investors, alongside investors’ lack of confidence, also dented the market.
Meanwhile, a drastic fall in the prices of large-cap stocks such as Square Pharma, United Power and BATBC contributed to the decline in the outgoing year. Market analysts and insiders have also attributed the year-long drop in the stock market to a confidence crisis.
Shakil Rizvi, director and former president of Dhaka Stock Exchange has told Dhaka Tribune that the market saw a downward trend in the last fiscal year as it was a bad year for stakeholders and investors. “The investors were grappling with the prolonged bearish trend of the market, Covid-19 outbreak, liquidity crisis in the country’s financial sector especially leasing firms, and Grameenphone’s tussle with the telecom regulator BTRC.”
Massive reforms of the BSEC
The stock market regulator, the Bangladesh Securities and Exchange Commission (BSEC), in July amended a number of security rules on capital raising through initial public offerings (IPOs) and quota facility for the general investors, targeting to revive the market. The commission in the same month also increased the existing one-year lock-in provision for the placement shareholders to a two-year period to boost the normal business activities of the capital market and lessen the unfair influence of private placement holders. The stock market regulator also issued a directive to two bourses to put a 50% circuit breaker on share prices of newly listed companies for the opening two days to prevent their abnormal price movement. IPO quota facility for the general investors was raised to 50% from existing 40% under the fixed price method while under the book building method it was raised to 40% from 30%, all to build confidence in the market. The BSEC decided to allow non-listed firms, bonds and debentures for trading their shares under a new platform called Alternative Trading Board (ATB) and Investment Sukuk Rules, 2019. Newly appointed Chairman at BSEC Shibli Rubayat Ul Islam, talking to Dhaka Tribune, said there had been many reform initiatives in the stock market in the last few years. “I would try to implement those reforms. If these are implemented, the stock market would be sustainable for a long time,” he hoped. He also said, “Our stock market has remained only equity-based. I will focus on launching bonds, debentures, Sukuk and alternative investment funds in the market”.
Fundraising through IPOs lowest in 11 years
The concluding fiscal year saw a sharp decline in the issuance of initial public offerings (IPOs) to collect fresh funds from the primary market as the amount of finance and number of firms making debuts was the lowest in 11 years in FY2020. Only three companies and one bond raised Tk333 crore in the financial year, in contrast to Tk571 crore raised by 11 companies and two mutual funds in FY19. Fundraising through IPO in FY20 was the lowest after the financial year 2008-09 when companies had raised only Tk 82 crore. The BSEC’s slow policy in giving approvals and a downward trend in the secondary market were the major factors behind the significant fall in IPOs this year. A former adviser to a caretaker government AB Mirza Azizul Islam told Dhaka Tribune: “The stock market is a great source of funds, but its true potential is still untapped”. “To attract entrepreneurs, the government has to set an example by offloading shares of state-owned companies (to the stock market),” he said. Aziz, also a former BSEC chairman, has added that the stock market regulator, stock exchanges, and issue managers also have key roles to play in attracting companies to get listed on the bourses.
