Stock market rout deepens despite regulatory efforts

Stocks plummeted for a second consecutive week, marking this year's biggest single-week fall, with investors rushing to flee risky assets amid increasing economic uncertainty.

Despite the regulatory efforts to prop up the market, the bearish spell continued throughout this week as the benchmark equity index dropped below the 'psychological' threshold of 5,000 mark on the Dhaka Stock Exchange (DSE).

As part of the measures to halt the erosion of stock prices, the securities market regulator relaxed the investment limit of the Investment Corporation of Bangladesh (ICB) in a single 'A' category stock to enhance its capacity to invest more in good stocks.

The market regulator also extended the deadline for provisioning against negative equity in margin accounts and unrealised losses in dealer accounts to December this year with some conditions.

But such initiatives failed to bring any positive result, as the benchmark DSE index slid 125 points or 2.45 per cent this week to settle at 4,973, the lowest in six months.

Market analysts attribute the grim situation of the market to various factors, including lower than expected quarterly earnings and a heavy burden of negative equity that persisted since the 2010 market debacle and turned into a heavy burden on the equity market.

Before the 2010-11 stock market crash, lenders had disbursed margin loans aggressively boosting liquidity in the market. The outstanding negative equity against margin loans taken for investments in the equity market amounted to Tk 78.24 billion by October last year.

Brokers said margin loans had deepened financial distress and weakened intermediaries in the stock market and banks. There were spill-over impacts onto the whole market affecting even those who have not taken any margin loan.

"Due to the continuous market decline, many margin accounts came under forced sale, which exacerbated the index plunge," said Md Sajedul Islam, managing director of Shyamol Equity Management.

The long-pending negative equity has been hindering the market's growth for more than a decade, said Mr Islam, while issues are emerging one after another to heighten pessimism surrounding the market.

In the meantime, abrupt gas price hikes led to fresh concerns over the market outlook while higher returns from Treasury bonds are encouraging savers to move to the money market from the stock market, said Mr Islam.

The stock market is closely linked to interest rates. Usually, the equity market tends to weaken when interest rates rise and funds get diverted to the money market.

However, he said, it is high time to invest in quality stocks as many well performing stocks came down to a lucrative price level after major corrections.

Price fall of selective stocks, such as Islami Bank, Eastern Bank, Uttara Bank, Khan Brothers and Beximco Pharma, dragged the prime index down as they jointly accounted for more than 78-point fall of the index.

Substantial price erosion of blue-chip stocks dragged the blue-chip index DS30, a group of 30 prominent companies, down 30 points to 1,845 while the DSES Index, which represents Shariah-based companies, shed 39 points to 1,105.

EBL Securities in its weekly analysis said the market plunged further as investors' growing skepticism over the lack of clear indication regarding the unsettled concerns pervading the trading floor deepens the market's free fall for another week.

"The prolonged downturn prompted investors to shy away from taking positions in equities, while losses continued to mount on their portfolios as the distressed market lacked any major catalyst to revive investor confidence," said the stockbroker.

The total turnover on the prime bourse stood at Tk 17.18 billion this week, up from Tk 15.96 billion the previous week, as this week saw five trading days as against previous week's four sessions.

Consequently, the average daily turnover dropped to Tk 3.44 billion, 14 per cent down from the previous week's figure of Tk 3.99 billion.

Investors were mostly active in the banking sector, which accounted for 14 per cent of the week's total turnover, followed by the food sector (12 per cent) and power sector (11 per cent).

Major sectors posted negative performance. The non-bank financial institutions sector experienced the highest loss of 4.3 per cent, followed by engineering, banking, pharmaceuticals and telecom sectors.

More than 78 per cent shares saw price fall. Out of the 396 issues traded, 324 declined, 57 advanced, and 15 remained unchanged on the DSE trading floor.

Beach Hatchery was the most-traded stock with shares worth Tk 923 million changing hands, closely followed by Midland Bank, Bangladesh Shipping Corporation, Shahjibazar Power and Shinepukur Ceramics.

The port city bourse, Chittagong Stock Exchange, also ended lower, with the CSE All Share Price Index (CASPI) shedding 294 points to 13,957 while the Selective Categories Index (CSCX) fell 161 points to 8,524.

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