Dhaka bourse plunges to 39-month low as budget reinforces pessimism

The first trading session after the placing of the FY25 budget in parliament dragged the prime index to a fresh 39-month low of 5,171 points as pessimism heightened about the equity market.

The budgetary measures, market operators say, failed to meet investors' expectations.

Instead of making attempts to help the market recover from the perpetual decline, the budget proposed imposing capital gain tax on individual investors for the first time, applicable when profits exceed Tk 5 million.

The stock market has already been passing through a critical time amid lingering macroeconomic challenges.

On Sunday, it opened much lower from the previous session. The downbeat vibe continued until the end of the session with no sign of reversal.

Substantial price erosion of selective large-cap stocks drove the Dhaka Stock Exchange (DSE) down nearly 66 points or 1.26 per cent to 5,171, the lowest since April 11, 2021.

"Investors were not happy with the budgetary measures tied to the capital market," said Md Sajedul Islam, managing director of Shyamol Equity Management.

So, many investors exerted pressure to sell off their holdings, he said. Pre-Eid sale pressure and margin account adjustments intensified stocks' downward spiral.

"Continued price erosion of many stocks led to margin calls," said Mr Islam.

Square Pharma, Beximco Pharma, Olympic Industries, and LafargeHolcim suffered the biggest losses and contributed largely to the index plunge.

The negative sentiment about the market made investors shy away from taking fresh positions while they saw losses mount in their portfolios since the removal of the floor price.

The DSEX has tumbled 18 per cent since the price restriction was withdrawn in January this year. At the same time, stocks lost Tk 1.5 trillion in market value.

"The investors' sentiment remained negative across the trading floor amidst the already subdued market confidence," said EBL Securities.

High interest rates in the banking sector, devaluation of the local currency, and imposition of capital gain tax on individual investors were the main reasons behind the selling spree.

Apart from the imposition of capital gain tax, the corporate tax rate gap between listed and non-listed firms has been narrowed to 5 per cent from 7.50 per cent in the FY25 budget, which, analysts think, would further squeeze the flow of IPOs as companies will not feel the need to float shares to the public.

The budget suggested an opportunity to invest undisclosed money in securities, flats, lands etc. and market analysts fear that the expected additional cash will mostly go to less-risky areas of investment, real estate for example, rather than the volatile equity market.

"Large investors and foreign investors are not optimistic about the macroeconomic outlook of the country and so they are selling shares," said a merchant banker, requesting not to be named.

Although most of the blue-chip stocks are already cheap, investors are selling those, he added.

The blue chip index DS30, a group of 30 prominent companies, lost more than 22 points to plunge to 1,835 on Sunday while the DSES Index, which represents Shariah-based companies, shed 16 points to 1,120.

Owing to external and internal factors, inflation has stayed above 9 per cent for the past 20 months, one of the longest spells of cost-of-living crisis in recent memories. High inflation squeezed people's disposable income as well as reduced their investment capability.

The Bangladesh stock market was the worst performer among the global markets in May this year.

Turnover, a crucial indicator of the market, stood at Tk 3.58 billion on Sunday, 34 per cent lower than the previous day.

Three sectors -- food, pharma, and textile -- accounted for half of the day's total turnover.

All sectors endured price fall, with paper facing the highest correction of 2.8 per cent, followed by jute, life insurance, travel, ceramic, and service and non-bank financial institutions.

About 87 per cent stocks declined on the bourses, as out of 392 issues traded, 340 saw price fall, 33 closed higher and 19 remained unchanged.

Lovello Ice-Cream was the most traded stock, with shares worth Tk 159 million changing hands, closely followed by Fortune Shoes, Asiatic Laboratories, Unilever Consumers Care, and Central Pharma.

The Chittagong Stock Exchange also ended sharply lower, with its All Shares Price Index (CASPI) shedding 106 points to 14,840 and the Selective Categories Index (CSCX) losing 65 points to 8,924.

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