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The broad index of the Dhaka Stock Exchange (DSEX) posted a strong gain of 15 per cent, or 696 points, over nearly three-month period through August 21, largely driven by the performance of the top 20 companies with free-float market capitalisation.
Market analysts described the rally as 'rational', noting that the upward movement was driven by fundamentally strong companies, in stark contrast to speculative rallies typically seen in junk stocks.
Square Pharmaceuticals, with the highest free-float market cap of Tk 108.69 billion as of Thursday, played a key role in the index's rise. The stock climbed 16 per cent from its post-correction level on May 27, reaching Tk 232.20 by August 3. It later saw a correction to close at Tk 221 on August 21.
Islami Bank Bangladesh, holding the second-largest free float market cap, registered a sharp gain of 42 per cent during the same period, closing at Tk 48.40 on August 3. It also saw a a correction to close at Tk 43.4 on August 21.
Other major players such as British American Tobacco Bangladesh Company (BATBC), Walton Hi-Tech Industries, Beacon Pharmaceuticals, and Grameenphone also saw their peaks around August 3, further bolstering the index.
As a result, the DSEX advanced by 18 per cent, or 858 points, to hit 5,536 points by early August. However, after a mild correction since then, the index settled at 5,374 points on Thursday last.
These companies' valuations were largely stagnant before May, said S M Galibur Rahman, Head of Research and Strategic Planning at Shanta Securities.
When fundamentally strong, large-cap stocks rally, it is rational. This is unlike junk stock rallies, which are often based on speculation alone, he said.
"So, the appreciation of fundamentally sound stocks observed over the three months through early August was quite rational," Rahman added.
He pointed out that a declining trend in interest rates played a significant role in the index's rise. Historical data shows similar equity market appreciations in 2010 and 2021 coincided with falling interest rates. Investor sentiment surrounding the upcoming national elections also added to the momentum for the large-cap companies having good fundamentals.
Among the top gainers, Walton Hi-Tech Industries saw an appreciation since May 27, soaring 17.45 per cent to Tk 461 on August 3. The stock dropped to Tk 453.60 on August 21.
Grameenphone followed a similar trajectory, reaching Tk 318.30 on August 3 before easing to Tk 299.20.
The DSEX's movement closely mirrored the price trends of these influential stocks due to their significant weight on the index.
In contrast, recent rallies in poor-performing or junk stocks had little effect on the broad index. Despite dominating the top 10 gainers' chart on Thursday, poor-performing stocks like Samata Leather and Legacy Footwear failed to lift the DSEX. Samata Leather soared 136 per cent since May 7, closing at Tk 104.20 on August 21, while Legacy Footwear gained 65 per cent to Tk 74.20 since May 28.
These speculative rallies from junk stocks don't contribute meaningfully to the index, according to market analysts.
The market's recent performance underscores the growing investor preference for fundamentally sound stocks, especially amid macroeconomic shifts and political anticipation ahead of the national elections.
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