Fragility causes market to remain stunted: Stakeholders

Stakeholders are pressing the securities regulator to act to strengthen the fundamentals of the capital market, saying it would not gain stability otherwise.

At a Monday meeting, they lamented that while the country achieved a growth in wealth in other sectors over the years the equity market saw little expansion through listing of quality scrips.

For example, an investor, who purchased a piece of land a few years back, is able to see a significant growth in his wealth. In comparison to that, the asset growth in the stock market will look insignificant.

"The market will see volatility again and again until its wealth base is enriched," said Saifuddin Ahmed, managing director of IDLC Securities.

The attendees also pointed out regulatory intervention in management of margin loans.

Market players met representatives of the Bangladesh Securities and Exchange Commission (BSEC) on Monday against the backdrop of a persistent downward spiral of stocks since the withdrawal of floor price.

Since the 2010 stock market debacle more than 150 companies have been listed on the bourses but only a handful of them would be considered for good investments. Most companies with strong fundamentals have remained outside the purview of the market.

The BSEC called the meeting on an urgent basis to discuss measures that should be taken to contain the market's free fall and to ensure long-term stability.

Stocks rebounded on Monday, with the key index of the DSE going up by more than 21 points to settle at 5,675 after losing 211 points in five sessions in a row.

On Monday, the sale pressure eased to some extent as the news about the meeting spread engendering optimism.

Dr. Shaikh Shamsuddin Ahmed, a BSEC commissioner, presided over the meeting attended by representatives of the Dhaka Stock Exchange (DSE), Bangladesh Merchant Bankers Association (BMBA) and DSE Brokers Association (DBA).

The attendees laid importance on listing of fundamentally-strong companies, including multinational companies (MNCs). They put forth a proposal that listing of MNCs be made mandatory.

There was even a suggestion that MNCs should go public if their annual profit crossed a certain level, for example Tk 2 billion.

The securities regulator said it would provide policy support to facilitate quality IPOs (initial public offerings).

Regarding margin loans, stakeholders said lenders should have enjoyed absolute discretion in managing margin loans.

They complained that lenders had been unofficially barred at times from executing forced selling to keep the market from falling. As a result, negative equities ballooned and so forced selling now took the market to the brink of a crash.

Abrupt decisions by listed state-owned enterprises (SoEs) were also blamed for negative impacts on the market.

The meeting participants said the government should consider the interest of minority shareholders when taking any decision that may affect the earnings of listed SoEs.

Fresh participation by banks in the capital market was also discussed at the meeting. The stakeholders said banks had the scope of supporting the market within their stipulated exposure to the market.

DBA President Saiful Islam told the FE that the attendees informed the regulator that some funds had been diverted to the bond market following the interest rate hikes.

"It's not unexpected and now the interest rates of Treasury bonds have become stable a bit." Investors' long-term approach to capital gains from blue chip stocks would help the market attain stability, Mr Islam added.

The BSEC said it would accelerate the process to approve the pending proposals of mutual funds in a bid to strengthen the liquidity flow in the market.

Asked, BSEC commissioner Shamsuddin Ahmed said, "The BSEC has moved to revise the rules of margin loans to make it more investor friendly."

He said the IPO valuation process would also be revised to support the listing of good companies.

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