How investor exit, thin liquidity are rewriting the DSEX

The latest rebalancing of the benchmark index of the Dhaka bourse has pushed out several fundamentally strong stocks in favour of junk stocks, a consequence of investors' prolonged exit from the secondary market over the past two years.

"This is a true reflection of our market and it was supposed to happen. Now, there are no investors in the market with the capacity to make fresh investments," said Md Ashequr Rahman, managing director of Midway Securities.

In the barren market, a group of market manipulators have been injecting money into small companies to inflate their stock prices and make capital gains. These companies are easy targets for artificial rallies as they have small free floats.

The revised index, announced on Tuesday, included nine poor-performing companies, including Zeal Bangla Sugar Mills.

On the other hand, the list of 13 excluded companies included BEXIMCO and Unilever Consumer Care.

The fundamental base and accounting standards followed by Unilever Consumer Care are far better than those of the companies included in the revised index.

However, financial performance or transparency is not taken into consideration in the restructuring of the index.

As per the DSE's index methodology, designed by S&P Dow Jones Indices, a stock must feature a minimum six-month average daily turnover of Tk 1 million and free float worth at least Tk 100 million to be included in the main index of the Dhaka Stock Exchange.

BEXIMCO and Unilever Consumer Care were excluded from the index as their turnover declined due to scant investor participation.

"The cumulative turnover values posted by the junk stocks helped them get included in the benchmark index," said Rahman.

Meanwhile, revised margin rules were believed to be effective in containing stock manipulation.

Earlier, the disbursement of margin loans had been blamed for the rallies in junk stocks. However, the revised rules, which came into effect in November last year, introduced stricter criteria for marginable securities.

Nevertheless, junk stocks have continued to see higher turnover due to increased investor participation. This occurred as returns from the index remained negative amid a lack of fundamentally strong stocks, macroeconomic worries, and a persistent downtrend in the equity market.

Insiders said large-cap companies had remained stagnant on the bourses for a long time, and investors knew there would be little chance of price appreciation in those stocks.

As a result, investors have been betting on junk stocks to make capital gains.

In a stable market, blue-chip stocks usually dominate the turnover leaders' chart.

Companies included in DSEX

The companies included in the revised DSEX are Bangladesh Welding Electrodes, DESCO, Dulamia Cotton Spinning Mills, Hwa Well Textiles (BD), Northern Islami Insurance, Safko Spinnings Mills, Sharp Industries, Standard Ceramics, and Zeal Bangla Sugar Mills.Trade Fair Guide

Of these, Dulamia Cotton Spinning Mills had current liabilities of Tk 314.71 million, far exceeding its assets of Tk 22.82 million as of June last year. 'Z' category company Zeal Bangla Sugar Mills incurred losses for more than a decade through FY25, while Safko Spinnings Mills and Standard Ceramics Industries remained in the red for three consecutive years through FY25.

Companies excluded from DSEX

Apart from BEXIMCO and Unilever Consumer Care, five Islamic banks undergoing a merger have been dropped from the revised index.

Other companies now excluded from the DSEX include Apollo Ispat Complex, Union Capital, and Meghna Condensed Milk.

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