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Stocks rebounded strongly on Monday, after a single-day break, as investor confidence was boosted by the news of capital gain tax cut for individual investors.
The market appeared subdued initially and remained volatile until the first half of the session. However, it gained momentum in the latter half following the announcement of policy measures related to capital gain tax.
Investors rushed to capitalize on oversold stocks deemed to be trading at lucrative prices.
Substantial price hikes of selective large-cap stocks, including blue chips, helped the benchmark index of the Dhaka Stock Exchange (DSE) surge almost 62 points or 1.18 per cent to settle at 5,252, after losing more than 8 points the day before.
"The capital gain tax cut news sparked a significant surge in investor sentiment, propelling a strong upward move across key indices," said EBL Securities.
The National Board of Revenue (NBR) lowered the tax rate to 15 per cent on capital gains of individual investors, applicable from FY25 for profits exceeding Tk 5 million. The move was aimed at encouraging investment in the capital market.
Prior to this tax cut, if capital gains exceeded Tk 5 million, the tax rate was determined by the taxpayers' income threshold with a maximum rate of 30 per cent.
In addition, there was a surcharge on capital gains, taking the rate to as high as 40.5 percent based on the amount of assets owned by the individual.
If the duration of stock holdings was less than five years, capital gains were supposed to be added to the taxpayer's income from other sources before the rate was determined by the tax slabs fixed for individual taxpayers.
Following the relaxation, the tax rate on capital gains would be 15 per cent regardless of the amount of gains and the time of stock selling.
As a result of the reduction in the tax rate, the overall tax burden on taxpayers with over Tk 5 million capital gains would fall to 20.25 per cent from 40.5 per cent earlier.
Taxpayers with lower wealth will also see their overall tax burden decline in line with the rate of surcharge on net wealth.
Welcoming the decision, Md Saiful Islam, president of the DSE Brokers Association of Bangladesh, said the tax cut was much needed to help the market overcome the prolonged bearish trend and to increase the liquidity flow in the market.
High net-worth individual investors as well foreign investors will feel encouraged to put funds in the equity market, he said.
The regulatory efforts to find out the reasons for the recent market fall through formation of a panel and favorable earnings disclosures by major companies are other factors responsible for elevating investor confidence.
Price hikes of selective large-cap stocks, such as Olympic Industries, Islami Bank, BAT Bangladesh, BRAC Bank, Square Pharma, and Gramophone largely supported the overall market recovery. They jointly accounted for one-third of the day's index gain.
Subsequently, DS30 index, which represents a group of 30 prominent companies, rose 22 points to 1,937 while the DSES index, which represents Shariah-based companies, gained 15 points to 1,162.
Along with the index, turnover, another important indicator of the market, climbed 31 per cent to Tk 5.65 billion, as investors poured funds in large-cap stocks in anticipation of short-term gains.
Most of the traded stocks saw price hikes as out of 396 issued traded, 257 advanced, 107 declined, and 32 issues remained unchanged on the DSE trading floor.
All the large-cap sectors posted gains. The food sector witnessed the highest gain of 2 per cent, closely followed by telecom, power, engineering, pharma and banking sectors.
Bangladesh Shipping Corporation was the most-traded stock with shares worth Tk 197 million changing hands, closely followed by Far East Knitting and Dyeing, Orion Infusion, Islami bank, and Unique Hotel and Resorts.
The Chittagong Stock Exchange (CSE) also rebounded, with the CSE All Share Price Index (CASPI) recovering 122 points to settle at 14,584 and its Selective Categories Index (CSCX) gaining 77 points to 8,874.