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The SME board of the Dhaka Stock Exchange (DSE) has plunged since the fall of the Sheikh Hasina-led regime in August last year, while the main market has been in recovery mode.
According to market analysts, investors started selling off SME stocks following the appointment of the new chairman, Khondoker Rashed Maqsood, at the Bangladesh Securities and Exchange Commission (BSEC), as speculation ran rife that the new commission would take tougher measures to curb price manipulation.
The DSE SME index lost 526 points to 948, while market capitalisation shed Tk 13 billion to Tk 19.06 billion between August 5 last year and September 4 this year.
In contrast, the DSE's main board index gained 385 points, with market capitalisation rising by Tk 824 billion during the same period, buoyed by selective blue-chip stocks.
The erosion in SME market value has largely been driven by steep corrections in little-known firms such as Yusuf Flour and Himadri, which had previously surged without any valid fundamentals.
"The downturn in SME stocks was inevitable, as their earlier price rallies were artificial and not aligned with companies' financial performance," said Akramul Alam, head of research at Royal Capital.
Yusuf Flour posted a profit of only Tk 8.62 million for FY24 and paid a 5 per cent cash dividend, while Himadri earned Tk 8.99 million in FY24 and offered a 5 per cent return to shareholders.
Himadri, which operates six potato cold storages in northern Bangladesh, saw its stock tumble 59 per cent to Tk 976 per share on the Dhaka bourse since the political transition.
The stock had skyrocketed to Tk 10,000 per share in November 2023, becoming the most expensive equity-based security on the exchanges, surpassing stocks of many fundamentally strong firms.
The stock of Himadri started its descent after the regulator in July last year penalized one individual investor and three firms with an aggregate fine of Tk 17 million for manipulating Himadri shares. The fines were imposed following a DSE investigation that found the four entities had engaged in manipulation of the SME stock between April 27 and August 28, 2023.
Even after the sharp correction, Himadri stock remains highly overvalued, with a price-to-earnings (P/E) ratio of 285 as of Thursday.
Another SME company, Yusuf Flour, also witnessed an abnormal stock price surge, reaching Tk 6,352 per share on June 30 last year. The stock has since plunged 64 per cent to Tk 2,000 per share.
Both Yusuf Flour and Himadri, which had earlier fueled the SME index's rally, experienced major corrections after the political shift last year, dragging the index down.
The Financial Express had reported on abnormal price hikes in SME stocks, particularly Yusuf Flour and Himadri. During the escalation of these stocks on the SME board, their trade numbers and volumes were insignificant, raising red flags.
"The share price of Yusuf Flour Mills should never be higher than blue-chip stocks on the main board," Mr. Alam added.
Meanwhile, since taking office, BSEC Chairman Mr. Maqsood has initiated a series of tough measures against market wrongdoers. The new commission has focused on sustainable capital market development, accountability, and penalizing manipulators.
In its compliance drive, the regulator imposed heavy fines on several manipulators and errant companies involved in irregularities under the previous commission-sending a strong warning to SME market players. Surveillance of the market has also been intensified.
Among other SME stocks, Agro Organica dropped 78 per cent, Krishibid Feed 65 per cent, Master Feed Agro 55 per cent, Krishibid Seed 50 per cent, and Apex Weaving 43 per cent.
The SME board was launched on September 30, 2021, with six companies and a base index of 1,000 points. It peaked at 2,244 points in August 2022 during a wave of speculative trading.
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