All stakeholders wish to see a stock market that can sustain a trade value of over Tk 10 billion per day. Let's explore the trade value pattern that we observed in past.
Capital market in Bangladesh saw a trade value over Tk 10 billion for the first time on July 2, 2009. Since then, the marker observed trade value over Tk 10 billion only for 462 times till Feb 28, 2021. During the period, Dhaka Stock Exchange (DSE) observed such a trade value for a significant number of sessions in 2010-2011. The premier bourse DSE featured a trade value over Tk 10 billion for 174 sessions without any break during April 20, 2010 to January 5, 2011. The market also observed a trade value over Tk 10 billion for many sessions even in declining trend that we saw after the largest ever collapse started on December 5, 2010. Afterwards, the market never experienced such a longest streak of trade value of Tk 10 billion.
The second longest streak was observed in 2010 for 25 days since Jan 3 to February 4. The market saw the third longest streak, another promising one, in 2020-2021 for 24 days during Dec 23, 2020 to 26 January 26, 2021. Now, let's have a glimpse of the year-wise trading days of featuring trade value over Tk 10 billion by the premier bourse DSE (see table).
Why didn't the trend last longer after 2010? What were we missing?
2010 was a year of many abnormal situations. One of the most interesting issues was the growth in market capitalisation. More than 80 per cent growth in market cap, observed during mid 2009 to December 5, 2010, was intensified by denomination of the face value of the shares of some 45 companies. According to probe report on the 2010-11 stock market crash, the price sensitive information regarding changing their face value to Tk 10 each from Tk 100 each created hikes in their market prices. There were many other reasons behind the abnormal hikes. But the change in face value was the most active catalyst. The reason for collapse has been debated in many platforms repeatedly for many years. Market participants struggled for about a decade to cover the exposures.
The interesting streak of high value of trade didn't last long. What fuelled this trend? Many would argue it was the excess liquidity in money market and lower interest. Fact is that there is no financial liquidity issue in the market. The problem lies elsewhere.
There are many issues as to why the market can't sustain the long streaks of high trade value. But two major issues are related to supply of shares in the market. The first one is traditional method of IPOs (initial public offering) we have been seeing over decades. Every IPO drains the market liquidity. Let's agree that IPO means a flow of fund from investors to firms - but in the capital market the firms only get a portion of fund or gain.
It's the IPO hunters who have hundreds of empty fake BO (beneficiary owner's) that take away most of the gains in the name of profit. But those IPO hunters hardly ever backed the secondary market. The latest decision to allow IPO shares to only those accountholders who hold portfolios worth at least Tk 20,000 will hopefully ease the situation to some extent.
The second issue relates to the source of share supply having a broader aspect. It covers the time it takes, the quality of issuers, the costs, unknown obstacles behind the listing of government entities, among others.
Traditional IPOs takes more than a year from the time the issuer starts to prepare to the time the shares are listed on any of the bourses. And it is mandatory to raise capital.
There is a common complain that many good companies do not come to the market. Did we ever explore why they don't want to? Most of them do not even need fresh capital.
The incentives, offered for their listing with the bourses, such as a status, market valuation, liquidity and for most a tax break of 10 per cent still are not enough to attract many good companies.
Do we have ways to address this issue? Fortunately, we do - it's called direct listing - we have the whole process and existing improved regulations for it in place. Unfortunately, it's not available to private entities. Why? We had some bad examples - let's not name those. Chopping off the head for a headache is never a solution. But, in this case that is what we have done and most market stakeholders stick to this wrong practice up to till date.
The capital market of Bangladesh is one of the few most digitalised industries in the country. There is almost nothing that can be executed here without a digital process. Yes, there are still many areas where improvements are necessary and expected. On this day and age, is it acceptable that we can't manage share offload. We are scared that there will be manipulations in the offloading process. Haven't we observed manipulations in the share prices of newly listed companies from the debut trading? Are we going to stop IPOs and listings because the process allows abnormally high price hike for first few days in most cases? We don't think so.
Direct listing is a simple process and time to market is significantly lower. It is less costly for issuers. It opens the door for unlimited supply of quality shares. We hope it will open again soon for private entities. Only good steady supply of shares will allow the market to sustain trades over Tk 10 billion per day.
N U Ahmed works in the capital market. [email protected]