Recently, the stock market hit a six-month low, marking its ninth straight session of losses. This downturn is attributed to various factors including less than spectacular corporate results, the lack of debut offerings from reputable businesses, and a dwindling faith among investors. The benchmark index of the Dhaka Stock Exchange (DSE) the DSEX fell by another 49 points or almost 1 percent to settle at 4,972. Over the course of the nine-session losing streak, the index slipped by 233 points, translating into a depreciation of 4.4 percent. This has the DSEX dipping below 5,000 for the first time since the last quarter of the previous year.
A surge of hopeful sentiments hit the market last year following the displacement of the Sheikh Hasina-led government in the month of August. The anticipation of major overhaul efforts gave investors a sense of optimism that more high-prospect companies would soon make their market debut. Propelled by such buoyancy, the DSEX experienced a sudden spike, growing by 723 points or 14 percent to reach 5,952 just within a week of trading. Regrettably, the bull run did not persist.
Disheartenment set in among investors as they observed a profit tapering for listed companies during the fiscal year 2023-24. Compounding the issue, the third quarter of the following fiscal year saw a further contraction, perpetuating the negative trend. The optimism that pervaded the market post-August 5, bolstered by visions of a revitalised Bangladesh buoyed by elevated corporate earnings, failed to materialise as multiple sectors grappled with escalating inflation, interest rate hikes, and government spending cutbacks.
An evaluation of the financial reports reveals that listed businesses experienced a roughly 24 percent decrease in profits year-over-year during the January-September period of the preceding year. Escalating inflation has taken a toll on household spending, leading to negative impacts on sectors primarily geared towards consumers including construction-related firms. Moreover, the curtailing of government expenditure on infrastructure projects has put additional pressure on the construction industry, causing stock prices to falter.
In any economy, stock market performance is often reflective of interest rate movements. A hike in interest rates typically corresponds to a fall in stock prices, whereas a lowering of interest rates could trigger an upturn. Such a phenomenon has repeatedly emerged in the years 2017, 2021, and before. The exorbitantly high-interest rates evident in the current economic climate are instrumental to the ongoing slump in the market.
Often, during downturns in the market, foreign and institutional investors play a pivotal role, providing much-needed patience and capital. However, their conspicuous absence has only compounded the prevailing market strain. Frightened off by the perceived artificial overvaluation of local currency and the imposition of pricing floors, foreign investors have been unwinding their holdings for several years. As a rule, when foreign investors witness interventionist policies like currency bolstering or pricing controls, they quickly liquidate their holdings for safety.
Market downturns, while posing some degree of risk, are typically seen as excellent opportunities to invest in quality stocks, banking on the likelihood of a rebound in the near future. On a less positive note, the Shariah-compliant DSES index fell 1.47 percent to 1,104.70, while the blue-chip DS30 index slipped 1.20 percent to 1,845. However, it wasn’t all bad news as the trading turnover saw a 22 percent uptick, climbing up to Tk 367.14 crore. This indicates a marginal pickup in investor activity despite the persistently bearish climate.
Out of 395 traded issues, 52 showed gains, 300 posted losses, and 46 maintained their existing positions. Energypac Power Generation led the pack in gains, surging up by 9 percent, while Eastern Bank shares bore the brunt of the slump, falling by a substantial 20 percent.
The rising interest rates have now channeled investors towards more secure alternatives like bank deposits, savings certificates, and treasury bonds. The stock market has seen a noticeable slowdown, and with no Initial Public Offerings (IPOs) in the last eight months, returns on investment have been rather meager. Shares of banks and non-banking financial institutions continue to hold little appeal due to the massive volume of non-performing loans and questionable lending habits.
Several companies still have not publicised their financial accounts for 2023. As banking stocks carry a significant weight on the index, their poor performance has spread its effects far and wide across the market. Interestingly, the preceding eight months saw no listing of substandard companies, which can be considered a positive development.
The bleak turnover, nevertheless, may discourage even financially solid companies from venturing into the market. The current lackluster state of the market carries significant lessons for the investors and the regulators alike. Timely measures, both from an investment perspective and from a regulatory viewpoint, are now an essential requirement to prevent further erosion of investor confidence and market stability.
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