78% of stocks see price erosion despite lower circuit

Infographics: TBS

After the introduction of a 3% lower circuit last month for a single trading day, a considerable number of stocks listed on the bourses underwent price erosion of up to 53%.

To halt the downward trend in the stock market, triggered by the removal of a significant regulatory restraint — the floor price, the Bangladesh Securities and Exchange Commission (BSEC) imposed a lower circuit on 24 April. 

This directive stipulated that no stock could decline by more than 3% per day, a significantly narrower margin compared to the previous 10% limit, across both the Dhaka and Chattogram bourses.

Since then, over 25 trading days, the market saw fluctuations, characterised by 17 days of decline marked by significant decreases in indices and turnover, and eight days of increase. 

During these trading sessions, the prices of 308 stocks, representing 78% of the total stocks traded on the bourse, experienced declines ranging from 0.1% to 53%.

On the contrary, only 76 or 19.19% of the stock saw a rise in prices ranging from 0.4% to 77% until 29 May, according to an analysis of Royal Capital. No changes were seen in 11 stocks.

Stockbrokers attributed the regulatory intervention aimed at curbing price falls to inadvertently triggering an artificial price movement mechanism, leading to market instability and a significant rise in share selling.

In times of economic discomfort, compounded by rising interest rates, the stock market is experiencing a shift in funds towards alternative investment tools such as government treasury bills and bonds.

On Thursday, the indices managed to end at a green trajectory after a two-day downward trend with the advancement of 213 stocks traded at the Dhaka Stock Exchange (DSE), and 126 stocks seeing the price fall.

Ashiqur Rahman, managing director at MIDWAY Securities, told The Business Standard, "Even though a 3% lower limit was set to prevent share prices from declining, it has proved ineffective. Consequently, the share prices of some companies are decreasing daily."

He mentioned that the economy is currently facing a challenging period. While the impact of this challenge varies among companies, the imposition of artificial limits is exerting pressure on all. Consequently, many are opting to sell their shares at a loss rather than holding onto them.

Ashiqur said attempts have been made to stabilise the market with floor prices, but these efforts have also been futile. The current method is unlikely to yield significant results either, as investor apprehensions about diminishing share values persist.

Illustrating with an example from his brokerage house, he said, "New investors are refraining from entering the market and instead choosing to exit through selling. Particularly, there has been an influx of investments into treasury bills and bonds."

Which stocks fell harder?

According to DSE data, Sonali Aansh Industries witnessed the highest fall in its stock price by 53% within 25 trading days as investors sold off shares.

When the bottom circuits were imposed a month before on 24 April, its shares price was Tk581.8 each at the DSE, and on 29 May, it declined to Tk273.6 each.

Basically, its share price significantly declined owing to the dilution of 100% stock dividends for the 2022-23 fiscal. Besides, the imposition of 3% lower circuits also contributed to the price fall.

Aftab Automobiles was the second-top loser with a fall of 39.1% in its shares price to Tk28.6 each.

The company had paid a 10% cash dividend to its shareholders for FY23 and made Tk41 lakh profit.

In addition, 26 more companies witnessed a 20% and over 20% fall in prices.

Some of the companies are — HR Textile, Sonali Paper, Beacon Pharma, Central Pharma, Emerald Oil Industries, Fortune Shoes, Central Insurance, Gemini Sea Foods, Aramit Cement, Anwar Galvanizing, Fu-Wang Foods, Deshbandhu Polymer, and ADN Telecom.

The gainers

The Bangladesh Industrial Finance Company, a loss-making non-bank financial institution, has witnessed the highest price jump in a month up to 77.4% to Tk11 each on 29 May, from Tk6.2 each on 24 April.

The company had no record at the DSE of paying dividends since 2013, and every year, its losses have been mounting. In 2021, the NBFI incurred a loss of Tk98 crore.

While Mithun Knitting and Dyeing was the second top gainer as its share price gained by 55.3% in months as a Chinese firm is going to take over it.

Some of the top gainers are — Alltex Industries, Golden Jubellie Mutual Fund, Far East Knitting and Dying, Pragati Life Insurance, Global Heavy Chemicals, and NRB Bank.