Fundamental stocks eroding too after floor lifting
The blue-chip index loses 231 points in four months
Renata Limited, a fundamentally sound drug producer, witnessed a significant share price erosion after the removal of the floor restriction, despite posting resilient financial results in the March quarter amid high inflation.
According to Royal Capital data, since 18 January, when the Bangladesh Securities and Exchange Commission (BSEC) partially withdrew the floor restriction after over two years, Renata's stock has dropped by 45%, settling at Tk670.40 as of May 21.
The drug maker performed the worst among the 30 blue-chip stocks on the DS30 index of the Dhaka Stock Exchange (DSE).
As per the DSE data, since 18 January DS30 index has lost 231 points to settle at 1,907 on Thursday, the lowest since 4 April 2021.
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During the sessions, 16 stocks witnessed a sharp decline, while 11 advanced and 3 remained unchanged.
"Investors were stuck for long as they failed to sell shares amid the regulator's restrictions, that's why, the stocks faced selling pressure," the managing director of a brokerage firm told TBS.
He said many stocks among them remained undervalued based on the earnings and fundamentals.
He pointed out that the regulatory interference was the major reason behind subduing investor confidence.
The BSEC in April reinstated the floor price to mitigate the downward trend in stocks, three months after lifting the previous restrictions.
"So, the 3% circuit limit is the main cause for the continuous fall in prices, as traders do not want to be stuck with limited flexibility," he added.
Amid the downfall, some blue-chip stocks such as Sea Pearl, Kohinoor, ADN Telecom, and Eastern Housing witnessed sharp price hikes, but this was mostly dependent on manipulators, he said.
Meanwhile, around half of the stocks on the Dhaka bourses have witnessed a significant price erosion as investors were hurried to sell their holdings after the removal of the floor price.
Since then, till 21 May, 200 stocks out of 400 saw a substantial price fall in range of the highest 70% to the lowest 0.5%, according to an analysis of the Royal Capital Limited.
As per Royal Capital's data, the post floor removal, GSP Finance Company (Bangladesh), a non-bank financial institution (NBFI) witnessed the highest 70% price fall to Tk9.20 to date.
IPDC shares dropped by 64% to Tk20.9 each, and Ring Shine Textile fell by 62% to Tk3.7 each after the restriction was removed.
According to the DSE, in the last week, in the four out of five trading sessions, indices at the bourse witnessed a fall.
Since 18 January the benchmark index DSEX of the DSE has dropped by 1,024 points to close at 5,312 on Thursday, the lowest in 37 months.
The market capitalisation also declined by Tk1.34 lakh crore.
In a report published in March, FTSE Russell, a subsidiary of the London Stock Exchange Group, has maintained the rating for the Bangladesh capital market as "Not Met" in the criterion of efficient trading mechanisms as the bourse has yet to fully lift the floor price restrictions.
FTSE Russell has noted that following the recent announcements by the BSEC to lift the floor price restriction on all but six listed securities, it continues to engage with the BSEC to confirm when the final restrictions will be lifted.
Besides, the World Bank said in a report titled "Bangladesh Development Update" released on 2 April, investor confidence in the country's capital market remains subdued.
In its report, the World Bank mentioned that the BSEC withdrew floor prices on equities on 18 January, a move deemed to have alleviated a major market distortion.
Through the floor price, which was imposed in July 2022 to prevent the fall of the stock market, the regulatory body artificially kept the market within a limit for more than one and a half years, said the global lender. But after the floor price restrictions were lifted, the market could no longer be tied, it said.
