Stock market expected to head higher: PLFS Investments CEO

With the price floor protection, many stocks' availability at lucrative prices created an investment opportunity in the stock market, said Chartered Financial Analyst (CFA) Md Abdul Muktadir, chief executive officer of merchant bank PLFS Investments Ltd. 

He forecasts that the bourses of Dhaka and Chattogram would be dominated by the bulls in coming days as institutional and high net worth individual investors are taking the opportunity to gain from stocks amid no fear of losses. 

The steadily rising trading volume and turnover are a reflection that big investors are back, he said while discussing the stock market in TBS Markets, a capital market show organised by The Business Standard on Saturday. 

"The worst is over so far," he said while explaining the factors behind the stock market selloff until the end of July, when the securities regulator reintroduced the price floor that is not allowing individual scrips to go below the recent lows, and now heads higher. 

The panic about depreciating Taka against the US dollar, national foreign currency reserves, energy prices, inflation, and the fear of a Sri Lanka-like situation -- all seem to have eased a bit as the situation has improved. 

Dollar had come down to Tk105-106 from Tk120 in the curb market, foreign currency reserves have bounced back to over $40 billion following the government measures for lowering import bills and  increasing remittance inflow, said the investment professional.  

Meanwhile, the market downturn made stocks cheaper than what they were a year ago. 

The average price to earnings (PE) ratio of the Dhaka Stock Exchange (DSE) shot up to around 20 in the market peak of October last year and it came down below 14 in the recent weeks. The lower the ratio is, stocks are assumed to be cheaper. 

Investors are buying stocks despite the fact that the global and local macroeconomic factors that created panic among investors are still uncertain, because, "stocks tend to turn around at some uncertain point." 

Of course there will remain some uncertainties and risks, but the risks are worth taking as the return potential is higher than the risk of capital erosion as long as the price floor is there, opined Muktadir. 

Stock market is a leading indicator of the economy that moves both up and downward before the economy does. 

Many stocks might not be available at today's price in coming months and the feeling is increasing demand for stocks, according to Muktadir. 

Not all the companies perform the same during a crisis and some even may successfully increase their corporate earnings and before investing in stocks an individual should learn to analyse the relevant factors, instead of blindly following the crowd that mostly results in buying overpriced stocks, he added. 

He does not encourage laymen to invest in the stock market themselves before learning enough and they should depend on investment professionals who have specialised education and skills. 

Hitting its 14-month low at 5,963 on 28 July, DSEX, the broad based index of the Dhaka bourse closed at 6,355 on Thursday. 

The major index of the country's capital market had soared to 7,410 in October last year, riding on money market liquidity, better than expected economic performance during the pandemic from the multi-year low of below 4,000 mark in the mid-2020.