Stocks on fire as confidence accompanies money flow 

Stock market is on fire since investors' confidence revival has been coupled with money market liquidity.

DSEX, the key benchmark at the Dhaka Stock Exchange (DSE), has opened the week with a staggering 4.13 percent gain over the first extended trading session.

The index closed at 4,545 – highest since February 26 this year. A near 14 percent gain since July 1 helped the market capitalisation at the premier bourse bounce back to over Tk3.45 lakh crore, near the February high.

Experts thanked the securities regulator's measures for governance improvement and market development at a time when the stock market is undervalued, money market is more liquid with interest rates coming down, and also other popular asset classes like national savings certificates (NSC) are not convenient options for rich people.

"You cannot buy unlimited NSC to maximise risk-free return by investing crores of taka like before. Effectively, each individual has to face a bar there now," said Md Moniruzzaman, CFA, the managing director of IDLC Investments.

"On the other hand, the central bank in recent weeks has reduced its reference rates by more than 100 basis points, and helped increase the banking system liquidity through some regulatory ratios.

"At the same time, stimulus loans for businesses to overcome the pandemic fallouts are believed to support both liquidity and businesses," he explained.

Moniruzzaman said big depositors are not getting more than 5 percent of interest from banks nowadays and real estate is not attracting them sufficiently either.

According to him, the first factor is confidence in the market that is helping the rally. 

Recently, the new leadership at the Bangladesh Securities and Exchange Commission has strongly signalled improved governance in the capital market by rejecting a number of unwanted companies' initial public offerings, punishing some for non-compliances, and pushing stakeholders to fully comply with securities rules.

An analyst at a top brokerage firm told The Business Standard, "After a record net sale by foreigners in the last fiscal year, we see that supply from their side weakened in July."

"Local investors, who have absorbed the entire supply over a year, are now being accompanied by a number of high net worth individuals with fresh funds," he said preferring anonymity.

Md Sayadur Rahman, the managing director of brokerage firm EBL Securities and also the president of Bangladesh Merchant Bankers Association, said, "Like me, a large number of investors believe that the undervalued market has a long way to go up. Look at the average price to earnings ratio of our market and that in India or other markets."

Besides the high net worth individuals, institutional investments are likely to be on the increase, he said.

Nearly a dozen and a half banks have completed their internal approval processes to build a special fund for stock investment as prescribed by the central bank earlier this year.

"I feel the investment plan has also begun to roll, slowly," said Sayadur. 

Meanwhile, the equity analyst expressed his caution against the sudden spike in speculation, especially in low and medium capital stocks.

Turnover at the DSE has increased by one-third to Tk1,128 crore. Against the gain of 293 scrips at the DSE, 42 declined and 20 remained unchanged. 

Port city bourse Chittagong Stock Exchange also witnessed a sharp rise in indices and trading volume.