The ups and downs of the stock market

After taking charge, BSEC's new Commission has taken several positive policy decisions.  As a result, after a long recession, the market returned to an upward trend.

Positive attitude of the government and appropriate initiatives of the Commission made investors hopeful about the market. The market indices continued to rise, for which investors' confidence was gradually getting restored.

Hence, they again commenced to become active in the market.  Even those who were averse to the market for long were gradually starting to invest in the market.

Customers buy and sell stocks electronically at Anwar Securities, a member of the Dhaka Stock Exchange. Photo: Bloomberg.

Due to which, the main index of the market again crossed the psychological milestone of five thousand points. With this, transactions also increased and the average transaction surpassed about a thousand crore (taka).

All in all, the market was doing well, but since September 18, it has been on a downward trend till October 12.  Although the market has attempted to return to a positive trend since October 13, it could not hold ultimately.

What suddenly happened to the market? Why is it going back to recession after showing some light of hope? From the very beginning of the market's re-opening on May 31, I have been giving various advices and warnings to both market regulators and investors.

The Commission may have been very confident, so they may not have cared.

However, over a couple of months, market regulators have made a number of decisions that the investors did not like at all. The greedy attitude of market managers is also responsible for this downturn situation.

First, under the book building system, Walton has entered the capital market through issuing less than one percent shares, which is unprecedented in the history of the capital market. The crisis has been created as the supply is much less than the demand in the market.

As a result, prices are skyrocketing, which had a negative impact on the market. Further, there has been a lot of negative news about it. In 2011, the listing of MJL and MI Cement was postponed for a long time, due to high prices.

The listing was then approved by adjusting pricing (reducing). Something similar could have been done in the case of Walton. Then, there would be no negative messages in the market.

Bidding is the main problem in the book building system. It is speculated that companies, merchant banks, and even some individuals from market regulators intentionally set IPO's cut-off price at unusually high level.

Further, there are rumors of placement business behind the IPOs. Investors' confidence has been shaken again by this negative news. I am not saying that you have to cut off your head if you have a headache.

But since there are so many problems with this book building method and the regulatory body has repeatedly failed to prevent irregularities in it, this method should be stopped.

It is hoped, however, that the Commission has proposed amendments to the Companies Act in response to the demands of ordinary investors, where if the market value of the shares in an IPO falls abnormally, the issuing company will have to buy back those shares at the issue price.

If this law is passed, the irregularities in the bidding of book building would be reduced a lot. The book building system should be discontinued until this law is passed. It is also suggested that a company should never enter the market with less than 10 percent share.

Recently, the Commission has given green signal to many companies, especially 25 insurance companies, to raise money through IPOs. The financial condition of most of these companies is not very good.

Besides, a multinational mobile phone company is also going to be listed with the largest IPO in the history of the capital market, even though the financial condition of the company is not so good.

It unearths that these companies do not have the ability to pay dividends in the near future. The IPOs must come to the capital market and we cannot stop it.

But, the Commission and stock exchange should be very careful in this case so that the IPOs do not come at an unusually high price through overvaluation with false information.

But sadly, Commissions and stock exchanges have repeatedly failed to do so, at the expense of ordinary investors and the market. Since the market was in a positive trend and was indicating a gradual increase in demand, the Commission should have brought stocks of fundamentally good companies, especially those of government ones.

They could have also tried to bring fundamentally good private and multinationals companies to market. But instead of doing that, they have already started preparing to flood the shares of weak and loss-making companies, which has sent a negative message to the market.

Investors' confidence is cracked again. They think that the present Commission is following the steps of the previous Commission.

Another thing that has been speculating in the market for a few days is that if the shares of a fundamentally good company continue to rise, Commission and stock exchange immediately ask the company, but not so much in the case of fundamentally poor companies.

Over the past few days, the share prices of many fundamentally poor companies have risen abnormally without any logical reason. For example, despite the deteriorating financial condition of most of the companies in the insurance sector, their prices have been rising sharply for some unknown reason.

It seems that ill-manipulators are still active in the market. It will never be possible to keep the market well without protecting it from the toxic bite of these corrupt and over-profitable gangs, especially the market managers.

Even all the attempts of the market regulator will be worthless. The capital market is very sensitive. Commissions and stock exchanges should be more careful when commenting on any issue.

Any of their comments (positive or negative) about a particular sector will affect the market. Here, we can refer to a recent example of mutual fund. The supply has to be in line with the increase in demand in the market. New diversified products have to be brought to the market.

The initiative taken by the Commission to bring Sukuk is a good one. Along with Sukuk, we also need to focus on the Islamic index. Although the Islamic index was launched in 2014, it has so far failed to attract enough investors.

Islamic indices are introduced in many countries, including America, Malaysia, China, India, as well as European and Middle Eastern countries, and are progressively gaining popularity there.

Therefore, with good publicity, it can be popular in Bangladesh too.

By closely monitoring the above issues, the Commission has to be more vigilant in the future and manage the market efficiently and honestly, otherwise it will not be possible to stop this downturn in the stock market.