Stocks shed Tk33,000cr in value post-floor

Infographic: TBS

Starting without the floor price restriction for all but a few stocks, Bangladesh's capital market experienced a sharp decline last week.

The value of all securities, including treasury bonds listed on the Dhaka Stock Exchange (DSE), fell by 4.18%, or nearly Tk33,000 crore.

The initial resilience, fuelled by optimistic value investors taking positions in some large-cap stocks post-floor, was later eroded by additional declining stocks in free trading. These declining stocks dragged indices and investors' capital balances lower, said market people.

Unlike the first three sessions, when many went aggressive to bag some undervalued or oversold stocks, the last two days of the week were dominated by investors' focus on capital protection instead of chasing uncertain short-term profits amid interest rates and energy worries, according to analysts.

The DSE's benchmark index, DSEX, was recovering from a 3% dip on Sunday morning, reaching the 6,300 level on Tuesday before nosediving again and closing the week at 6,156.

Magnitude of the fall 

More than 200 of the 414 stocks, mutual funds, and corporate debt instruments, including eight debentures, were freed on Sunday to fall from the floor restriction imposed by the securities regulator in August 2022, and more than 95% of them lost value last week. Only six stocks – Alhaj Textile, IFIC Bank, Brac Bank, One Bank, Eastern Bank, and Jamuna Bank managed to rebound and close above the floor level.

Meanwhile, among the scrips that were previously stuck at floor prices, 57% fell by up to 20% in a week, 25% of scrips faced erosion by 20-30%, and 12% of scrips dropped by a 30-41%.

It was a nightmare for the investors holding the falling knives, while many of the leveraged investors who used borrowed capital started to face margin calls as the lenders wanted to protect their money in a falling market.

After margin calls that ask leveraged investors to deposit new funds, failure to do so eventually ends up with a forced sale of securities.

"It was not unexpected at all," said stock market expert Abu Ahmed, a former professor of economics at the University of Dhaka.

Serious investors, especially institutions, significantly buy stocks only when they find them at lucrative prices compared to their fundamentals, he said, adding that the more the prices were falling, the more buyers the stocks were attracting.

After the ongoing volatility, stock prices would settle at some points where buyers' interest should rise, said the professor.

Including the 11 of the 12 large-cap stocks still under floor price restriction, only 26 scrips ended Thursday session without any bidders, which was 236 a week ago.

Nothing worked except for intrinsic value 

The Bangladesh Securities and Exchange Commission (BSEC) was on deeper monitoring over the week so that no group creates manipulative sell pressure in the market under peril due to the removal of the floor after nearly 18 months.

CEO Forum, representing 30 broker-merchant banks owned by banks or other financial institutions' announcement for market support within their capacity, did not work throughout the week as sellers started to dominate later.

Sayadur Rahman, president of the forum, told TBS on Saturday all the 28-30 firms under the umbrella that executes most of the DSE trading were net buyers last week.

His firm EBL Securities' net purchase was around Tk25 crore last week alone, according to regulatory sources.

Also, some high-net-worth individuals and cash-rich corporate entities also bought blue-chip stocks like Square Pharma, BRAC Bank, and LafargeHolcim Bangladesh, while many impatient investors opted to grab the selling opportunity after months.

Nothing worked to prevent dozens of stocks from falling free, even up to 41% in five days, as their price correction was pending at the floor, despite their fundamental deteriorations over the last 18 months.

Most of the non-bank financial institutions, energy and power, textiles, and some engineering sector stocks led the free fall last week.

The index could have fallen much more unless the DSE, as part of its regular annual index review, discarded 83 stocks, including a number of large-cap stocks like Walton and United Power, from the major index DSEX.

The ousted stocks' price movement does not impact the index at all, and many were suspecting the development as index engineering as the floor removal and index review came into effect simultaneously.

Denying any index engineering motive, DSE Managing Director ATM Tariquzzaman told TBS the stocks were discarded from DSEX due to the bourse's disciplined adherence to its indexing methodology developed by S&P.