Stocks plunge amid sell-offs, policy rate hike

Infographics: TBS

The Dhaka Stock Exchange (DSE) indices experienced a significant decline yesterday as investors continued to offload their holdings, concerned that the market could fall further without any positive developments, especially following the central bank's latest policy rate hike.

On Thursday, the prime index, DSEX, fell by 55 points to close at 5,115. The blue-chip index, DS30, declined by 14 points to 1,879, and the Shariah-compliant index, DSES, dropped by 19 points to 1,144. 

The turnover decreased by 4.96% to Tk 306 crore, down from Tk322 crore in the previous trading session.

Market insiders said that many investors attempted to sell their shares to free up funds for future opportunities. Although investors' confidence surged after the fall of the Awami League government, this optimism quickly faded amid financial scandals involving the previous government and ongoing economic and political instability.

On Tuesday, the Bangladesh Bank raised its policy rate to 10%, the fifth increase this year and the 11th since May 2022, when it was at 5%. This hike aims to curb high inflation. 

The latest rate hike is expected to push deposit rates higher, leading investors to favour fixed deposits over capital market investments. Additionally, rising yields on government securities have further drained liquidity from the capital market, according to analysts.

Since last February, the market has been in a bearish phase, further worsened by a proposed 15% capital gains tax on individual investors before the 2024-25 fiscal year budget. This caused widespread panic among investors, leading many to sell off their shares, especially in light of the Russia-Ukraine war and the global economic crisis.

High-net-worth investors have been selling off their shares to avoid the tax burden, and this trend continues today. As a result, share prices for most companies have been falling for several months, causing general investors to suffer losses. This has further eroded confidence in the capital market, according to insiders.

Despite the ongoing bearish trend, there are signs of new investment opportunities. With corporate earnings reports for the fiscal year ending in June set to be announced soon, market activity is expected to increase.

Initially, the indices opened on a positive note yesterday, but the gains lasted a few minutes before the market began to decline, continuing the downward trend throughout the session. Large-cap stocks were particularly affected, contributing to the drop in the blue-chip index.

Key stocks that contributed to the decline included Grameenphone, Square Pharmaceuticals, Robi, British American Tobacco Bangladesh Company, Islami Bank, Unilever Consumer Care, Renata, Power Grid, and Singer Bangladesh.

In its daily market commentary, EBL Securities noted that the capital market was dominated by selling pressure throughout the day, as anxious investors sought to liquidate their positions to prevent further capital losses amid a lack of significant positive catalysts, rising policy rates, and ongoing political uncertainties.

According to the commentary, the market remained sell-dominant throughout the session, as unnerved investors opted to liquidate their holdings to avoid further capital erosion in the absence of any major trigger for the market to bounce back from its current bearish state.

Out of the 395 issues traded at DSE, 83 advanced, 272 declined and 40 remained unchanged.

By sector, the Bank sector accounted for the highest turnover at 25.1%, followed by Pharma at 14.5% and Textile at 8.6%. 

Most sectors showed poor returns, with the Paper sector declining by 4%, and the Services, Food, General Insurance, and Telecom sectors dropping by 2% and 1.8%, respectively, exerting the most downward pressure on the bourse yesterday.

The port city bourse, CSE, also settled on red terrain. The selected indices (CSCX) and All Share Price Index (CASPI) declined by 125 and 200 points, respectively.