Stocks rallied after all elections, not this time
This year's post-election scenario in the stock market does not match with the previous four times thanks to a lack of confidence among investors and a liquidity crunch in the financial sector.
In the three months since the election, DSEX, the benchmark index of the Dhaka Stock Exchange (DSE), shed 577.78 points, or 9.71 percent.
In the last one month alone, the premier bourse lost Tk 10,339.39 crore, or 2.50 percent, from its market capitalisation, according to data from the DSE.
But after the past four elections, the index jumped. In 1996, the general index (DGEN) of the DSE, the then prime index, shot up 78 percent to 1,605.73 points in three months after the election.
In 2001, DGEN rose 26.09 percent to 834.52 points in the next quarter after the polls. In 2008, the gain was 4.98 percent to 2,671.38 points.
In 2014, DSEX, which replaced DGEN, rose 6.37 percent to 4,588.78 points in the three months after the election.
“The election has not had an impact on the stock market this year,” said AB Mirza Azizul Islam, a former chairman of the Bangladesh Securities and Exchange Commission.
Some other factors affected the stock market too, like the liquidity crunch in the banking sector.
Private sector credit growth hit a 53-month low in February due to the ongoing liquidity crunch brought about by the rising default loans, according to data from the Bangladesh Bank.
In February, credit growth stood at 12.54 percent, the lowest since October 2014. The growth was much lower than the central bank's target of 16.5 percent for the second half of fiscal 2018-19.
The banking sector's market capitalisation is substantial, so its problems are bound to spill over into the stock market, Islam said.
Institutional investors are facing a liquidity pressure, so most of them are retracting from the market, said Khairul Bashar Abu Taher Mohammed, secretary general of the Bangladesh Merchant Bankers Association.
Moreover, unprecedented amounts of placement shares made the market drier, he added.
Placement shares are those acquired in a capital raising event for a select group of investors and from the open market.
Most of the newly listed companies issued placement shares by the same numbers as in their initial public offering, said Minhaz Mannan Emon, one of the directors of the DSE.
Placement shareholders can sell their shares after a few months of the company getting listed: their one year lock-in period starts from the date of IPO prospectus approval and a company gets listed after 8-9 months, he added. “So, a huge amount of money is withdrawn by the placement shares within a few months of listing.”
On the other hand, placement shareholders' dumping lowers the price of the newly-listed company, he added.
Meanwhile, DSEX closed at 5,372.23 points yesterday after shedding 61.66 points.
However, turnover, another important indicator, increased 26.50 percent to Tk 418 crore, with 8.04 crore shares and mutual fund units changing hands on the DSE.
Of the traded issues, 45 advanced, 273 declined and 28 closed unchanged on the premier bourse.
Chittagong stocks closed low with the bourse's benchmark index, CSCX, declining 112.32 points, or 1.11 percent, to finish the day at 9,978.78.
Losers beat gainers as 180 declined, 42 advanced and 19 finished unchanged on the Chittagong Stock Exchange. The port city bourse traded 53.28 lakh shares and mutual fund units worth Tk 15.24 crore.