Dhaka stocks on Sunday(Dec.8) plunged to a 37-month low as a series of depressing economic reports raised concern among investors about the economic health of the country.
DSEX, the key index of Dhaka Stock Exchange, lost 1.61 per cent, or 75.33 points, to close at 4,596.00 points on Sunday, sliding below another psychological level of 4,600 points.
The DSEX lost 31.64 points in the previous session. The index hit its lowest after 4,592.17 points on October 31, 2016. The key index lost more than 1,354 points in last 10 months, eroding Tk 71,752 crore in market capitalization.
After a flat opening, the market started plunging and descended more firmly to end the session deep into the negative zone as investors went for panic-stricken share sales amid fears over the country’s economic condition, market operators said.
They said that a continuing fall in the private sector credit growth, negative export earnings for last four months and poor tax revenue collection reflected a gloomy state of the country’s economy.
According to former Bangladesh Securities and Exchange Commission chairman Faruque Ahmed Siddique the main crisis on the market was lack of confidence created due to a dearth of governance. Widespread manipulations lowered the investors’ trust in the market, he said. He also said that the volatility in the financial sector and gloomy economic condition weighed on the market.
According to some experts all the economic indicators except remittance were on the decline that weighed on the investors’ sentiment. Experts said that the financial institutions, the prime movers of the market, were struggling.
The government must overhaul the banking sector to safeguard the economy, he said. He said the foreign investors continued withdrawing investments from the country’s capital market that might also spread panic among the local investors, the said.
The private sector credit growth hit a fresh nine year-low of 10.04 per cent in October amid a stagnant business condition.
Country’s export earnings have declined for four months since August. The export earnings in November of this fiscal year of 2019-20 declined to $3.05 billion from $3.42 billion in the same month of FY 2018-19.
The government’s failure in reining in the surge of non-performing loans in banks also dampened the investors’ mood.
Banks’ defaulted loans swelled to Taka 1,16,288 crore with the addition of Taka 3,863 crore in defaulted loans in July-September.
As per the Bangladesh Bank data, the government’s net borrowing from the banking system skyrocketed to Tk 43,411.13 crore in four and a half months of FY20 that weakened the banking sector further. The government also failed to reduce bank’s interest rate to single digit despite repeated attempts.
EBL Securities in its daily market commentary said, ‘Distressed condition of several macroeconomic indicators has impacted the investor’s confidence badly. Investors have perceived falling exports, soaring NPL and decreasing private sector credit growth as indicators of an approaching gloomy economic scenario.’
The continuing plunges in share prices reduced investment capacity of the market intermediaries and high net worth investors. The brokerage houses went for forced sales to minimize risks in margin loans.
The market has been falling since March, 2018 on various issues including volatility in the financial sector including rising bad loans and dearth of liquidity, political uncertainty, pressure on exchanges and tussle between the DSE and the market regulator over some issues.
The approval of fundamentally weak companies with huge amount of placement shares and poor regulatory control were also hammering the investors’ confidence.
The government has taken various measures to lift the investors’ confidence that barely had any impact on the market.
The banks are not taking the Bangladesh Bank’s offer to invest in the ailing stock market. All the large capitalized sectors dropped on the day.
Share prices of textile sector plunged by 2.8 per cent, non-bank financial institution 2.4 per cent, banks 2.1 per cent and energy 1.8 per cent.
Turnover on the DSE declined to Tk 349.01 crore on Sunday from Tk 432.41 crore in the previous day.
About the overall prevailing situation director of DSE Rakibur Rahman told barta24.com that economic crisis has made the stock markt a trader’s market. As a result there is no money in the bank or financial institution even to the ICB. Now it needs market support for investment in the capital market along with the removal of liquidity crisis of the banks and brokerage houses.