Floor price saving stock from big fall, but making market buyerless
Sanjay Adhikari || BusinessInsider
Representational collected image
Although the securities regulator temporarily succeeded in saving the capital market from crashing by imposing the floor price system, it has now become a thorn in the neck of many investors.
In almost two months, the turnover in the Dhaka bourse has dropped to the bottom. Many investors are unable to sell their shares because of floor price constraints.
As a result, market stakeholders are now divided into two camps. One side says if the floor price is removed, the share price will decrease and the investors’ capital will decrease further while the other side argues that it needs to be lifted now to restore momentum in the market.
However, according to Bangladesh Securities Commission (BSEC) sources, the commission is not thinking about lifting the floor price system.
Mohammad Rezaul Karim, executive director and spokesperson of BSEC said the commission has not taken any decision regarding lifting the floor price in the current situation.
“The commission feels that the market situation will gradually improve. A decision will be taken when it does,” he added.
He also said that 26 insurance companies were given the condition of investing 20 percent of the equity in the stock market. Oversight of whether insurance companies make these investments is increasing.
“At the same time, the commission is making efforts to increase the investment of the banks which are still under the legal limit in the capital market,” said Karim.
According to DSE data, shares and units of more than half of listed companies are stuck at floor prices. These securities are not being traded day after day due to lack of buyers, dragging down the turnover.
A section of institutional and large investors have also been accused of playing a passive role in the market to gain political benefits. Many believe that these investors are inactive because of anti-government sentiments.
Altogether, the stock market is under deep pressure.
Small investors are also at risk as more than half of the institutions are locked into the floor price. Millions of orders to sell shares and units come in every day as soon as trading begins. But investors with sell orders are getting frustrated as buyers are not found.
Bangladesh Merchant Bankers Association (BMBA) has written a letter to Bangladesh Bank to speed up the share market in such a situation. They demanded to keep all types of bonds, debentures and mutual funds out of capital market exposure.
Besides, BMBA has said to relax the single borrower exposure limit in lending to its subsidiary in the case of investment in the capital market.
A review of the stock market shows that the main price index of DSE was at 7,085 points on February 10 of this year. Since then, the stock market has been on a downward trajectory. The key index of DSE is currently down about 6,200 points due to gradual fall.
Not long ago, the turnover was regularly above Tk 1,000 crore, but now it has come down to nearly Tk 300 crore. In the last 13 working days, only two days had a turnover of above Tk 500 crore. And on Sunday, the turnover fell to the lowest position in the last 20 months.
Market insiders said that the current crisis in the stock market is due to the inactivity of some institutional and large investors. These big investors and institutional investors have links with anti-government circles.
In this regard, a member of DSE said that attempts have been made to gain political benefits through the stock market at various times. Now that effort is being made again in view of the upcoming national parliament election. A special circle is attempting to destabilise the stock market and the economy ahead of the elections.
Another member of DSE said that a major investor has been inactive in the stock market recently. This investor has withdrawn a huge amount of money from the stock market.
Even several brokerage houses dealing with him have recently reduced their trading. If action can be taken against them, the stock market will turn around again, he believes.
Capital market expert Professor Abu Ahmed said that 80 percent of the companies are stuck in the floor price now. Shares of a few companies are now being traded.
“As 80 percent of companies’ share prices are locked in floor prices, ordinary investors are forced to invest in manipulated shares. The floor price is essentially helping the cycle of manipulation,” he added.