Dhaka, Bangladesh (BBN) – The government has taken different measures to bring back stability in the country’s stock market. But the capital market ‘game planners’ have remained unspecified, the Unnayan Onneshan said.
“Due to downturn of the capital market, the government has taken steps including tax rebate, exemption of credit for margin level investors and influencing banks to generate more investment in the capital market. But the ‘game planners’ of this capital market scenario have remained unspecified,” the independent think tank said in a latest report, released on Saturday.
The think tank in the October 2011 issue of “Bangladesh Economic Update” focuses on the continuous fall in the capital market of Bangladesh by analyzing the trends in market capitalization, investment capitalization ratio, turnover, volatility of share index, the number of listed companies and monetary policy.
“The percentage change of general index during the downward trend of capital market in 2011 suggests a crafted long term ‘game plan’. By creating an artificial demand and sustaining it for a long time they made a strong confidence in investors,” it added.
The trend of general index of DSE during July 2009 to August 2010 shows that the general index of Dhaka Stock Exchange (DSE) has increased smoothly. In July 2009 the general index of DSE was 2914.53 while in April 2010 it increased to 5654.88. During this time period, there was an increasing trend of general index. In August 2010 the general index of DSE stood at 6657.97 and finally in November 2010, it reached the peak and became 8602.44. After this general index has started to fall down and in February 2011 it reached to 5203.08.
The percentage change of general index of DSE in 2011 suggests a different situation than that of the capital market downturn in 1996 because the market volatility of DSE was created long before the nose dive of the capital market during 2011.
In November 2009, the general index of DSE increased about 30.22 percent than the previous month. During the consecutive twelve months the general index has risen on an average of 1 to 12 percent per month.
The think tank also said this steady growth of the capital market index made a greater confidence among general investors of capital market. There was no greater market price volatility of general index, as a result a continue trend of a greater profit induced general investors to reinvest their profits along with additional capital.
“The ‘long term game planners’ have again won the game by selling the shares they have collected resulting in increased supply of shares, forcing the general index to fall,” it noted.
In December 2010 the general index started to fall by 3.62 percent than previous month. In February 2011, it decreased about 30.5 percent and reached at 5203.08. This declining trend of general index of DSE was continued and finally in 15 November 2011 it dropped down to 4645.89 (lowest in last 22 months).
Most of the small investors invested money in the capital market by taking loan from banking sector to gain short-term profitability from the capital market.
Moreover, due the contractionary monetary policy of the government, money supply has been squeezed which has affected the capitalization process of the capital market by declining the rate of investment in the capital market, it said, adding that the present economic adverse condition together with the contractionary monetary policy may cause a negative impact on turnover and liquidity of capital market.
The think tank also said there was a huge surge in the stock market in 1996 evidenced by an enormous increase in the market capitalization.
Total annual turnover and daily average turnover in DSE general index increased from 775.65 in January 1996 to 3064 in November, 1996. After an increase in the general index of DSE for a short period, the index started to fall down dramatically and in December 1996, the index fell down to 2300.15.
“The short time ‘game plan’ made the investors to invest more in the capital market but when this ‘game plan’ achieved its goal; the confidence of the investors was significantly damaged because of excessive speculations, allegedly aggravated by widespread irregular activities,” it said.
This fall down of general index of DSE continued over the calendar year of 1997. In April 1997, the general index of DSE was 957.48 while in December 1997 it fell down to 756.78, according to the update.
BBN/SSR/AD-19Nov11-4:16 pm (BST)