Brokers urge revision of stock classification to align with global practices

Stockbrokers have urged the capital market regulator to revise the existing sector classification system of the Dhaka Stock Exchange, arguing that the outdated framework limits meaningful market analysis and weakens the market's appeal to global investors.

In a letter sent to the Bangladesh Securities and Exchange Commission today (21 January), the DSE Brokers Association of Bangladesh (DBA) requested the regulator to initiate a comprehensive review of the current classification structure and consider adopting an internationally aligned model in consultation with relevant stakeholders. 

The letter was signed by DBA President Saiful Islam.

At present, the DSE follows a sector classification system comprising 22 sectors, including government bonds, corporate bonds and mutual funds.

According to the brokers, this structure has remained largely unchanged since its introduction many years ago, despite significant evolution in global capital market practices. 

In contrast, most international markets now rely on widely accepted frameworks such as the Global Industry Classification Standard (GICS), jointly developed by MSCI and Standard & Poor's, or the Industry Classification Benchmark (ICB).

Under GICS, companies are grouped into 11 sectors, 25 industry groups, 74 industries and 163 sub-industries, offering what the brokers described as a more detailed, consistent and globally comparable structure. 

Such frameworks, the brokers said, enable investors to better assess sectoral trends, compare markets across countries and make informed portfolio allocation decisions.

In its letter, the DBA highlighted that the limitations of the existing DSE classification are evident in several company-level examples. Marico Bangladesh Limited is currently grouped under "Pharmaceuticals and Chemicals," while British American Tobacco Bangladesh is classified as "Food and Allied." 

Under international standards such as GICS, both would fall under the consumer staples sector, which the brokers said better reflects their main business activities.

Similarly, consumer-focused companies such as Walton, Singer, Bata and Apex would be classified under consumer discretionary, aligning them with global peers that are sensitive to changes in consumer demand and income levels.

The brokers said such mismatches create analytical distortions for investors, researchers, policymakers and international stakeholders. Sector-based performance analysis plays a crucial role in understanding economic cycles, consumption patterns and income trends. 

For example, strong gains in consumer discretionary stocks often signal rising household incomes and economic expansion, while the outperformance of defensive sectors like utilities may indicate heightened economic caution. 

An outdated or inconsistent classification system, they said, reduces the reliability of these signals.

The DBA said bringing the DSE's sector framework into line with global standards would improve transparency, strengthen market analysis and allow more meaningful comparisons with international markets.

This, it added, could help attract foreign portfolio investment and strengthen the stock market's role as an indicator of the wider economy.