Foreigners prefer Square Pharma, BRAC Bank in February, but pull back from Olympic, GP

Infographics: TBS

Foreign investors increased their exposure to several blue-chip stocks in February, particularly in the banking and pharmaceutical sectors, while pulling back from companies including Olympic Industries, Grameenphone (GP) and DBH Finance.

Data from the Dhaka Stock Exchange (DSE) show that foreign portfolio investment rose last month, with overseas investors purchasing shares in a number of top-tier companies led by Square Pharmaceuticals and BRAC Bank.

Square attracted the largest foreign inflow, with overseas investors buying shares worth about Tk160 crore during February. The purchases increased foreign shareholding in the pharmaceutical giant to 15.50% from 14.70% in January.

BRAC Bank ranked second in terms of foreign investment inflow. Foreign investors bought shares worth around Tk110 crore, raising their ownership in the bank to 36.72% from 36.05% a month earlier.

Other companies that recorded smaller increases in foreign investment included United Commercial Bank, Uttara Bank and IDLC Finance.

Overall, foreign investors increased their holdings in 25 listed companies during the month, purchasing shares worth about Tk280 crore. Their stakes also rose in firms such as Marico Bangladesh, Envoy Textiles, Walton Hi-Tech Industries and Unique Hotel and Resorts.

Selling in several large firms

Foreign investors also sold shares in several major companies during the same period, with the biggest outflow recorded in Olympic Industries.

Overseas investors offloaded shares worth about Tk80 crore in Olympic Industries, reducing their stake in the company to 30.26% from 32.83% in January.

Telecom giant Grameenphone also experienced selling, with overseas investors selling shares worth Tk25 crore during the month. Foreign holdings in the company slipped slightly to 0.60% from 0.67%.

Other companies that saw foreign investment outflows included DBH Finance, BSRM Limited and Jamuna Oil Company. 

In total, foreign investors reduced their holdings in 16 companies, selling shares worth Tk126.35 crore during February.

Foreign participation still limited

Despite the selective inflows and outflows, foreign participation in Bangladesh's stock market remains relatively limited. According to DSE data, total foreign investment in the market currently stands at around Tk13,000 crore.

Out of roughly 360 listed companies on the Dhaka bourse, only about 132 currently have any level of foreign shareholding, highlighting the narrow base of overseas participation.

Among listed firms, BRAC Bank has the highest level of foreign ownership at around 36%, followed by Olympic Industries with more than 30%.

Other companies with significant foreign shareholding include Beximco Pharmaceuticals, Navana Pharmaceuticals and Renata.

Structural barriers to investment

Market analysts said foreign investors tend to concentrate their investments in a small number of fundamentally strong companies because of the limited availability of high-quality listed firms.

They note that Bangladesh's stock market contains many weak or poorly governed companies, often referred to by investors as "junk stocks", which discourages broader foreign participation.

Analysts also cite several structural barriers that limit overseas investment, including tax complexities such as capital gains tax issues, policy inconsistency and concerns about corporate governance.

Brokerage officials added that a significant portion of the recorded foreign investment actually comes from non-resident Bangladeshis rather than large international funds.

Genuine foreign institutional investors are believed to be actively present in no more than 25 listed companies, primarily large-cap firms with strong financial performance and adequate market liquidity.

Among the global investors active in Bangladesh are institutions linked to Norway's sovereign wealth fund, along with a small number of investment firms based in the United Arab Emirates and Europe, according to market insiders.

A managing director of a leading brokerage firm said foreign investors remain cautious because the market offers limited diversification opportunities.

Bangladesh has a relatively small pool of large-cap stocks that meet the governance, risk and liquidity standards required by global institutional investors, he said.

Policy move to attract foreign funds

In a move aimed at attracting more foreign investment, Bangladesh Bank recently relaxed rules governing capital repatriation by overseas investors.

In a circular issued on 9 March, the central bank raised the threshold for prior approval required for capital repatriation to Tk100 crore from the previous Tk10 crore limit.

The measure is intended to align Bangladesh's regulatory framework with international standards and simplify procedures for foreign investors seeking to repatriate funds.