Investors' confidence melts down as DSEX loses 306 points in 13 sessions

Investor confidence in Bangladesh's stock market is weakening as persistent selling pressure, weak fresh fund inflows and concerns over the economic outlook continue to weigh on market activity.

The DSEX, the benchmark index of the Dhaka Stock Exchange (DSE), fell another 16 points today (31 August) to close at 5,598, taking its total loss to 306 points, or nearly 5%, in just 13 trading sessions. The index also slipped below the 5,600-mark for the first time in around two months.

According to EBL Securities' daily market commentary, the downbeat capital market extended its negative trajectory despite brief recovery attempts by bargain hunters. Persistent domestic headwinds and a lack of fresh positive catalysts continued to weigh on investor sentiment.

Although the market staged intermittent recovery attempts, the indices failed to sustain the momentum as selling pressure regained dominance in the latter half of the session, reflecting weak investor conviction across the market, the brokerage said.

Trading activity has also plunged. Daily turnover on the DSE fell 61%, or Tk734 crore, over the past 18 trading sessions, from Tk1,211 crore on 4 August to Tk477 crore today.

The DS30 index declined 9 points to 2,113, while the DSES index fell 4 points to 1,124. Of the 391 companies and mutual funds traded today, 192 declined, 128 advanced and 69 remained unchanged.

Market participants say the lack of fresh or net fund inflows is one of the biggest challenges facing the market. Much of the current trading is driven by existing investors reallocating funds rather than new money entering the market.

As a result, buying pressure remains too weak to sustain a recovery. They said a durable market rally requires a steady flow of fresh funds; otherwise, selling pressure can quickly overwhelm buying interest, even in fundamentally strong stocks.

The DSEX had earlier climbed from around 5,200 points to nearly 5,900, but failed to sustain the momentum. The recent correction has further increased uncertainty over the market's near-term direction.

The weakness comes despite bank deposit and lending rates starting to decline, while yields on government treasury bills and bonds are also moving downward. Under normal circumstances, this could make equities more attractive, but investors have yet to shift significant funds into the stock market.

Market participants said many institutional and large retail investors are staying on the sidelines. While some have reduced their equity exposure, others are waiting for lower prices before making fresh investments. Meanwhile, some retail investors are selling shares over fears of further losses, adding to the selling pressure.

Ongoing gas and electricity shortages are also weighing on investor sentiment. Many manufacturing companies are operating below capacity due to inadequate gas and power supplies, raising concerns over production, sales and profitability in sectors such as textiles, ceramics and plastics.

EBL Securities also highlighted concerns over the short-term market outlook amid the gas and power crisis as a factor negatively affecting investor sentiment.

Increased regulatory scrutiny is another source of caution. The DSE is investigating several listed companies, while the Bangladesh Securities and Exchange Commission (BSEC) has intensified spot inspections of market institutions.

Market participants said stronger regulatory oversight is positive in the long run as it can improve transparency and accountability. However, a series of investigations and regulatory actions could make investors cautious in the short term, especially amid weak liquidity.

The Tk775 crore rights issue of United Commercial Bank (UCB) could further strain liquidity, as some investors may sell existing shares to raise funds for the issue, increasing selling pressure in the secondary market.

However, they do not see the current weakness as the start of a prolonged downturn. Investor interest could return if uncertainty eases, fresh funds enter the market and fundamentally strong stocks become attractive at lower valuations.

For now, the 306-point fall in the DSEX in 13 sessions and the 61% decline in turnover over 18 sessions indicate a significant deterioration in market liquidity and investor confidence.