Junk stocks lead weekly gains
Analysts say these rallies are speculative, not backed by fundamentals
A surge in low-performing and junk-category stocks dominated the Dhaka Stock Exchange (DSE) last week, raising concerns among market analysts about the sustainability of such rallies and the risks for retail investors.
According to the DSE weekly report, eight of the top ten gainers belonged to the "B" or "Z" categories – companies with poor track records, no dividends, or even closed operations.
The top performer, Information Service Network (B category), soared 47.26% to Tk72.60, despite having no calculable price-to-earnings (P/E) ratio as the company incurred loss in the first nine months of FY25.
Other notable gainers included Meghna Cement (28.33%), Bangladesh Autocars (26.43%) – which is trading at an abnormally high P/E of 926 times – and junk scrips like Shyampur Sugar (24.53%) and Zeal Bangla Sugar (22.59%).
Keep updated, follow The Business Standard's Google news channel
Analysts caution that these rallies are speculative and not backed by fundamentals.
"When junk or weak-category stocks dominate the gainers' list, it usually signals excessive speculation in the market. Many of these companies have no earnings, no dividends, or even suspended operations. Such rallies often end up hurting retail investors who chase quick gains," said a senior market analyst at a leading brokerage firm.
"A P/E ratio of 926, like we see in Bangladesh Autocars, is a red flag. It suggests prices are completely detached from company earnings. Retail investors must be cautious, as these moves are not sustainable," added another equity strategist.
To address these risks, the Bangladesh Securities and Exchange Commission (BSEC) has proposed barring B- and Z-category stocks from margin loans in its draft rules, published on 19 August for public feedback.
Despite the risky nature of the top gainers, the broader market showed improvement.
The benchmark DSEX index rose 24.7 points or 0.5% to close at 5,375, while average daily turnover surged 31.6% to Tk907 crore, hitting Tk1,000 crore in a single session.
Market breadth remained positive, with 241 issues advancing against 129 that declined, while 24 scrips remained unchanged out of the 394 securities traded in the last week.
Investor activity was most prominent in the pharmaceuticals sector (17.7%), followed by textiles (11.6%) and banks (11.5%). Sector-wise, the paper sector (9.5%) led gains, while mutual funds (2.5%) lagged.
Investor activity was particularly concentrated in a few leading stocks. Bangladesh Shipping Corporation, Beximco Pharmaceuticals, Orion Infusion, City Bank and Beach hatchery topped the turnover chart, indicating continued institutional and retail interest in these counters.
On the other hand, troubled banks and non-bank financial institutions suffered the steepest fall, where Exim Bank emerged as the worst weekly performer, followed by First Security Islami Bank, Social Islami Bank, Premier Leasing, Phoenix Finance and GSP Finance.
In its weekly review, EBL Securities noted that the benchmark index regained momentum after a brief correction, supported by renewed investor interest in selective large-cap stocks.
However, it cautioned that profit-taking in banking scrips and concerns over draft amendments to margin rules injected volatility into the market, it added.
Market insiders warned that while the overall sentiment has improved, rallies in fundamentally weak companies could distort investor behaviour.
"Sustained market growth depends on large-cap and fundamentally strong stocks. Junk rallies might look exciting, but history shows they don't last long. Retail investors should focus on companies with solid earnings and dividend histories," said a former DSE director.
With elections approaching in early 2026 and macroeconomic conditions stabilising, experts believe the DSE could see stronger fundamentals-driven growth. But for now, the dominance of junk stocks in weekly gains highlights speculative trading risks that small investors should not ignore.
