Lack of quality IPOs, good governance erodes investor confidence: DBA

Investors are losing confidence in the stock market due to a combination of factors such as the absence of high-quality initial public offerings (IPOs), governance issues among all stakeholders (intermediaries and the regulator) and the proposed capital gains tax in the forthcoming budget, said Md Saiful Islam, president of the DSE Brokers Association of Bangladesh (DBA). 

Addressing a post-budget press briefing held at the DBA office in the capital yesterday, he urged the government to withdraw the capital gains tax, stating that the new tax burden negatively impacts an already gloomy market.

Our industry has become ailing, marked by an inability to consistently generate sustainable returns over the past 14 years. This prolonged period of underperformance has left us grappling with significant challenges and in dire need of solutions to regain stability and prosperity,"

Additionally, on behalf of the DBA, he presented a seven-point demand, calling for reconsidering key proposals in the final budget.

These proposals include the creation of a roadmap for listing state-owned companies, a tax waiver for new beneficiary owners for three years, clarification on existing capital loss, reducing the tax rate on commission income from share transactions by brokerage firms, allowing margin loss at tax deduction and widening the tax gap between listed and non-listed companies.

Md Saiful Islam said, "The DBA does not oppose capital gains tax for the stock market; however, this is not the right time for this. It already has impacted negatively among the investors amid the economic crisis."

He also said there are concerns regarding various laws, frequent policy changes, directives, and the formation of rules and policies without input from stakeholders.

The DBA president highlighted that there has been minimal progress in listing state-owned enterprises on the stock market over the past decade. 

He called for the creation of a clear roadmap for this process, believing that it would promote competitive, high-quality business practices among these enterprises.

The prime minister has already directed state-owned enterprises to be listed on the stock market, he said, hoping that the government and market stakeholders will take effective action to implement this directive promptly. 

The DBA believes that listing these enterprises will increase market liquidity, drive business expansion, and stimulate market growth, which will ultimately boost government revenue.

Brokerage firms suffering for four years

Over the past four years, brokerage firms and institutional investors have endured persistent challenges without effective solutions. Despite various initiatives, the situation remains unchanged, leaving these entities struggling to find solid footing in the market, he said.

"Our industry has become ailing, marked by an inability to consistently generate sustainable returns over the past 14 years. This prolonged period of underperformance has left us grappling with significant challenges and in dire need of solutions to regain stability and prosperity," Saiful said.

He said the capital market is more volatile from the current economic situation. We are watching continuous free fall without logical reasons.

"In this situation, 50% of market intermediaries are actually not sustainable. Now we need policy support to sustain in the capital market," the DBA president said.

Demutualisation Act need to revise

In 2010, following a significant reform after the stock market crash, the management of the stock exchange underwent demutualisation, separating it from ownership and establishing a legal framework.

According to this framework, out of the 13 directors of the stock exchange, seven are required to be independent, with the chairman elected from this group. 

Additionally, four directors are designated as shareholder directors, representing the owners of brokerage firms.

"However, due to the independence of the seven directors on the DSE management council, many market-oriented decisions cannot be made effectively," Saiful Islam said.

He pointed out that with only four shareholder directors on the council, decisions are often not in their favour.

"More than 10 years have passed since the Demutualisation Act, and it is time for a revision," he said, urging the government to grant the DSE more power in appointing directors to address this imbalance.

Post-budget stocks scenario

The premier index of the Dhaka Stock Exchange, DSEX, experienced a significant decline of 167 points within just three working days following the announcement of the budget for the next fiscal year.

Concurrently, the market capitalisation also witnessed a substantial decrease, plummeting by Tk15,808 crore. 

On Tuesday, the turnover amounted to Tk432 crore, accompanied by a downward movement in the share prices of 308 companies.