Margin rule concerns deepen sell-off as DSEX loses 95 points in two days

Infographics: TBS

Investor concerns over proposed changes to Bangladesh's margin loan rules, coupled with profit-taking after a recent market rally, extended the sell-off on the Dhaka Stock Exchange for a second straight session today (23 July). 

The benchmark DSEX index fell 67 points, or 1.15%, to close at 5,804, while turnover dropped 22.46% from the previous session to Tk939 crore. The blue-chip DS30 index lost 24 points to 2,193, and the Shariah-based DSES index declined 16 points to 1,183.

Over the past two days, the DSEX has fallen 95 points, wiping out Tk6,211 crore in market capitalisation, which now stands at Tk7.01 lakh crore.

Market breadth remained sharply negative, with 310 stocks declining, 59 advancing and 20 remaining unchanged.

Market participants attributed the latest decline to uncertainty surrounding several provisions in the draft margin loan rules, particularly the proposal to determine margin eligibility for banks, non-bank financial institutions and insurance companies based on their price-to-book (P/B) ratio and to cap eligible stocks at a maximum price-to-earnings (P/E) ratio of 30.

Investors argue that different P/E thresholds should not apply within the same market. They have called for the maximum P/E ratio to be raised to at least 40 and kept unchanged for five years to ensure policy consistency. They also said the market is not yet ready for a T+0 settlement system.

Md Sajjadul Haque, general secretary of the Bangladesh Capital Market Investors Unity Council, told this newspaper that applying different P/E ratios within the same market is unreasonable.

He also proposed fixing the P/E ceiling at 40 for the next five years and gradually relaxing the force-sell mechanism, arguing that mandatory selling often amplifies market volatility.

Investor Abul Khayer Hiru said the proposed amendments would make the market more restrictive and could hamper its long-term development.

He said decisions on margin financing, including the amount of loans against individual stocks, should remain a commercial matter between brokerage houses and their clients. 

Hiru also suggested using unaudited earnings per share (EPS), instead of audited EPS, to determine margin eligibility so that improvements in companies' financial performance are reflected more quickly.

Akramul Alam, head of research at Royal Capital Ltd, said the market was already due for a correction after an extended rally, but the draft rules accelerated the decline.

He noted that the proposed P/B-based criteria could make many listed insurance companies ineligible for margin financing, prompting investors to reduce their exposure. However, he said reports indicating the regulator may revise the proposal could help ease market concerns before the rules are finalised.

Dhaka Stock Exchange Brokers Association President Saiful Islam said the recent decline was primarily a normal market correction following a sustained rally rather than a direct reaction to the draft rules. 

However, he said the association would submit brokerage houses' recommendations and objections to the Bangladesh Securities and Exchange Commission. 

Exchange commission Executive Director and spokesperson Abul Kalam said the published rules are only a draft.

"We will make the rules more investor-friendly after considering feedback from all stakeholders. There is no reason for investors to panic," he told TBS.

Meanwhile, EBL Securities said in its daily market commentary that uncertainty over the proposed margin policy, along with renewed geopolitical tensions in the Middle East, weakened investor risk appetite and fuelled broad-based selling throughout the session.