Pre-Eid rally fizzles out as Dhaka stocks slide on global tensions

The pre-Eid optimism at the Dhaka Stock Exchange (DSE) proved short-lived as the market witnessed a sharp downturn today, with investors rattled by rising global geopolitical tensions and their potential economic fallout at home.

Trading resumed after the weeklong holidays with heavy selling pressure dominating the session, as concerns over inflation, possible fuel price hikes, and energy supply disruptions linked to the ongoing Middle East crisis dampened sentiment. 

The uncertainty triggered a broad-based decline across sectors, wiping out nearly Tk9,000 crore in market capitalisation in a single day – an indication of weakening investor confidence.

The benchmark DSEX index fell by 68 points, or 1.28%, to close at 5,284. The decline was even steeper among blue-chip stocks, with the DS30 index shedding 39 points, or 1.91%, to settle at 2,011. Market breadth remained decisively negative, with 243 issues declining against 121 gainers, while 27 stocks remained unchanged.

Despite the significant drop, trading activity was subdued. Daily turnover stood at Tk492 crore, reflecting a cautious stance among investors who appear to be adopting a wait-and-see approach amid persistent uncertainties.

Market analysts attributed the bearish trend largely to macroeconomic concerns exacerbated by global developments.

Analysts say the market's near-term direction will largely depend on developments in global energy markets and the government's ability to manage domestic inflationary pressures. Until greater clarity emerges, investors are likely to remain cautious, limiting fresh capital inflows into an already volatile market.

According to EBL Securities, the market slipped into negative territory from the opening bell as the initial festive enthusiasm quickly faded. The brokerage noted that fears of energy shortages and inflationary pressures stemming from the Middle East tensions overshadowed any positive sentiment.

Although the market attempted a modest recovery during mid-session trading, it failed to sustain momentum, closing firmly in the red.

A more detailed assessment by BRAC EPL Stock Brokerage highlighted the potential sectoral impact of escalating tensions involving the United States, Israel, and Iran. The report suggested that manufacturing, cement, and power sectors are likely to face immediate pressure due to their heavy reliance on imported fuel and raw materials.

These sectors are confronting a dual challenge. Rising global prices of furnace oil and liquefied natural gas (LNG) are expected to squeeze profit margins, while the risk of industrial load-shedding and higher transportation costs – driven by a so-called "Gulf risk premium" – could disrupt production cycles.

Gulf risk premium refers to extra cost added to oil prices or shipping and insurance rates due to geopolitical tensions in the Gulf region. It reflects perceived risk of supply disruption from major producers such as Saudi Arabia, Iran, Iraq and Kuwait. 

The BRAC EPL analysis also pointed out that export-oriented readymade garment (RMG) companies with strong financial positions may benefit marginally if they can position themselves as reliable suppliers amid global uncertainty. However, this advantage will depend on their ability to absorb higher freight and insurance costs without losing competitiveness.

In contrast, the banking and telecommunications sectors were identified as relatively resilient. Banks may benefit from increased trade finance activities and higher interest income, while telecom companies are often considered defensive investments during periods of restricted mobility. Nonetheless, these sectors were among the major contributors to Tuesday's decline.

Key index draggers included BRAC Bank, Robi Axiata, Grameenphone, Square Pharmaceuticals, Walton Hi-Tech Industries, and Islami Bank Bangladesh, all of which weighed heavily on the indices.

Sector-wise, the banking sector led turnover with a 15.5% share, followed by pharmaceuticals at 12.8% and engineering at 11.5%. Among individual stocks, ACME Pesticides Limited topped the turnover chart, alongside City Bank PLC and Sea Pearl Beach Resort and Spa Limited.

All major sectors ended in negative territory. The banking and telecommunications sectors recorded the steepest declines, each falling by 2.45%. Non-bank financial institutions dropped 1.88%, followed by food and allied at 1.18% and fuel and power at 1.14%.

Amid the widespread losses, the mutual fund sector emerged as a rare bright spot, posting a 6.55% gain. Several funds delivered strong returns, offering some relief to investors.

The bearish sentiment extended to the Chittagong Stock Exchange, where the CSCX index declined by 47 points to 9,118 and the CASPI fell by 75 points to 14,954. Turnover at the port city bourse remained modest at Tk18.79 crore.