Indices lose momentum as investors chase small-cap stocks

Illustration: TBS

On the fourth session of recovery, equity indices failed to uphold the positive momentum and ended in the red terrain on Monday. 

The ongoing rally in shares of small-capital companies further accelerated in the second session of the week and that attracted many investors to buy the rising small-cap stocks for some quick gains. 

Stockbrokers said selloff in many large and mid-cap stocks was, to some extent, a consequence of adjustments as many investors sell some of their currently held shares to pay for the new entries. They also blamed the overall caution about the market trend. 

"Investors turned cautious and engaged in late hour sell-frenzy amidst absence of any major trigger in the market," said EBL Securities in its daily market commentary. 

DSEX, the broad index of the Dhaka Stock Exchange (DSE), hitting above 6,230 at 11:30 pm nosedived in the late hours, and finally the major index inched down by 0.07% over the entire session to close at 6,213. 

Although the market initially showed upward momentum, the indices failed to sustain their gains and the bourse experienced a correction, said EBL analysts adding that this was largely due to constant sell pressure from investors, who speculated that the central bank's interest rate policy could worsen liquidity conditions in the capital market. 

The Bangladesh Bank is preparing to come out of its lending rate cap in the banking sector, and raising interest rates might make stocks less attractive to conservative investors, said stockbrokers.  

Small-cap scrips are trendy in the bourses nowadays, following some sharp hike in the share prices of a number of struggling firms like Legacy Footwear, Samata Leather. Thanks to their price declines over the past few months, that created a headroom and attracted funds. 

Samata Leather shares soared to Tk77 on Monday, from less than Tk53 two weeks ago, while Legacy Footwear shares dropped to Tk39 at the end of February and rallied up to Tk89.8 during the closing bell on Monday. 

Many of the small cap shares have been hitting the upper circuit breakers amid a high demand and low supply. 

Meanwhile, the Dhaka bourse observed an increase in participation as total turnover rose by 8.3% to Tk576 crore. 

IT, food, and travel sectors kept dominating the turnover table as 40% of the day's trading turnover was concentrated in these three sectors. 

Most of the sectors displayed negative returns, out of which paper, jute, and services led the losers with a 1.4% to 1.9% decline in their respective market capitalisations. Life insurance, miscellaneous, and travel sectors managed to stay afloat. 

54 scrips advanced in the DSE, while 69 declined. 

Small-cap frenzy was also reflected in the DSE SME board as the DSMEX index soared by 0.87%, while turnover there soared to Tk10.33 crore, from Tk7.84 crore.