Struggling New Line Clothings’ shares surge 29% last week, raising manipulation concerns
As the stock continues to attract attention, experts urge caution, warning that such rallies are often short-lived and could leave unsuspecting investors facing steep losses
Shares of New Line Clothings, a struggling company that has not published its financial results since 28 April 2022, soared 29% on the Dhaka Stock Exchange (DSE) last week, catapulting it to the top of the weekly gainers' list.
The sudden and unexplained rally in the stock, which has long been categorised as a "junk stock" due to its poor fundamentals and lack of transparency, has sparked concerns among market analysts.
A managing director of a brokerage firm noted that New Line Clothings experienced a sharp stock surge despite the absence of any significant news or developments to justify the rally.
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He highlighted unusual trading patterns, such as low volumes and erratic price movements, as clear red flags for potential market manipulation.
The sudden and unexplained rise, he added, underscores the risks associated with thinly traded stocks and raises concerns about the integrity of such price movements.
As the stock continues to attract attention, experts urge caution, warning that such rallies are often short-lived and could leave unsuspecting investors facing steep losses.
According to the DSE, New Line Clothings' shares closed at Tk12.1 on Thursday, up from Tk9.4 on the first trading day of the previous week.
A senior company official of New Line Clothings, speaking anonymously to The Business Standard, said, "The failure to meet loan instalments has put the company in a precarious position. With a shortage of working capital, the company's factory has been inactive for years."
To verify the official's claim, TBS sought to reach out to the company's managing director, Zakir Chowdhury. However, attempts to contact him by phone were unsuccessful.
Not only did New Line Clothings make the weekly top gainers' list, but other junk stocks, including Appollo Ispat and Nurani Dyeing, also secured spots, raising further concerns about speculative trading and potential market manipulation.
Meanwhile, despite the dominance of junk stocks in the market, the benchmark index DSEX of the DSE increased by 0.40% last week, reaching the 5,200 mark after 16 days. The blue-chip index DS30 also saw a modest gain, rising by 0.30% to close at 1,919 points.
However, investor participation remained subdued, as the daily average turnover stayed low at Tk345 crore, reflecting cautious sentiment in the market.
The lacklustre trading activity, despite the index gains, highlights the uneven nature of the rally, driven largely by speculative moves in low-performing stocks rather than broad-based investor confidence, according to the market insiders.
Analysts suggest that while the indices showed resilience, the market's overall health remains fragile, with limited participation and a reliance on volatile, low-quality stocks raising concerns about sustainability.
EBL Securities in its weekly market review said the capital bourse witnessed a moderate recovery as investor confidence strengthened in sector-specific scrips, supported by the easing of adversities on the macroeconomic front, along with the central bank's decision to keep policy rates unchanged, offering a cautious sense of optimism over the market momentum.
However, cautious investors continued short-term profit booking and preferred to observe the market momentum following the capital market taskforce's proposal for amendments to margin loan regulations, it added.
The EBL Securities said investors were mostly active in the textile sector, followed by the pharma sector and the bank sector.
Most of the sectors ended in green with ceramic sector being the highest gainer, while non-bank financial institution sector being the most loser, it added.
