Turnover below Tk200cr as 99% investors sit on sidelines

Daily turnover on the Dhaka Stock Exchange (DSE) fell below Tk200 crore on Monday for the first time since 7 July 2020, as a depressed market suffocated by the floor price drove nearly 99% of investors to the sidelines.

According to DSE sources, around 15,000 accounts were active in trading at the end of last week, which was less than 1% of the total 18.6 lakh beneficiary owner (BO) accounts registered with the Central Depository Bangladesh Ltd (CDBL), while 14.2 lakh accounts hold some securities.

The participation further dried up this week, said market people.

The Bangladesh Securities and Exchange Commission's (BSEC) experimental move to relax the floor price for 168 small-cap scrips, effective from Thursday, did not help increase market liquidity at all; instead, it backfired.

Just like turnover, the total number of trades drastically dropped to around 50,000 a day for the first time since July 2020, when the market took off from the floor price then and rallied for 15 months before entering a correction in October last year.

Two to four lakh trades a day from around 1 lakh accounts were common for the premier bourse this year, said stockbrokers.

Infographic: TBS

lso, the transaction volume of 3.1 crore shares, mutual fund units, or bonds on Monday was the lowest since July 2020 and less than one-tenth of the year's average.

Stockbrokers said the removal of the floor price for 168 scrips and putting a 1% lower price limit for a day added to the factors hurting investors' confidence in the market, and they are barely buying any shares.

The scrips have yet to resume trading because the 1% drop was insufficient to attract buyers, and the broken regulatory promise of not lifting floor prices until there was a significant improvement in secondary market conditions harmed buyers' trust.

Many large investors said they are merely watchful, because they believe they cannot predict what the BSCE might do regarding the removal or keeping the floor prices on the remaining scrips.

Year-end expectations are fading

Even the common institutional trend of fund injection into major portfolio stocks before the end of the year is not visible this year, owing to investors' unwillingness to take additional risk amid uncertainties, as the situation has heightened their fear of being stuck with new funds.

Such fund injections collectively help stock prices recover at the year's end, and lenders and other financial industry firms need less provisioning, which helps them post more profits.

"What if the floor remains in place and no buyer comes at the current price for an extended period of time?" a portfolio manager at a merchant bank asked.

Many of his portfolio stocks are stuck on the floor, and he is finding it difficult to sell some for cash unless he offers discounts to block market buyers, where prices can go up to 10% below floor prices.

"On the other hand, what if we inject funds into some good scrips and the floor prices are removed sooner?" he added.

Only three trading sessions remain to end the year, and no consensus for market support among large investors is visible yet.

Instead, everyone seems to be preparing for a worse year-to-date return performance in 2022, following two stellar years during the pandemic.

The indices inch down

DSEX, the broad-based index of the Dhaka Stock Exchange, kept sliding slowly over the session and closed 0.2% lower at 6,189 on Monday.

The index is 8.4% down in 2022 to date, while the blue-chip index DS30 is down by 13.5% and the Shariah index DSES is down by 5.4% this year.

Of the 400 DSE scrips, 311 had no bidder on Monday, while 89 were active in spontaneous trading, having both buyers and sellers interested in them.

Of the 168 low-caps, 125 ended without bidders at their daily lower price limits, and the number was 186 for the 232 scrips which were still under the artificial protection of floor prices.

The small tick miracle

Prices were below Tk10 for 46 of the 168 scrips in the DSE on Monday, and their prices are not allowed to go down by 1% as the smallest tick size in the local bourses is Tk0.1 0.1, which means prices cannot go up or down by less than the amount.

Union Capital, International Leasing, FAS Finance, BIFC, Premier Leasing, and NCC Bank First Mutual Fund all had their lower limit or floor raised on Monday, as the session's gains cannot be eroded until the 1% bottom circuit breaker is removed or widened.