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A lingering spell of sluggishness has gripped Bangladesh's stock market as investors are diverting fund to other high yielding instruments.
Stock market is falling with investors selling their shares either for investment in more lucrative areas or in primary issues.
High interest rates on government savings instruments and bank deposits are swaying the investors their way.
Brokers and analysts say there is nothing wrong with the movement of share prices. More and more companies are showing transparency in the accounts, and maintain regularity in disclosures and payment of dividends.
They say the recent hike in interest rates on savings certificates and bank deposits is playing a role behind a temporary exodus of small investors.
The retail investors, who are striving hard to supplement their family income, are withdrawing from the secondary market.
These people simply go by the evaluation of the margin of profit on securities they buy at higher prices from the secondary market and the dividends they receive on their face value.
They cannot be blamed for fleeing the market and investing in profitable areas. They now prefer to invest in high yielding gilt-edged savings certificates and primary shares.
Brokers at the premier Dhaka Stock Exchange (DSE) said Jamuna Bank initial public offerings (IPOs) might cause an outflow of about Tk 3.0 billion from the market.
Daily transaction in the DSE has now plunged to around Tk 130 million from about Tk 400 million registered a couple of months back.
During December, 2005 the transaction was 32.28 per cent lower in volume and 13.29 per cent in value. The market capitalisation fell to $3.42 billion at the end of January, 2006 from $3.8 billion in December, which was roughly equivalent to five per cent of the country's gross domestic product (GDP).
Institutional investors, whose presence in the market electrifies the retailers, are keeping themselves to the sidelines.
"Trading crunch by institutional investors and outflow of funds to other gainful areas are hurting the market," said Imtiyaz Husain, a market analyst and former DSE chairman.
He said institutional investors play a big role in keeping the market vibrant and stable.
Brokers and analysts say although the Securities and Exchange Commission (SEC) is trying hard to bring discipline in the stock market, its certain aggressive policies and penal action are affecting the market.
Many large institutions, including banks, which lend to investors, have slowed down their activities. "What the SEC wants is to know too much of everything. People are secretive about their assets," one analyst said.
DSE Chief Executive Officer Salahuddin Ahmed Khan said fund availability with the institutional investors has fallen as the credit flow to non-productive sector has shrunk.
He said investors are more attracted to high yielding government securities.
Interest rates on savings certificates have risen to 12 per cent from 10.5 per cent. Limit on investment to such products has been doubled leading to the outflow of fund from the stock market to other sectors.
The net sales of savings certificate stood at Tk 900 million for the month of last December against a marginal amount in November.
The government's net borrowing reached Tk 8.02 billion during the July-December period of the fiscal year 2005-06.
Officials at the National Savings Directorate (NSD), however, predicted a further rise in the net sales in the months ahead.
Commercial banks are raising interest rates on deposit to strengthen their liquidity position, which they need to consolidate in the face of persistent appreciation of US dollar in the market.
The value of dollar appreciated to about Tk 70 now from Tk 65 in July last. The dollar rise has been attributed to the hike in prices of oil and other primary commodities in the international markets, putting pressure on the country's foreign exchange reserves.
"There is nothing to worry about. The market is in better shape now, partly because of SEC activities," said Sharif Ataur Rahman, chief of SAR Securities, a brokerage house.
He said it is true that the flow of fund has slowed down and a price correction has taken place. But this is partly related to launching of initial public offerings (IPOs) by the Jamuna Bank.
This will siphon off about Tk 3.0 billion from the secondary market, he said.
Rahman favours divestment of government shares in the oil and power companies through the stock market.
"Look at the Summit Power. It is doing so well. It has attracted lot of investors. It's IPO was overwhelmingly oversubscribed showing how the power company is lucrative to investors," he said.
The galloping number of beneficiary owners' (BO) account bears the testimony of a growing market activity, he said adding that the number has risen to about 600,000 from few thousands early last year.
"Many investors, driven by knowledge and judgment, are coming to the market. Their number has risen sharply," he said.
He, however, cited a market correction and political uncertainty as the reasons for the slowdown of the market.
But he believes the return of Awami League to parliament will boost the confidence of the investors in stock market.
Imtiyaz Husain is critical about a moribund bond market. There is no effort to activate the bond market that has been launched as an alternative channel to mobilisation of funds.
"There is no effort to activate the bond market. A market should be where one can sell and buy products. Unless you have a distribution system in place a bond market can not exist," he said.
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