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Indices and ex-dividend share price puzzle
Syed Ahmeduzzaman

          Share prices on the Dhaka Stock Exchange (DSE) have been maintaining a reasonably steady trend excepting for a few companies that are either being jolted for going ex-bonus or cast off by investors for poor or no dividend offer.
However, the recent trading pattern of ex-bonus shares that heavily axed the indices has baffled the investors.
Analysts say there have been some incidences of erroneous calculation of price indices, giving wrong signal to the market. Investors do get confused by a steep fall in indices when there is a trading on an ex-bonus share.
Market analysts say the problem is noticed when the indices are calculated without taking into consideration the rise in the number of shares with the bonus share offer.
The price of an issue falls whenever there is an ex-bonus trading. This is because a shareholder, already benefited by extra shares in the form of bonus, sells stocks at a lower price.
However, the sharp fall of price in ex-bonus trading has a reflection in the indices.
"So, there is a mismatch between the real scenario and the curve of the index," one analyst said.
They cited the example of a sharp fall in the prices of Pubali Bank share that went ex-bonus resulting in two and a half per cent fall in the all-share price index. In this case, the weight of the bonus share was not considered while calculating the index.
But DSE officials refused to accept the allegation saying the calculation of the indices is made on the basis of the availability of the shares in the market. There is a 67-day time period for the company to distribute the bonus share. For the Pubali Bank, for instance, the bonus share has not been made available in the market, they said.
"During a book closure period the particular issue, which earlier might have gained substantially over disclosures, tends to fall in trading due to price correction. It's a kind of option for the investors," said one DSE official.
Normally, buyers do not come immediately after the record date, he said.
Citing the case of Pubali Bank share the DSE officials said it was the price correction that had pulled down the indices. They said the particular share was not considered for index calculation as there was no circuit breaker for the price movement.
But the unusual phenomenon has come to the notice of the DSE authorities. They have also taken into consideration the change in indices during the trading on the particular issue.
"We will try to find a way so that the index is not affected after the price fall of a particular issue for going ex-dividend or ex-bonus," said DSE CEO Salahuddin Ahmed Khan.
He said the price of such share might fall due to the obvious reasons, but that should not have any impact on the indices.
However, market analysts do not see much of the share price movement in the market despite company disclosures.
They said the market has been hit by poor flow of fund since the later part of 2004 when institutional investors pulled out by selling their shares. Many institutional investors including the state-owned Investment Corporation of Bangladesh (ICB) had sold shares to make profit taking advantage of high prices and then kept on the sideline, they said.
A lingering sluggishness has gripped the market also due to the hike of interest rates of gilt-edged savings certificates. Many retail investors also have cashed their stocks to invest in the risk-free savings instruments for better return.
But the analysts said the market is currently witnessing a gradual flow of fund. There are issues that are providing higher return to the investors, they said.
They said prudent investors are now buying shares.
"It is good time to buy and hold," said one analyst.


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