The Bangladesh Securities and Exchange Commission (BSEC), the securities regulator, is expected to consider withdrawing the floor price in 2024, which is anticipated to usher in as a reprieve for investors, marking a positive turn after the challenges faced in 2023, stakeholders said.
Although the equity market may face an immediate correction following the withdrawal, the stock market can be expected to bounce back and the overall market turnover can be expected to rise significantly as funds unlocked will become available for reinvestment, said EBL Securities, a leading stockbroker, in its new-year market forecast.
On July 28 in 2022, the BSEC imposed floor prices on all securities to prevent shares from falling beyond a certain level amid the domestic and global macroeconomic strains.
The share prices of most companies have been stuck at their floor prices for an extended period of time, pushing investors towards liquidating their holdings and thus creating a liquidity crisis in the market.
Earlier in March 2020, the securities regulator took a similar move to limit the free-fall of shares following the global pandemic, when the DSEX fell below 3,000 points.
After its imposition, the floor price was a complete mess for the stock business and a year of disappointment for the stock market as the average turnover and foreign investment reached rock bottom, which was never encountered by investors at such a bad time after the collapse in 2010.
Talking to The Business Post, DSE Brokers Association of Bangladesh (DBA) president Saiful Islam said the year 2023 was a big challenge for the overall economy, and the stock market was not immune to this challenge.
He further said that the big problem in the market was the floor price imposed by the stock market regulator. This results in low-volume trades in the market. There was no new investment. No return was found. The income of all stakeholder groups in the market has declined. All this has created constraints on the capacity of the stock exchanges.
Saiful, also a director of BRAC EPL Stock Brokerage Ltd, said that the number of new good IPOs coming up should be increased next year. “Let the market take its course.”
He believes that investors’ confidence can be restored if the floor price in New Year is withdrawn and trade volume increases in the market.
The capital market also felt the heat as the core index of the country’s premier bourse plunged below the psychological threshold of 6,000-mark, forcing the stock market regulator to reinstate the floor price at the end of July 2022, which is still effective.
As of Thursday, DSEX, the key index of the Dhaka Stock Exchange (DSE), ended at 6,246.49 points on the last trading day of 2023, which was 6,206.81 points on the first trading day of the outgoing year.
This year, the DSE’s average daily turnover fell by 39.83 per cent to Tk 578 crore. It was Tk 960 crore in the previous year.
The market capitalisation to GDP ratio declined to 17.59 per cent in the outgoing year, down from 19.14 per cent in 2022.
The capital market is poised for a turnaround in 2024, shedding the sluggish performance of the preceding years.
A resurgence of vibrancy and enthusiasm is anticipated, driven by several factors- moderate improvement of macroeconomic scenario going forward, alleviation of investors’ concern regarding domestic political issues, particularly about the National Election transpiring smoothly, and the expected reversal of regulatory restrictions set during the challenging periods in the preceding two years, said EBL Securities.
The key index, DSEX, may hit as low as 5,500 points if the floor price is withdrawn and can be expected to exceed 6,500 points later. However, it is likely to fall short of 7,000 points unless heightened investors’ participation and enthusiasm can be achieved.
Bangladesh Bank has made controlling inflation its main priority in its latest monetary policy and has also raised policy rates recently. Inflation is expected to come down by mid-2024, but further cuts to energy subsidies and the depreciation of taka may pose challenges in reducing inflation.
The liquidity crunch, a prevailing concern, is expected to alleviate in 2024 due to rising deposit rates. Bangladesh is expected not to face any sanctions from the western countries over political issues and violence related to political issues has been less than anticipated, said the leading stock broker of the Dhaka bourse.
Overall, 2024 is anticipated to usher in a reprieve for investors, marking a positive turn after the challenges faced in 2023, it said.
Managing director of the Dhaka Stock Exchange Dr. ATM Tariquzzaman told The Business Post that corporate governance should be given utmost importance to eliminate the market confidence crisis.
“In the new year, there will have expectations that the regulatory body withdraws the floor price from the market,” he added.