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Capital market must get rid of ‘rotten apples’

Published : 02 Dec 2020 10:17 PM | Updated : 03 Dec 2020 01:51 AM

The government’s good initiatives will not be successful in building a strong capital market unless the key players of 1996 and 2010, responsible for the devastations of the stock market, are removed from the process, experts said.

After almost 50 years of independence, Bangladesh has not built a strong stock market as yet though the capital market strengthens a country’s economy, they added.

Amid continuous depreciation of stocks the government has undertaken massive measures to boost the capital market, which faced crushing blows thrice in the period between 1996 and 2010 due to some unscrupulous traders and stakeholders, they mentioned.

The country's capital market is behaving irrationally as some unscrupulous traders are still alive, and in control of the market, they informed.

Shares of most powerful and large-capitalized companies are falling despite good profits. On the other hand, the prices of weak and low-capital stocks are rising uncontrollably.

Analysts usually suggest investing in companies which are continuing to make good profits over the last few years with business-successful organizations, and efficient management authorities, when considering investing in the capital market. 

However, these suggestions are not working when it comes to investing in the country's capital market. 

Share prices of bad companies are rising for some unscrupulous traders. 

Several companies are consistently coming up with good profits for investors including Titas Gas, Summit Power, Uttara Bank, Power grid, Acme Laboratories, and Padma Oil, but they cannot find investors to sell their shares.

It is in the vicinity of the lowest price fixed by BSEC.

The board of directors of Titas Gas Transmission and Distribution Company Limited has recommended 26 percent cash dividend for the year that ended on June 30, 2020.

The company reported earnings per share (EPS) of Tk 3.64, net asset value (NAV) per share of Tk 71.39 and net operating cash flow per share (NOCFPS) of Tk4.48 for the time.

Share price of the company decreased by Tk 2.1 or 6.46 percent to Tk 30.80 on Wednesday during the last year. 

On the other hand, despite relatively low profits, some stocks like Paramount Insurance, Continental Insurance, Asia Insurance, GQ Ball pen have risen up to 650 percent in one year.

Even without paying dividends, the value of some mutual funds has doubled or more in one month.   

Paramount Insurance Company limited announced 2 percent stock and 2 percent cash dividend for the 2019 financial year. 

In the previous year, the company provided only 5 percent stock dividend.

The company's earnings per share rose to Tk 1.17, which was Tk 0.52 in the previous year.

Share price of the company increased by Tk 92 or 230 percent to Tk 132 on Wednesday during the last year.  

Experts say that the gambling cycle can easily manipulate the share control of small organizations.

It is time to encourage good companies for long-term financing, paving the way for the revival of stocks, experts said.   

In absence of quality securities, the capital market is still unable to play its due role in expanding economic activities, which is one of the strategic tools to achieving SDGs, they added.

Demutualization of two stock exchanges in the country was done in 2013 by separating management from ownership in order to develop the capital market and establish effective institutional good governance.

Demutualisation means that the ownership of stock exchanges separates from the management.

However, the Dhaka Stock Exchange (DSE), the largest capital market in the country, is still far behind in implementation of actual demutualization. 

In the 2009-2010 fiscal, the market cap witnessed a sharp rise to $39 billion from $18 billion in the 2008-2009 fiscal.

But the growth of market cap (Capitalisation) could not maintain pace with the country’s economic development. 

The market cap stood at $46.50 billion in the 2017-18 fiscal, according to DSE data. On Wednesday, this figure was $46.75 billion.

Eminent economist and market expert, Prof Abu Ahmed told Bangladesh Post, “For lack of good financial-base companies, especially multinational and state-owned companies, the capital market cannot build an investment-friendly environment for local and foreign investors to inject newer funds into it.”

The capital market now is traded almost 80 percent by unscrupulous traders while only 20 percent by general investors, he said adding, the government must include good companies to stop gambling.

“The government should immediately prepare the ground quite well to bring in some good companies, in order to undertake a drive to develop a long-term financing capital market,” Ahmed mentioned.

A capital market investor, Abdul Mannan told this correspondent, “Right now, we cannot understand the latest market status. We are absolutely in the dark.”

The share price of most of the bad financial base companies has increased due to unscrupulous traders being active in the market, he said adding, “We are seeking government intervention to revive the capital market by stopping unusual trade in the market.”

Professor Shibli Rubayat Ul Islam, chairman of the Bangladesh Securities and Exchange Commission (BSEC), said, “His commission is giving higher priority on establishing good governance and automation in the share market.”

If automation is ensured in the market, it will help ease business, he said adding, it will also save time and cost of the stakeholders.

He expects, “The capital market will be built into a dynamic market within two years by ensuring good governance and transparency in the market.”

Rubaiyat said the fundamentals of many securities that came in the market over the last couple of years are not good.

On the other hand, many companies have passed their IPOs through submitting fake papers at the BSEC, he added.

The perpetrators of such incidents are being identified and thus being brought to book so that none dares to commit such crime anymore, he mentioned.