How the market bracing for post-floor trading

With escalating interest rates and energy costs, the stock market is poised for a real battle between the bulls and bears today, following an 18-month-long floor price protection.

The Bangladesh Securities and Exchange Commission (BSEC) on Thursday evening removed floor prices for all but 35 selective stocks, heightening investors' concerns about potential capital erosion and fueling their eagerness to acquire undervalued stocks in the event of a market decline.

The pivotal question for investors revolves around how the market will respond in the absence of floor prices for the 379 stocks collectively constituting almost two-thirds of the total market capitalisation.

Institutional investors, including brokers, dealers and merchant bankers, are expected to be a supportive force for post-floor trading, especially for undervalued stocks, said Saiful Islam, president of the DSE Brokers Association.

Its Senior Vice President Md Saifuddin, also the managing director of IDLC Securities Ltd, said the significant benefit of lifting the floor is the potential for numerous stocks to generate returns in regular trading, providing opportunities for portfolio rebalancing and unlocking substantial capital previously tied up on the floor.

The free trading would energise the post-election bulls who were on the sidelines for months and the market should overcome the post-floor transition challenges easily if investors avoid panic selling, said EBL Securities Managing Director Md Sayadur Rahman, also the former president of Bangladesh Merchant Bankers Association.

CEOs of institutional brokerage firms are in continuous talks for market support as discussed in the recent meetings with the BSEC, said Rahman.

BSEC Executive Director and Spokesperson Rezaul Karim told TBS that the regulator had meetings with all the capital market stakeholders before the floor withdrawal so that everyone's support would help avert any crisis in the secondary stock market.

"All the groups — market intermediaries, banks and the state-owned financial institutions — assured us of responsible behaviour in the secondary market that should be reflected through their net capital inflow," he said, adding that the meetings also stressed more awareness against panic selling.

Dhaka Stock Exchange Director Shakil Rizvi said when the average investors worry about the immediate direction of the stock prices, prudent investors eye long-term wealth creation and tend to bag undervalued stocks and that helps the market rebound during the panic.

The BSEC spokesperson said an additional team of the regulator would be monitoring if any of the market groups were involved in manipulative selling pressure in the secondary market.