Investors empty 1.02 lakh BOs, market cap falls by Tk1.37 lakh crore this year

TBS Illustration

Around 1.02 lakh beneficiary owners' accounts (BOs) were emptied by 20 June this year, while market capitalisation dropped by Tk1.37 lakh crore due to prolonged poor returns, frustrating investors and pushing them to leave the market.

According to the Central Depository Bangladesh Limited (CDBL), in the six months up to 20 June, the total number of BOs with zero share balance increased by 34% to 3.98 lakh, while BOs with share balances decreased by 91,651 to 13.12 lakh.

During this period, the benchmark index DSEX of the Dhaka Stock Exchange fell over 1,000 points to close at 5,244, while the blue-chip DS30 dropped 218 points to settle at 1,875.

The market capitalisation at the DSE also dropped by over 17% to Tk6.43 lakh crore at the end of the session on 20 June.

Stockbrokers and market experts say rising interest rates, imposition of taxes on individual investors' capital gains from listed securities and a serious confidence crisis due to the regulator's intervention are collectively hurting stock bulls.

The capital market has struggled with economic uncertainty worsened by the Russia-Ukraine war since its onset. To protect general investors from capital erosion, the Bangladesh Securities and Exchange Commission (BSEC) imposed a floor price in 2022 to prevent share freefalls.

After more than two years, the BSEC lifted the restriction, but the bearish trend continued.

In response, the BSEC re-implemented measures to protect investors, including reducing the circuit breaker limit from 10% to 3%.

Abu Ahmed, former professor of economics at the University of Dhaka, told The Business Standard that interest rates, especially on treasury bonds, have risen to unprecedented levels recently. "This has led large investors to move their money out of the market and invest in bonds."

He also mentioned that the interest rate on treasury bonds has remained steady at around 12%. Given that investing here carries no risk, it's a preferred choice for many investors.

Abu Ahmed further said the market has experienced a fund crisis as a direct consequence indicating that due to the elevated interest rates, the market is witnessing a decline.

According to him, investors' options for investment have dwindled over the past decade.

He noted that the number of reputable companies entering the market has significantly declined. Moreover, among those currently listed, sectors such as banks, insurance, non-bank financial institutions, and manufacturing companies are underperforming.

Given this scenario, he suggested that investors are likely to gravitate towards safer investment opportunities.

Saying that the lack of good governance has eroded investor confidence in the market, the former economics professor added that there's a noticeable absence of long-term policy support aimed at market improvement.

Additionally, he pointed out that the government is in the process of withdrawing benefits previously granted for investments in the market.

Md Saiful Islam, president of the DSE Brokers Association of Bangladesh (DBA), in a press conference held on 11 June said that investors are losing confidence in the stock market due to a combination of factors such as the absence of high-quality initial public offerings (IPOs), governance issues among all stakeholders (intermediaries and the regulator) and the proposed capital gains tax in the proposed budget for the upcoming fiscal year.

He urged the government to withdraw the capital gains tax, stating that the new tax burden negatively impacts an already gloomy market.

In the proposed budget, Finance Minister AH Mahmood Ali proposed a 15% tax on individual investors' capital gains exceeding Tk50 lakh from listed securities, at a time when the country's investor-dominated stock market was experiencing a free fall.

Abu Hena Md Rahmatul Muneem, chairman of the National Board of Revenue, emphasised in a post-budget press conference that taxation was not the root cause of the capital market issues as long standing tax incentives failed to foster market growth.

Current market situation

The benchmark index of the DSE rose for four consecutive trading sessions as cautious investors showed their appetite for undervalued blue-chip stocks. The prime index DSEX recovered 174 points over the last four sessions, settling at 5,244 last Thursday.

Stockbrokers mentioned that anticipation of a rationalised proposal for capital gains tax on individual stock investors in the final budget and a concessional large salvage fund for the state-owned Investment Corporation of Bangladesh (ICB) encouraged bargain hunters to make new investments.

EBL Securities stated in their daily market commentary that prevailing rumours about the possible withdrawal of the proposed imposition of capital gains taxes instil some confidence among jittery investors.