Forma # 1.ai - ICAB

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DSE actually has outperformed other markets in terms of growth & performance in recent years. If DSE is put in a comparative analysis table (Graph-2), it is evident that this unusual growth created anomaly in the market, especially in the year 2010. Reflection of this can be easily traced to the lower dividend yield percentage and higher average price/book value ratio compared to other major markets of Asia. This growth did not continue for long; the fall came and it came hard. The sudden market crash came like a bolt from the blue for everyone involved. DSE Relave Performance (Rebased) • Lack of effective monitoring from market regulators encouraged the market to take risky bullish trend without senses around. Why such huge rise & massive fall? The unusual growth experience was not caused by one single force. These varied from a range of some basic economic theory all the way to the mindset of the low volume Retail Investors. • Basic equation of demand supply created the bubble in the market. Demand of shares increased with the supply lagging far behind. This is evident from the oversubscription status of any IPO floated in the market. • Merchant banks invested heavily in the market as they had the knowledge and opportunity to do fundamental and technical analysis to gain an upper hand from the retail investors. This knowledge allowed them to make abnormally high profits and this is reflected in the hefty profit figures of 2010. • Commercial banks reduced the interest rate on fixed and savings deposit from 14-15% in 2008 to 9% in 2010 . Also Tax was imposed on Govt. Saving certificates. This forced the general investors to look for an alternative source and eventually ending up investing in the share market which was showcased to them as much faster money making waysimilar somewhat to a Casino! • Almost all Private Commercial Banks were focused on establishing their Merchant Bank Unit and billions of taka were invested to gain “quick return” from a heated market. Even industrial loans were invested in share market which went on for some time beyond the radar of Bangladesh Bank, SEC and other regulators. • Investment of black money was encouraged in the capital market during the Annual 14 January - March 2011 The Bangladesh Accountant
Budget for the sake of so called economic development of country. • Government withdrew the imposition of tax on individual investment in share market after the budget. Tax on Institutional investment was kept at insignificant level. • Brokerage houses increased Round Table from The Daily Prothom Alo, 30-1-2011 their branch offices throughout the country to facilitate the entrance of new retail investors into the market. 238 brokerage houses of DSE opened 590 branches in 32 districts. Most of the new entrants lack the basic knowledge of share market and only has the intention to make “quick money”. The total no of BO accounts stood at 3.2 mn at the end of 2010 with a 45% growth in 2010 alone. • 27 out of 35 “shares split” had abnormal gain (ranging from 5% to 70%) for almost no reason. Investors went for share purchase whenever there was news for share split. No concern was raised by any responsible corners. • 26 out of 32 shares dematerialized had abnormal return (ranging from 5% to 304%); this also led to unnecessary hike in price. • 18 new IPOs were listed during 2010 with a total of BDT 11,700 Mn in public offering. This has given the stock market an organic growth by increasing the supply side and depth. • 23 companies raised BDT 28,194 Mn through right share issue in 2010. Abnormal gain was observed among 11 shares (ranging from 11% to 58%) From all these sources, lot of money got injected into the Capital Market, and obvious result was too much money was chasing too few already overpriced shares in the market. The stock market crossed the threshold in 2010 where it could no longer sustain. Merchant banks, Brokerage houses, Asset management companies and high net worth investors - everyone realized this and went into securing their investment in Q4 2010. Sell side started to gain momentum in the market. SEC and Bangladesh bank, even though realizing the overheated state of the market much earlier started taking strict measures when profit booking has already started rolling in the market. SEC took some restrictive measures by reducing the margin loan ratio and the individual and Merchant Bank credit limit. Bangladesh Bank went hard on the banks regarding their exposure in the capital market. It also increased the CRR from 5.5 to 6% to reduce the money supply . All these measures transmitted a red alert signal in the minds of the retail investors resulting into massive panic sales by the investors. The Challenges faced by our Capital Market 1.Supply constraints: Bangladesh has only 219 equity shares traded in the market. Whereas our neighboring countries have a good no of equity shares traded in the market like India has 3751, Pakistan 599, Srilanka 243, Indonesia 406, Vietnam 372. This supply side constraint generates excess liquidity problem and enhances the scope of price manipulation in the market. 2.Rumor based investment decision: At present, the retail investors of our country lack systematic and fundamental based analytic investment process. They depend mostly on market rumors for investment. As a result, all the retail investors behave illogical and chase a certain company’s share based on rumors. Some deep pocket syndication reportedly spread rumors as part of their game. 3.Dominance of retail investors: The retail investors of our capital market comprise of 70% to 80% of the total market capitalization. This percentage is much lower in other developed markets of the world. Ratio of Institutional to Retail investor needs to be increased as Institutional investors bring stability through non speculative long term investments. 4.Coordination among regulators: SEC, Bangladesh Bank, Ministry of Finance and other related stake holders did not have enough coordination towards any given policy. This lack of coordination sometimes gives misleading indications to the market. Better management of the capital market in pace with global standards will not be possible without the coordinated efforts of the regulators. 5.Debt market: Our country does not have an established secondary debt /bond market. Due to this, the companies are unable to fund their short term requirements. The capital market can be made more vibrant and lucrative if this facility can be incorporated. 6.Existence of Syndicates: Our capital market has some deep pocket investor syndicates (often termed as ‘bull cartels’) who manipulates the market in their The Bangladesh Accountant January - March 2011 15
Page 1: The Bangladesh Accountant January-M
Page 4 and 5: EDIT ORIAL The Perspective Plan and
Page 6 and 7: management and communication. There
Page 8 and 9: Uniform Accounting a must for Energ
Page 10 and 11: Management Accountants, Auditors ha
Page 12 and 13: A delegation of the Institute of Ch
Page 15: Bangladesh Capital Market Opportuni
Page 19 and 20: 8.Capital gain: The capital gain ma
Page 21 and 22: Avoiding Losses in the Share Market
Page 23 and 24: putting up anything-or very little.
Page 25 and 26: Table 11: Major Indicators related
Page 27 and 28: ) Huge inflow of new investors in t
Page 29 and 30: On one occasion, those who hold the
Page 31 and 32: It is widely accepted that the curr
Page 33 and 34: Figure 17: Overseas Migraon from Ba
Page 35 and 36: Source: BMET. Figure 18: Market Spe
Page 37 and 38: • Government should continue the
Page 39 and 40: These relative developments among t
Page 41 and 42: management which often readjusts th
Page 43 and 44: Fundamentals to Safeguard Investmen
Page 45 and 46: come in stock market to make profit
Page 47 and 48: Capital Market Review Volatility in
Page 49: current crisis in the capital marke
Page 52 and 53: “The stock market is but a mirror
Page 54 and 55: “The stock market is filled with
Page 56 and 57: “Oh, for the good old days when p
Page 58 and 59: everything eventually boil down to
Page 60 and 61: Number of Qualified Accountants wor
Page 62 and 63: espect, the Ministry of Finance, In
Page 64 and 65: ody in the social development secto
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Opportunities and Challenges for Ad
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at cost less any accumulated amorti
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Students’ Section Sanjida Kasem F
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13. Take breaks: Do not study at a
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Students’ Section Subject Duratio
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Students’ Section 10. The student
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Students’ Section 1/15/ICAB-2010
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