Forma # 1.ai - ICAB

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