Blue-chip stocks struggle to find buyers amid uncertainty

Imran Khan · Nov 30, 2022

Blue-chip stocks struggle to find buyers amid uncertainty

AddThis Sharing Buttons
Share to Facebook
Share to TwitterShare to WhatsAppShare to LinkedInShare to ViberShare to EmailShare to More

Ahsan Habib

Wed Nov 30, 2022 09:00 AM Last update on: Wed Nov 30, 2022 09:00 AM

Most of the blue-chip stocks such as British American Tobacco, Grameenphone, Renata, and Singer Bangladesh are failing to attract investors even though they are up for grabs at floor prices as investors fear that the market will fall if the floor price is lifted given the current gloomy economic scenario.
Blue-chip stocks are huge companies with excellent reputations, often including some of the biggest household names.
Among the 30 blue-chip companies in the DS-30 index of the Dhaka Stock Exchange, 24 have not seen trade in the last few weeks due to an absence of buyers.
The floor price, falling profits of listed companies, a lack of confidence among investors owing to economic uncertainty at home and abroad, depreciation of the taka, and higher inflation have made investors particularly cautious.
On July 29, the Bangladesh Securities and Exchange Commission (BSEC) set the floor price of every stock to halt the freefall of market indices amid global economic uncertainties, which have impacted various indicators of the economy in the last few months.
The floor price is the lowest price at which a stock can be traded. It is the average of the closing prices on July 28 and the preceding four days.
Apart from blue-chip stocks, eight multinational companies are also listed with the country's premier bourse. They are not included in the blue-chip index.
But the well-performing multinational stocks, namely Reckitt Benckiser, Linde Bangladesh, Marico Bangladesh, Unilever Consumer Care, Berger Paints, Heidelberg Cement, and RAK Ceramic Industries, are also facing the same fate and struggling to find buyers.
"The well-performing stocks are not moving only for the floor price," said Richard D Rozario, president of the DSE Brokers Association of Bangladesh.
"Investors worry that the market may fall further if the floor price is scrapped amid the worsening macroeconomic situation and the geopolitical situation around the globe."
The factors for which the BSEC reintroduced the floor price, namely the war, supply disruption and higher commodity prices, are still there. Rather, some macroeconomic indicators have eroded.
For example, the foreign currency reserves have fallen from $39.06 billion in August to $34.04 billion this month, while inflation hit a record high of 9.52 per cent in August before falling slightly to 8.91 per cent in October.
Exports declined 7.85 per cent year-on-year to $4.35 billion in October and remittances fell 7.4 per cent to $1.52 billion the same month, the two largest foreign currency earning sectors. On the other hand, import payments have remained at elevated levels.
"Had the floor price not been set, the price might have fallen, but it would have risen automatically," said Rozario.
"This is the beauty of the stock market. The interference in the price mechanism is not expected. Setting the floor price was a mistake."
Rozario, also managing director of Global Securities Ltd, went on to say that if there is no exit point, then no one wants to enter the market.

"Bangladesh's stock market is a victim of the current situation. Since most of the stocks are illiquid, people don't want to buy them," he said.
Prof Abu Ahmed, a former chairman of the economics department of the University of Dhaka, said the stock market usually reacts in line with the economic situation.
"But the stock prices have been artificially high owing to the floor price," he added.
Ahmed then said that since deposit rates in the banking sector have risen, the stock market is expected to fall.
In June last year, the weighted average rate on deposits stood at 4.13 per cent, giving depositors a negative return on savings given the inflation rate of 5.64 per cent that month.
The rate is said to be accelerated owing to the liquidity crunch in the banking system now.
Many banks are now offering more than a 6 per cent rate on deposits.
The sharp depreciation of the local currency against the US dollar indicates that share prices might drop further since global investors may pull their money out of the market.
The local currency has lost its value by 24.5 per cent against the US greenback in the last one year, central bank data showed.
The earnings of most listed companies fell in the July-September quarter and the trend could persist in the ongoing quarter and beyond amid the current volatility.
In July-September, the profits of 110 listed companies fell, 38 plunged into losses and 30 remained in losses.
"The floor price is preventing the shares of the companies from falling further," said Prof Ahmed.
When a market falls, some buyers enter the market and purchase shares, sending the indices higher, according to the economist.
"This is the beauty of the market, but it has been spoiled by the floor price."
The current situation has made it harder for the BSEC to lift the floor price since peoples' confidence has received a huge blow because of the higher inflation, depletion of forex reserves and persisting Russia-Ukraine war.
And Rozario thinks the market regulator should wait until the economic situation improves since the withdrawal of the floor price now could send the market low.
Some institutional investors should prepare themselves to inject Tk 2,000 crore to Tk 3,000 crore into the market to bring back confidence among investors, said Prof Ahmed.
"Otherwise, the market may remain illiquid for a long time."
An asset management company, with hundreds of crores of taka at its disposal, is not investing in the stock market as it apprehends that the market has little scope of making a comeback unless the overall situation improves.
So, it has opened some fixed deposits and subscribed to government and corporate bonds, said a senior executive of the company.
Interestingly, low-performing and junk companies are still favourites among a section of investors even though these securities are believed to be manipulated.
On Monday, Jute Spinners, a junk stock, was the top gainer. Some other low-performing companies such as Kay & Que, Sonali Paper & Board Mills, and Paper Processing & Packaging Mills were on the list of the top advancers.
Apart from the blue-chip and multinational companies, other well-performing companies are also seeing little trade. At present, the stocks of 240 companies are stuck at the floor price.
A top official of a merchant bank said the reintroduction of the floor price was totally a wrong idea.
"It will impact the market negatively in the long run because foreign investors don't prefer an illiquid market. The artificial price is sending a wrong message to the investors and to the world."
"The rise of the stocks of the low-performing companies is not logical," said Mohammad Emran Hasan, CEO of Shanta Asset Management.
"There may be a manipulative intention, so the regulator should look into it."
He then requested the BSEC to investigate and identify the investors who are buying these stocks and for what reasons.
"If there is any insider trading or breach of securities rules, the culprits should be punished."
Hasan recommended general investors invest in sound stocks and not pay any heed to rumours.