Ahsan Habib

Soaring market capitalisation last week pushed Bangladesh’s stock exchange indices to their highest point since inception in 2013 thanks to increased investor participation.

The country’s bourses are seeing higher customer turnout as people are in search of a more profitable way to save money amidst the pandemic since banks offer low rates on deposits, according to market analysts.

However, many investors are now considering whether to offload their shares as the stock market may be overvalued.

The value of a market index is determined by the price-earnings ratio of the stocks being traded.

And although the ratio remains low, many stocks have soared to such an extent that their earnings do not justify the price, market analysts said.

So, these stocks are considered overvalued but there are still many others that are being traded at lucrative prices, they added. “The stock market is overvalued to some extent,” said AB Mirza Azizul Islam, former adviser to a caretaker government.

“But it is a good sign that some sectors, such as insurance, recently witnessed corrections,” he added.

Islam, also former chairman of the Bangladesh Securities and Exchange Commission, went on to say that considering the country’s inflation rate, the net interest rate of most local banks were negative.

“This is why people tend to come to the capital market,” he said.

Investors should scrutinise a company’s price-earnings ratio, performance, dividend history and so on to realise their true value before making any investments.

“People should not invest by paying heed to rumours,” he added.

The DSEX, the benchmark index of Dhaka Stock Exchange (DSE), surged to 6,596 points last week.

The DS-30, the blue-chip stock index, soared to 2,385 points. The Shariah index of the premier bourse, DSES, advanced to 1,439. All three indexes reached a historical high last week, as per DSE data.

“Still though, many stocks are underpriced so people can invest,” said Prof Mohammad Musa, a stock analyst and member of the board of trustees of United International University.

“However, I think investors should be cautious in some cases when prices rise at a high speed,” he added.