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Blue-chip stocks struggle to find buyers amid uncertainty
AHSAN HABIB
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.