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Actions to buoy up stock market

February 14, 2020 00:00:00

That the stock market is not in sync with the country's overall economic performance is an undisputable fact. Even the men in authority do not deny it in public. The finance minister himself some time back did admit that he was clueless about the behaviour of the market. The situation lately has turned so bad that the government could not be just an onlooker of the market mayhem. Under instruction from none other than the prime minister, the relevant policymakers have now plunged into actions to buoy up a market that otherwise has not been responding to piecemeal initiatives from different directions.

The relevant policymakers have identified time and again the scarcity of liquidity and good stocks as major weaknesses of the market. But such identification was not backed by right kind of actions. Since the collapse of the market in the late 2010, all concerned have been talking about the need for addressing the weaknesses to help restore investors' confidence, the key factor in the operation of any stock market. Now the government, the central bank and other major market players appear to be serious about increasing the supply of both new issues and liquidity.

The four state-owned banks have been asked to get listed on the bourses within a time-limit. Another bank, already listed on the bourses, would be required to offload more shares. Besides, efforts are underway to bring at least seven state-owned enterprises to the market. Getting the state enterprises listed on the bourses is not at all an easy job. The vested interests in these entities create a lot of obstacles to such a move. In the past also, a number of initiatives to get some selected SoEs on the bourses did fail.

As part of the latest move to boost supply of liquidity in the capital market, the central bank has allowed each of the scheduled banks to create a special fund worth Tk 2.0 billion for investment in stocks for a period of five years. The investment of special fund that could either be created with own resources or through borrowing from the central bank at reduced interest rate will remain beyond the capital market investment limit set for the banks.

One, however, cannot be certain about the outcome of the latest actions directed towards infusing dynamism into the country's capital market. As far as supply of liquidity is concerned, it all depends on the mood of the banks that are not in a comfortable situation either. There could be temporary flare-ups in the market---in fact, market has witnessed this kind of development on a number of occasions in the recent past--- following the government's latest actions. But an uninterrupted market buoyancy would not be easy to come by.

To achieve that, in addition to increased supply of good stocks and enough liquidity, the companies already listed on the bourses will have to offer dividends at reasonable rates to their shareholders. At the same time, the regulator and other important stakeholders will be required to act in a transparent and fair manner. The damage caused to the country's capital market due to regulatory indifference has been substantial. Repair of the same with right kind of remedial measures may also take time.

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