A painful exercise yet again!

In the past few weeks, with stock prices eroding continuously, the market looked even duller.
Market analysts held the panic sale by a section of investors responsible for such a situation. But they did not explain elaborately the underlying causes that had triggered the panic.
Last Sunday, the general index of the Dhaka Stock Exchange (DSE) went down 9.36 points with transactions hitting eight-month low at Tk. 2.21 billion. The 'analysts', who never run short of reasons to explain the ups and downs of the market, listed the terror attacks on the French capital Paris as one of the major causes for the decline.
Within a gap of 24 hours, however, the investors' concern over terror attack evaporated Tuesday as the DSE general index gained nearly 52 points with daily turnover jumping more than 87 per cent over that of the previous day to reach Tk. 4.15 billion.
The reversal, according to the analysts, was the disclosure made on the previous day by Finance Minister AMA Muhith that the government would extend the timeframe for adjusting commercial banks' over-exposure to the capital market by two more years.
Mr. Muhith talking to newsmen last Sunday said the Bank Company Act would be amended to extend the deadline.  The deadline for complying with the legal requirement concerning over-exposure would end in July next.  
Commercial banks, according to the Bank Company Act, are not allowed to invest more than 25 per cent of their respective total equity, which is the banks' paid-up capital plus reserves.
Earlier, the investment limit was 10 per cent of the banks' total liabilities. The new limit was fixed when the Act was amended in 2013.
Merchant banks and brokerage houses, reportedly, requested the securities regulator to do the needful for extending the banks' over-exposure adjustment timeframe. The government's Fiscal Coordination Council at a meeting, chaired by Mr. Muhith, last week also discussed the issue against the backdrop of a steep fall in stock prices.
But is the over- exposure adjustment by banks really an issue in the context of the current state of the stock market?
If it was so, why would the general index record a modest 20 point increase on Tuesday as against more than 50-point rise on the previous day? The current rally in all probability will be a short-lived one.   
The overall stock market situation has been dull and drab. However, there exists a sort of stability in the market, which is very much consistent with the current figures of the major macro-economic indicators.
However, fear among the merchant banks and brokerage houses about a major negative impact on the market in the event of adjustment of over-exposure of investment by banks is not unfounded.
The banks had played a major role in building up the bubble in the stock market and also in its burst in 2010. Banks had earned hefty profits out of their investment in stock market and their financials were testimonies to that fact. However, most of them have gradually withdrawn their investment over the last four and a half years.
In fact, the stock market is now starved of fresh funds since the banks have not been interested to invest in stocks. Some banks might have over-exposure to the market. But many others do have sufficient space left for investment in stocks.
Now the question is: Will the extension of adjustment deadline encourage banks to try again their luck in stock market when their financials remain highly unattractive?
Many banks are not even sure whether they would be able to declare any dividend for the shareholders for the outgoing calendar year.  Yet banks are unlikely to venture into this kind of adventurism.
The government and the central banks appear to be interested in seeing the banks' increased presence in the stock market. The central banks is mulling over allowing the banks to submit reports on their exposure to stock market bi-weekly, instead of that on a weekly-basis.
Yet banks that are floating on a substantial volume of excess liquidity might prefer the low yield bearing 30-day bill to listed shares while putting in their idle funds. Investment in stock does not guarantee any attractive return in the short-term. Besides, there is a risk element. So, the bid to lure banks to stock market is unlikely to be that successful.
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