Credible financials, entry of quality issues ‘hold the key’

Experts and stakeholders emphasised the listing of companies having strong fundamentals, visible regulatory actions, reliable financial statements and risk-management capacity of institutional investors for lifting the capital market out of the ongoing moribund state.
A top official of AB Bank, on condition of anonymity, said that regulatory actions should be visible to give the much-needed fillip to the bourses.
"All market parameters, including the P/E ratio, are in favour of fresh investment. Perception will have to be changed through visible actions by the securities regulator," said the banker.
He said no measure also was taken against Titas Gas which kept the decision on reducing distribution charge hidden from investors that led to fall in its earnings and share prices.
According to DSE Brokers Association, during the period from August 30, 2015 to February 3, 2016, the DSE lost Tk 54.13 billion of its market capitalisation and Titas Gas alone lost Tk 31.06 billion.
Shahidul Islam, managing director and CEO of VIPB Asset Management Company, said once the banks were market-movers and considered blue chips. "Presently, the prices of banks' shares are declining despite having 10 to 15 per cent dividend yields. Investors did not accept the rescheduling of loans positively."
By a contrast, he said, the share prices of multinational companies (MNCs) increased significantly even amid continuous fluctuations in stock prices. Credit goes to their reliable financial statements.
"The government will have to ensure reliability of financial statements of banks and financial institutions for the sake of reviving the market," Mr Shahidul added.
Managing director of Dhaka Bank Securities Mohammad Ali noted that the issue of professional skills of the institutional investors are yet to be addressed on the country's capital market.
"The portfolio managers having capacity of managing a portfolio of maximum Tk 500 million were involved with managing the portfolios of Tk 2.0 billion to Tk 3.0 billion," Mr Ali said.   
He said investment skills of the people involved in portfolio management should be enhanced for the sake of lenders and investors as well.
Former chairman of the securities regulator Faruq Ahmad Siddiqi said bubble and burst occurred in 2010-11 in the absence of risk-management measures.
"In 2010, lenders provided huge amounts of margin loans in breach of securities rules and now a substantial amount of the money is struck up, hindering the activities of institutional investors," Siddiqi said.
He felt the need for finding a solution in order to restore the business activities of institutional investors.
"In some cases the lenders can deduct interests of margin. They must do something there for restoring activities," Siddiqi said, stressing the listing of companies with strong fundamental, to create vibrancy on the market.    
Md. Shakil Rizvi, a DSE director, also suggested offloading quality shares to resuscitate the market.
He mentioned that in 2011 the Indian capital market went almost dry and investors turned back from the market.
"Then the Indian market became vibrant through an initiative of offloading potential shares," said Mr Rizvi, also the former DSE president.
"To make the country's capital market vibrant, initiative should be taken for offloading potential shares of the companies like multinational ones."
He felt the need of investors having proper investment knowledge and strategies for development of the market in a sound way by avoiding volatility.
Most of the companies which went public in last couple of years swam in huge public subscription and the market price of some of those soared up to 666 per cent on the day of debut trading, as securities traders were not aware of the fundamentals of those companies.
But, after one or two months of listing, the initial market price of the shares failed to sustain.
The companies whose market prices declined significantly include Khan Brothers PP Woven Bag Industries, Western Marine Shipyard, Khulna Printing and Packaging, Far Chemical Industries and Peninsula Chittagong.
Chairman of the securities regulator Prof. M. Khairul Hossain recently said at the launching ceremony of DSE-Mobile that the regulator did not approve any IPO (initial public offering) proposal beyond the rules.
"After introducing financial literacy programme, the problems of the market will be reduced," Prof. Khairul said.
In this regard, former BSEC chairman Faruq Ahmad Siddiqi said except some companies, there are questions about the fundamentals of the companies which had gone public in last five years.
The managing director of an Asset Management Company (AMC) said, preferring anonymity, that many companies which went public are not able to get bank loans without personal guarantee because of weak fundamentals.
"Investors' speculative behaviour will not be changed unless companies having strong fundamentals are listed on the stock exchanges," the fund manager said.
Minhaz Mannan Emon, a former DSE director, said the market situation is worsening for a lack of confidence having relation with the crisis of financial sector and irrational share premiums.
"Investors do need to have the guarantee that the market price of a company which went public with premium will not go down below offer price. If the price goes down below offer price, then it's proved that premium was irrational," Emon said.   
Some institutional investors also stressed internal risk-management capacity for the sake of market, clients and their own business.
The Southeast Bank Capital Services, a subsidiary of Southeast Bank, had a paid-up capital of Tk 1.50 billion. The company recently got more Tk 1.0 billion as equity investment from the parent company.
The Southeast Bank Capital Services had a loan of Tk 2.60 billion taken from the parent company. After enhancement of the paid-up capital, the merchant bank repaid Tk 1.0 billion and reduced its burden.
"Now our parent company, if it intends, can invest more Tk 1.0 billion which will not be included in the bank's exposure to the capital market," said Md. Alamgir Hossain, senior assistant vice president and head of operations of Southeast Bank Capital Services.
The amount of margin loans provided by IDLC Investments was around Tk 8.0 billion in 2010. Officials of the lender said through internal risk management their company reduced around Tk 3.0 billion of margin loans before the stock market debacle occurred in December (2010)-January (2011) period.
"We have also injected more Tk 1.0 billion into the company's paid-up capital. And through internal risk management, we have overcome the difficulties caused by the market debacle," said Md. Moniruzzaman, managing director of IDLC Investments.
He said their company made a profit of Tk 55 million in 2014 and Tk 120 million in 2015 amid a sluggish trend in the market.
The officials of IDLC Investments and Southeast Bank Capital Services said other companies should also come forward to solve the problems of margin loans following this strategy.
Mohammad Saifur Rahman, an executive director of the securities regulator, said margin-loan providers can try to reduce the load of default margin loans with the help of parent companies.
"The regulator is also trying to facilitate them," Rahman said.   
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