DGEN sheds 874 points in October

FE Report The benchmark general index of the Dhaka Stock Exchange--- (DGEN) plunged 874 points or almost 15 per cent with loss of Tk 305 billion in market capitalization in the month of October. "The severe lack of confidence, absence of institutional participation and fund crisis were identified as the main causes for the persistent fall," a market insider said. The DGEN, the key index of the DSE started with 5,910 points in October and ended the month at 5,036.5 points or 14.80 per cent lower than that of September. Total market capitalization was Tk 2,830.68 billion during the early month of October, but it stood at Tk 2,525.34 billion at the end of the month. Daily market average turnover plunged to Tk 3.33 billion or 6.0 per cent lower than that of September, 2011. DGEN began to shed from the beginning of October and free fall was fanned for consecutive sessions by speculation of poor quarterly earning declaration of a good number of listed companies. Out of 30 stocks in the banking sector, 19 banks registered negative earnings growth in third quarter 2011 compared to same quarter 2010 due to poor stock market activities. But, 11 banks maintained healthy growth in this quarter due to having lower exposure to stock market through proprietary investment, margin lending and having higher concentration in core banking operation. Best performing banks gave strong cushion and banking sector third quarter total earning declined by 16.4 per cent. NBFIs were badly hit by the bearish stock market activities and the sector earnings declined more than 50 per cent in this quarter. Following the continuous fall, the market regulator, the central bank and the NBR took some initiatives to rejuvenate the capital market and to revive the investors' confidence. But, all positive steps failed to put the expected impact on the market. Rather, the falling trend is deepening which has disappointed many investors. "Sale pressure intensified during the month as many investors wanted to sell-off their shares when the market went up slightly and many of them wanted to quit the market," a stock broker commented. Monthly volatility of main gauge DGEN also spiked to 11.78 per cent which was 7.21 per cent in September as the market showed extreme behavior during the month. DGEN's fall below the historic psychological support level of 5,100 points after 22 months triggered panic sales in the market. The single-day turnover value at the DSE also plunged to nearly three-year low of Tk 1.81 billion in the month as severe liquidity crisis hit the stock market. After consecutive losses of their portfolio, investors were rather under severe psychological pressure of further index decline, said a leading stock broker. Advanced Income Tax (AIT) on brokerage commission was reduced to 0.05 per cent from previous 0.10 per cent, income tax rebate facility on stock market investment was restated, share sales of sponsor-directors and holding of 5 per cent or more than 5 per cent shares by sponsor shareholders was banned and income of mutual funds was exempted from taxation. Earlier, the Central Bank came forward to extend the adjustment time of the single borrower exposure limit of Banks and NBFIs, but this recipe hardly created any buy pressure in the market and could not add the liquidity flow to the market. Mutual funds cash position had already been exhausted and public was not that much lenient to invest in the jittery trend of stock market to avail of tax rebate facility, said the stock broker. Finally most of the merchant banks dominant in the stock market activities have already been overexposed. "Deteriorating local macro factors, recessionary fear in advanced economies, liquidity problem of the local market due to tightening monetary policy and skyrocketing government's bank borrowing kept those banks in the sideline despite having allowable exposure limit in the market," commented LankaBangla Securities.