Greater institutional investment can help resurrect bourses

Gearing up investment activities of institutional investors on a higher scale can help revive the country's moribund capital market. This will create a momentum in stock trade necessary for restoring shaken confidence of the investors in the market.
Experts and institutional and general investors came up with such suggestion amid a lingering stagnant situation that has gripped the bourses for last four years, despite different recovery measures taken to come out of the trap.
They noted that all parameters, including the P/E (price earning) ratios, are in favour of the investment required to boost up the capital market, but all to no effect for lacking somewhere else.
On January 27, 2013, the DSE benchmark index constituted 4055.90 points which stood at 4266.55 on December 30, 2013, 4864.96 on December 30, 2014, at 4629.64 on December 31, 2015 and at 4302.57 points on March 28, 2016. The curve marks a volatility that affects normal conduct of the market.
According to information gathered from stock exchanges, out of 3.2 million BO (beneficiary owner's) accounts, transactions made through nearly 14 per cent or 0.45 million accounts from January to March 2015.
Under such a situation, market-insiders stressed the need for creating environment of fresh investment for the sake of bringing 'momentum' in the sluggish stock trading.
Institutional investors are yet to come out of the woods due to substantial amounts of default margin loans they are burdened with as fallout of the 2010 market crash.
Asked about fresh investment, the banks expressed mixed opinions: some of them said new banks are in more suitable positions than old ones in this respect.
Mohammed Nurul Amin, managing director of Meghna Bank, said three new banks purchased brokerage firms to conduct share business through subsidiaries.
"Banks have no bar to making portfolio investment. I think the banks should invest in the capital market," he said.   
According to Mr Amin, earlier the exposures of 15 banks were above stipulated limit. And after deduction of banks' capital into accounts of subsidiaries, the exposures of four banks now remained above the limit.
"The rising trend in benchmark index fails to sustain as investors sell off shares with minimum margins. So, investments are not coming into market following the market behaviour," he said while stressing the need for a consistent investment policy.
The officials of the central banks have also acknowledged that exposures of many banks have come below their stipulated limits.
All banks' capital-market exposure was worth Tk 210 billion which dwindled by Tk 65 billion recently following the subtraction of banks' equity investments made in their subsidiaries.   
"The exposure limit of many banks went down 25 per cent of equity, creating a fresh investment scope," said a source close to officials of the central bank.  
As per a revised law, banks are allowed to invest up to 25 per cent of their respective equity -- the sum of paid-up capital, reserves, retained earnings and share premium.
Some of the bankers, however, spoke of their limitations in making further investment in the capital market.
Asked, Anis A Khan, managing director of Mutual Trust Bank (MTB), said the banks have limitations in making fresh investments into the capital market.
"Banking is our core business. Many banks will have no scope of injecting further funds into the capital market, despite the central bank having revised definition of exposure limit," Mr Khan said.
Ali Reza Iftekhar, managing director of Eastern Bank, said the decision on making fresh investment depends on returns.
"The board can take decision regarding fresh investments considering the interest of shareholders. But in no way can we cross the limit," Mr Iftekhar said.
The subsidiary merchant banks and brokerage firms stressed possible moves to free the substantial amount of money blocked in margin loans.
According to DSE information, the outstanding margin loans provided by merchant banks and brokerage firms amounted to around Tk 16.03 billion as of July 31, 2015.
As of January 31, 2016, the amount of outstanding margin loans came down to around Tk 14.68 billion as some lenders adopted internal risk-management policy.
According to merchant bankers, the amount of negative equity calculated by merchant banks and brokerage firms presently has stood at around Tk 60 billion.
Of the negative equity, Tk 22 billion is calculated against the accounts managed by merchant banks while Tk 38 billion against the accounts managed by brokers-dealers.
According to market-insiders, many lenders witnessed the erosion ranging from Tk 1.68 billion to Tk 4.97 billion against their outstanding margin loans.
"The market was supposed to bounce back riding on fresh funds as the interest rates of all saving tools declined. But it did not happen indicating that the entry of fresh funds still remained blocked," said Md. Sayadur Rahman, president of Bangladesh Merchant Bankers Association (BMBA).
He said the participation of institutional investors remained squeezed due to default margin loans.
"Our activities will not be normal unless the issue of negative equity is settled," said a BMBA representative.
He said the association is working to prepare a proposal seeking government funds at a chief rate of interest against negative equity.
"The lenders will give corporate guarantee against the funds provided by the government," said a BMBA representative, preferring anonymity.
Ahmad Rashid Lali, a former DSE director, said a significant amount of investors' money remained blocked for the companies' public subscription.
"The number of IPO seekers has increased as investors in secondary market now apply for IPO shares. The securities regulator should allow a company's subscription after a gap," Lali said.   
The securities regulator raised question about roles of many broker-dealers as there are no shares in many dealer accounts.
"Many broker-dealers, who speak of market measures, prefer transaction fees from transactions occurred in clients' accounts without conducting transactions in dealer accounts," said Professor Helal Uddin Nizami, a BSEC commissioner, about one of the causes of market woes.
While raising question about the legality of dealer licence without attachment with share transactions, Nizami said the brokers should realise their own role for reviving the market.
Echoing the views of Nizami, DSE director Shakil Rizvi said there should be transaction in dealer accounts.
"The regulator may evaluate the performance of brokers-dealers while renewing the dealer licences," Rizvi said.
After the 2010-11 stock-market debacle following burst of the bubble, the government disbursed Tk 9.0 billion through three equal instalments under the capital-market-refinancing scheme in 2013 and 2014.
Mohammad Saifur Rahman, an executive director of the securities regulator, said the regulator took all possible measures to overcome shocks stemming from the stock-market debacle.
"The market failed to get a momentum as per expectation and is spinning in a cycle. There will be ups and downs in the market and presently it is comparatively stable," said Rahman, also the spokesperson for the securities regulator.
He said negative comments regarding the capital market are also responsible for making the investors' confidence shaky.
As part of market-supportive move, the timeframe for provisioning against unrealised losses incurred by merchant banks and brokerage firms was extended time to time.
Among other bailout measures, share transactions in the accounts having negative equity were allowed, banks were exempted from keeping provision for losses against investment in mutual funds and trading cycle was reduced to T+2 from T+3 to enhance share transaction.
But the market continued to be on a downturn and last Sunday the DSE witnessed the year's lowest turnover to close at Tk 2.78 billion while the benchmark index climbed down to its lowest position in last ten months.
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