Letting the market move, naturally

Can infusion of substantial volume of liquidity alone buoy up the stock market that is now caught in a dull and drab environment?
Looking at the list of proposals handed over to Finance Minister AMA Muhith recently by the Bangladesh Association of Merchant Bankers (BMBA), one might get an impression that solution to problems facing the market lies in money alone. But even a layman feels otherwise.
During a meeting with the finance minister on September 20 last, the BMBA leaders put forward four alternative proposals. They are: (a) formation of a special fund of Tk 60 billion; (b) allowing each of the banks and non-banking financial institutions to invest Tk 2.0 billion and Tk 1.0 billion in excess of the limit in stocks; (c) issuance of bonds worth Tk 60 billion; and (d) allowing the parent companies to shoulder the liabilities of their subsidiaries.
It is natural for the merchant bankers to search solution to stock market problems of money for they had suffered a lot, financially, following the collapse of the market in 2010. The merchant banks made available loans, amounting to Tk 150 billion, to investors up to December 2015. Of the amount, Tk 60 billion of their equity investment has turned negative. Investors concerned not only lost their own equity but also the funds worth Tk 60 billion they had borrowed from the merchant banks.
The fiscal proposals that the BMBA made were soft in nature. They wanted a special fund of Tk 60 billion from the government for a period of seven years and merchant banks will have the freedom to borrow from that fund at an interest rate as low as 3.0 per cent. If the government finds the proposal not feasible, as an alternative measure, it could allow each of the banks and NBFIs to invest Tk 2.0 billion and Tk1.0 billion beyond their respective set limits, in stocks.  
If the government is not willing to do that, it might go for issuing bonds worth Tk 60 billion and the sum thus raised could be used for buoying up the stock market.
Merchant bankers offered the government yet another option if it found the first three proposals unacceptable. The last option proposed offering tax rebates to the parent organisations so that those could shoulder the liabilities of their subsidiaries.
The finance minister did not divulge to the press his response to the BMBA proposals. But his response is unlikely to be in the line of thinking of the merchant bankers. The government had made available Tk 9.0 billion in the recent past to help the small investors who had borrowed from merchant banks and lost a large part of their investments. The objective was to help the market to make a turnaround. But there was no effect of that fund on the market situation.
The question is: will any 'dictated' or 'engineered' flow of funds help the market to buoy up and maintain stability?
If that was true the market would not have collapsed in 2010. Funds worth billions of takas had flowed into the market throughout 2010. The money belonged to the investors, banks included. The government did not put in any fund in the market. Nor did it lend funds either to institutions or general investors.
Yet the market could not stick to the price uptrend. Why? The flow of funds even in 2010 was not natural. Investors came in thousands in a market inflated through manipulation. It is not that investors rushed in to the market just because they had strong confidence in it. Greed had led most of them to the market. And a good number of investors paid a heavy price, eventually. Banks and NBFIs are not excluded. Some banks that exercised expertise and sixth sense made substantial profit in 2009-2010. But the late entrants of them and NBFIs suffered losses. It is most unlikely that banks that are in the midst of an uncomfortable period because of their high level of non-performing assets will be interested in investing in stocks even up to the allowable limits.
So, prior to the building of the bubble in 2010, the stock market was behaving normally and there was, in fact, no crisis of confidence. The problem surfaced when some investors started demonstrating over-confidence that was instilled in them through manipulation. Thus, normal level of confidence in the market was shattered by 'manipulated over-confidence'.
The irony is that some people who were part of the manipulation scheme are now openly talking about the crisis of confidence in the market.
It is better to leave the market alone. There is no need to buoy it up artificially by infusing funds from sources other than genuine investors. Any attempt to bypass the normal process would create more troubles than helping the market traverse its normal path.  The market would be served well if the securities regulator--- the Bangladesh Securities and Exchange Commission (BSEC)--- the bourses and relevant others do their jobs according to the rules and stick to the path of transparency and accountability. Besides, efforts should be there to bring in new issues having strong fundamentals. On top of everything, it is important for the stock market to build an image that allows more and more companies to feel encouraged to be a part of it.
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