The simple bare necessity of confidence

Mahmudur Rahman The word 'confidence' is doing the rounds these days as the share market woes continue. It is in some ways a difficult one to define. To the small investor it's a simple case of money coming in to the exchange so that they can see the market index rise and they can make their small profit on which their families, sadly but surely depend on these days. For the companies listed it provides a headache. Their company evaluation takes on absurd levels well beyond anything that the books would point to. The problem is of course that few are interested in the long term, the basics of investment i.e. the return on investment over a period of time. The truth is that the face value of shares is so low that is difficult to make gainful dividends be attractive. It might look good in percentage terms. A 30% dividend sounds lucrative on a Tk. 10 share face value. But when you see the actual price of the stock that is probably Tk. 100-then the Tk 3.0 earned doesn't even merit a second look. On the other hand, inflation continues to gallop further pushing down the value of the Tk. 3.0. If the normal rickshaw fare is now pegged at Tk 10-15 as a minimum-the Tk 3.0 becomes all the more desultory. So it is obvious that this kind of system doesn't appeal to the small investor. The revaluation of face value has its own problems in that this impacts the valuation of the companies concerned and has further financial implication in terms of results delivery, targets and reporting. Very few companies are on the stock exchange whose financials can expect to grow in leaps and bounds so as to deliver decent, acceptable returns based on the socio-economic situation. And hence the will we-won't we attitude of the banks in considering new investments. There was a lot in the media recently about the Tk. 5.0 billion that was to be invested by the banks. The figure went down within a few days to Tk 1.0 billion and ever since then nothing more has been heard of it. The recent economic seminar regarding South Asia resulted in a further damper on economic prospects forcing even the banks to re-think. With government borrowings from banks going over the panic levels and increased pull on liquidity from telco operators seeking renewal of their licences has left the liquidity market in a tizzy. The banks will have to bend backwards to encourage more deposits to make up the shortfall and that's where they are in direct competition with the stock market itself. Pegged back by interest rate ceilings, they will have to think of something new by which they can again be considered as a better source of investment than the bourse. (Email: mahmudrahman@gmail.com)