As many as 59 companies have moved above the floor price on the Dhaka Stock Exchange (DSE) since the first week of March, but their gains have hardly made any impact on the index for most of them are small-cap companies.
Large-cap companies among them are LafargeHolcim Bangladesh, Heidelberg Cement, and MJL Bangladesh.
For failing to show a positive business growth, some stocks lost momentum and incurred a sharp fall last week, emphasising that the recent recovery of the market, however marginable, is not sustainable.
For example, a non-performing company Jute Spinner, which reported a significant loss for January-March this year, soared 146 per cent in 209 sessions to June 8. The following week, its share price suffered 33 per cent price erosion in just five sessions to Tk 258.10 on the DSE.
The share price of loss making National Tea Company also saw 412 per cent appreciation from the floor until June 8. Then the stock slid 8 per cent in the five sessions to Thursday. The tea company made a loss of Tk 46.02 per share for July-March, FY23, increased from a loss of Tk 31.12 per share for the same period of the previous fiscal year.
Such stocks are expected to lose further the gains they had made.
Despite a lack of business strength, a company exhibits a rally in the stock market when a certain group of people influence the price while others join the rally not to miss out on the opportunity to make profits.
After a certain period, the people, who have created the rally, dump their holdings, said Ashequr Rahman, managing director of Midway Securities.
That explains why 17 of the 59 stocks have already made their way back to the floor by Thursday.
Twenty companies have been subject to price appreciation by 63-744 per cent from their floor prices in recent months. Many of these stocks last week lost 3-33 per cent of their market value.
"So, the pump and dump is the only strategy behind the rally," Mr Rahman said.
Many insurance companies have been among the stocks that had abnormal price hikes. The data that can support the insurance companies' rally is yet to be available.
Similar is the case of Legacy Footwear. The company did not pay any dividend for FY22 after making a loss of Tk 11.20 million for the year.
It also failed to come out of the red in the first three quarters of the outgoing fiscal year. But Legacy Footwear has climbed above the floor price on the DSE.
Its share price jumped 110.30 per cent in three months before a marginal correction last week.
Market experts say a company's rally in the stock market is justifiable if it happens in keeping pace with its fundamental growth.
Otherwise, an abrupt correction at any time is the only outcome.
On the other hand, companies that have their stock performance backed up by growth in earnings, business expansion and other financial indicators can sustain their market momentum even when the market overall is having a major correction. Investors come forward to purchase the shares, being aware of the underlining strength of those companies.
Monno Agro & General Machinery saw a 127 per cent price appreciation from July 28 last year to June 15 this year on the DSE against the backdrop of a 16 per cent year-on-year growth in earnings per share in January-March, 41 per cent in October-December and 86 per cent in July-September of the outgoing fiscal year.
The stock advanced 5.24 per cent last week.
Some companies with a rise in profits also jumped much higher than expected on the DSE in a short span of time.
Navana Pharmaceuticals, which made its debut trading in October last year, gained 332 per cent until Thursday. It is yet to be seen if Navana Pharma can keep attracting investors on the bourse with its performance as a drug manufacturer, leading to a further boost to the stock.
Meanwhile, the market has to wait to see any real movement propelled by large-cap, good performing stocks. When that happens, it will be a sign of a recovery in real sense.
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