The prime index of the Dhaka Stock Exchange eroded 110 points in just a month, tumbling to four-month low, as jittery investors dumped all the previous two months' trendy stocks.
Most of the recent top-gaining small-cap stocks saw a sharp decline between 20 per cent and 47 per cent in the period as investors opted for short-term gains amid growing political tension.
The market index started to fall from July 20 afresh as the political atmosphere heated up once again ahead of the national election, while the rising interest rates encouraged some investors to book profit on recently rallied stocks.
Rupali Life Insurance, for example, saw 47 per cent price erosion in the past one month after soaring 130 per cent in the previous two months.
Fu-Wang Food, another big winner, which saw an 85 per cent price surge in just two weeks between July 2 and July 16, tumbled 41 per cent in the past one month.
Fu-Wang Food took off from the floor on July 2 before many of the stronger peers, which prompted investors to book profits, taking the company's stock price close to the floor again.
Some other low-performing companies that too experienced price erosions in the past one month after witnessing abnormal price surges in the previous months are Khan Brother PP Woven Bag Industries, Olympic Industries, Deshbandhu Polymer, Khulna Printing, Generation Next Fashions, and Yeakin Polymer.
Most of these small-cap companies have been unable to pay dividends regularly due to losses. The companies have also been struggling to keep production running, but their stocks soared based on rumours, which was why the price increases were not sustainable, market experts say.
Despite a lack of business growth, 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 quick bucks.
The trading pattern of these small-cap stocks looks unusual and mostly driven by manipulation, alleged Prof Abu Ahmed, a former chairman of the economics department at the University of Dhaka.
Investors were turning to small-caps in the past few months in the hope of higher returns from low investments as well-performing stocks were not moving from the floor, he said.
The small-cap companies have a small number of shares, which makes it easy for gamblers to manipulate the price.
"The price surge was artificial as their (small-cap) financial performance did not match the price hikes."
Khan Brother's stock price plummeted 40 per cent in the past one month after jumping 186 per cent in the previous two months without any reason for investors to be inclined to bet on the stock.
The share price of Olympic Accessories, which has been incurring losses for the past two years, soared 76 per cent in two months before it nosedived 34 per cent in the last one month.
Olympic Accessories took off from the floor on June 20. Gradual price erosion brought it back down to the floor.
The market has been in bear grip for more than a year since the stock market regulator imposed the floor price. Buyers have shown reluctance to buy stocks even at the lowest price set.
There have been some periodic upward movements which failed to sustain amid the confidence crisis.
Even some blue-chip stocks such as Delta Life Insurance, Square Pharmaceuticals, Eastern Housing, and Heidelberg Cement saw price erosions in the past one month.
Investors mostly focus on short-term bets as the prolonged volatility and weakened market have dampened their confidence.
The prevailing floor price discourages investors from putting fresh bets on stocks, said Richard D' Rozario, president of the DSE Brokers Association of Bangladesh.
Investors sold off shares fearing further fall in stock prices as no immediate solution to the current depressed situation is on the horizon, he added.
The central bank's latest circular issued on Sunday regarding deduction of source tax from interest income against term deposit of mutual funds intensified the market fall in the already bearish market.
Shahidul Islam, chief executive officer of VIPB Asset Management Company, said taxes had already been deducted when a fund manager disbursed dividends to unit holders.
"Thus, imposing source tax on profits from term deposits of mutual funds is yet another instance of treating the same income for multiple taxations.
"I think the NBR's move is not logical and certainly it will have a negative impact on the industry as well as on the stock market. It should be withdrawn."
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