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DSE market PE ratio hits 10-year low

Banking sector PE lowest at 6.2

Babul Barman | April 16, 2020 00:00:00

The overall market price-earnings ratio of Dhaka Stock Exchange reached rock bottom at 10.58, a 10 years low as of March 25 this year amid free-fall of stock prices.

The ratio, which is the current market price divided by the earnings per share, indicates the market has been attractive for investment, although investors were mostly reluctant due to virus scare and confidence crisis.

Market operators said the overall PE ratio of the prime bourse nosedived due mainly to year-long downtrend in stock prices.

The overall market PE ratio stood at 10.58 on March 25 this year, the last trading day before the government-announced lockdown, according to statistics available with the prime bourse.

The overall market PE ratio hit the highest level at 30.58 in 2010, when the market saw a wild trend before the crashing.

The overall market PE ratio was 13.68 as of December 31 in 2011; 12.07 in 2012; 15.07 in 2013; 17.77 in 2014; 15.23 in 2015; 14.29 in 2016; 17.28 in 2017; 15.09 in 2018; 11.53 in 2019 and 10.58 as of March 25, 2020, the DSE data showed.

The PE ratio means a valuation ratio of a company's current share price compared to its earnings per share.

The PE ratio also determines the time an investor needs to wait to get back the invested amount. It is an indicator for considering the extent of risks an investment might entail.

The indicator is also important to better understand what happens in the market after a large gain or decline. It is also one of the best gauges to know how expensive or cheap the overall stock market is at a certain moment.

"Although the existing PE ratio suggests that the market has become attractive for investment, it cannot draw the investors' attention," said a merchant banker, seeking anonymity.

The continuous downward trend not only pulled down the PE ratio to a record low, but also eroded the investors' confidence, he said.

Many investors lost confidence in the market amid prolonged bearish trend while others are not injecting fresh fund into the market seeing no hope, said an analyst.

He noted that most of the institutional and foreign investors were also on the sidelines due to virus scare.

"Unless the institutional and foreign investors actively participate in the market, the expected hype will not be created among the retail investors," he added.

The PE ratio dropped drastically, when the market was bearing the brunt for the last one year price debacle.

The DSE key index lost 1,522 points, wiping out market capitalisation of Tk 1,015 billion in the past 12 months since March 25 of last year.

The year-long depressed capital market also sent at least 92 issues below their face value of Tk 10 in the DSE as of March 25, 2020.

The fundamentally strong securities were not spared from the relentless fall in the share prices during the period under review.

Currently, the banking issues are the cheapest among the all sectors as its PE ratio stood at only 6.20 as of March 25, this year, followed by telecom sector 9.50, power 9.60, engineering 12.90 and pharmaceuticals 15.20.

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