The stock market passed yet another gloomy year as the prevailing 'floor price' restrictions rendered the entire market illiquid and shattered investor confidence amid ongoing economic challenges.
The bleak market conditions were exacerbated by the deterioration of macroeconomic indicators, driven by surging inflation, dwindling foreign exchange reserves, and political uncertainty surrounding the upcoming national elections.
The market has been in the doldrums throughout the year since the stock market regulator imposed floor price, with some periodic upward movements that failed to sustain.
Consequently, the benchmark index of the Dhaka Stock Exchange (DSE) exited 2023 with only 40-point yearly gain, closing at 6,246.49 on Thursday.
However, the true performance of the index remained masked due to the artificial mechanism [Floor Price]. This intervention not only distorted the genuine market dynamics but also led to a gradual drying up of liquidity since the imposition of the floor price.
The squeezing liquidity scenario in the money market, coupled with price restrictions, has significantly hurt market participation. As a result, some investors have opted to divert their funds towards alternative options.
This liquidity crisis has created a formidable scenario wherein sellers find themselves unable to promptly offload their shares, leading to an oversupply glut that exacerbated the existing issues.
As a consequence, the average daily turnover fell 40 per cent to Tk 5.78 billion in 2023 from Tk 9.60 billion in 2022.
This represents the lowest average daily turnover in four years since 2020 when it stood at Tk 6.49 billion, according to data from the Dhaka Stock Exchange (DSE).
In the outgoing year, small-cap stocks dominated the gainers' table during the year with Khan Brother PP Woven Bag Industries emerging as the top gainer with a 676 per cent surge, while Sea Pearl Beach Resorts was the top loser, shedding 46 per cent.
A particularly surprising aspect of the market dynamics is a long period of inactivity for large-cap stocks, commonly regarded as blue chips, which have remained untraded for months while withdrawals of funds by foreign investors worsened the situation.
Market experts see little hope for strong recovery anytime soon as the economic indicators remain weak while businesses are going through a tough time due to the dollar crisis.
The stock market is going to step into 2024 amid concerns over depressing macroeconomic outlook and prevailing floor price, said Prof Abu Ahmed, former chairman of the economics department at the University of Dhaka.
"The market was almost dysfunctional throughout the year and many investors left the market while others became inactive just because of floor price," he said.
The market is still in a 'floor price' trap and will not perform properly until the floor price is withdrawn, he added.
In July last year, the stock market regulator set the floor price of every stock to halt the free fall of the market indices amidst global economic uncertainties that have impacted Bangladesh's economic indicators badly.
"The market recovery in the new year will depend on foreign exchange market stability, ease of economic challenges as well as local political stability," said Prof Ahmed.
The well-performing companies remained un-moved due to floor price while the low-performing and junk stocks were flying high, driven largely by speculations.
Also, fund raising from the primary market through initial public offerings (IPOs) has fallen sharply to Tk 2.68 billion this year, the lowest in six years, as entrepreneurs adopted a 'go-slow' policy ahead of the national election.
Weak market sentiment and low available investable funds deterred investors to a large extent. Other factors include economic uncertainty, said Salim Afzal Shawon, Head of Research at BRAC EPL Stockbrokerage.
Despite challenges, the market may gain some ground in the coming year through some policy changes, he said.
"We believe the market would see some rebound once major policy and economic uncertainties are resolved post-election," he said, adding that removal of floor price would be a strong catalyst in 2024 market performance, followed by stability in the forex market.
Once the floor is lifted, the market may see larger caps returning to their normal trades, thus contributing to market turnover, he added.
EBL Securities, in its yearly market analysis, said the stock market regulator is expected to consider withdrawal of the floor price mechanism in 2024.
Although the equity market may face immediate correction following the withdrawal, the market can be expected to bounce back and overall market turnover can be expected to significantly improve as funds unlocked will become available for reinvestment, it said.
The prime index, DSEX, may hit as low as 5,500 points if the floor price is withdrawn and can be expected to exceed 6,500 points later, it added.
Companies with sound fundamentals from fast-moving consumer goods, pharmaceuticals & chemicals, banking and insurance are expected to stand out in 2024 and companies from engineering, construction and textile may report earnings recovery, the EBL analysis said.
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