Junk shares or loss-making listed companies have mostly dominated the stock market in 2023, sidelining fundamentally strong stocks most of which remained stuck at the 'floor price'.
Of the junk stocks, Khan Brothers PP Woven Bag Industries saw an astounding 692-percent rise as of Monday even though the company has incurred losses for the last four consecutive fiscal years.
Similarly, many other listed junk stocks exhibited abnormal price hikes during this year.
On the other hand, blue-chip stocks find themselves on the backstage. Square Pharmaceuticals, which distributed a record cash dividend of 105 per cent for FY'23 and saw its profit growth continue over the years, remained stuck at the 'floor price'.
Of the 30 blue-chip companies, only eight managed to post gains of up to 24 per cent during the year while the remaining 22 companies failed to come out of the floor price although they experienced some price movements periodically.
Of the junk stocks, Khan Brothers PP Woven Bag Industries incurred losses between Tk 6.35 million and Tk 18.09 million for the last four fiscal years, including 2023. The company also did not distribute any dividend for FY'23.
After the introduction of the floor price last year by the securities regulator, the majority of the companies, including junk stocks, got stuck at the floor price.
Gradually, many junk stocks came out of the floor price because of their small amount of paid-up capital and free-float shares.
For example, Square Pharmaceuticals has 579.12 million free-float shares whereas the figure of free-float shares of Khan Brothers PP Woven Bag Industries is 68.53 million.
So, it's very easy to drive up the shares of Khan Brothers with limited funds which is not possible in case of large-cap companies, according to market experts.
Apart from many traders' tendency of making speculative transactions, good companies having large volumes of free-float shares remained stuck as the buyers turned away from them after the introduction of the price controlling mechanism, they said.
Of the junk stocks, Shyampur Sugar Mills, Imam Button Industries, Khulna Printing & Packaging, and Libra Infusions experienced abnormal price appreciation of up to 223 per cent.
On the other hand, the blue-chip companies such as Grameenphone, British American Tobacco Bangladesh Company (BATBC), and BRAC Bank failed to come out of the floor price.
Md. Ashequr Rahman, managing director at Midway Securities, said initially most of the listed companies were confined to the floor price because of the immediate effect of such a price controlling mechanism.
Now, the market is facing the mid-term effect and under the situation the large-cap companies having good fundamentals failed to experience price movements.
Mr Rahman said the demand for the fundamental companies had squeezed because of the price controlling mechanism, as buyers were not aware of the possible level of price correction after the withdrawal of the floor price.
"That's why many general investors also took positions in small-cap companies without thinking about fundamental stocks and they also made profits," he said.
It was observed that around 15 companies exhibited abnormal price movements in every quarter of 2023 although there was no undisclosed price sensitive information behind their price hikes.
Mr Rahman said the absence of strong vigilance was another reason behind the abnormal price hikes of the junk stocks.
The securities regulator imposed the floor price for the second time at the end of July 2022 after the key index dropped below the 6000-point mark following the outbreak of Ukraine-Russia war.
The regulator said they imposed the floor price to save small investors by arresting free fall of the market amid macroeconomic worries created by the war.
The Bangladesh Securities and Exchange Commission (BSEC) said several times that the floor price will be withdrawn after the national election scheduled for January 7.
Mr Rahman said it would be difficult to restore investor confidence in long-term investments unless the regulator assures them of not imposing any price restrictions in future.
Otherwise, investors would not be interested in investing their entire amount of funds allocated for the capital market with an apprehension of getting stuck all of a sudden.
"Ups and downs are the common phenomena of the stock markets across the world," he added.
The few blue-chip companies which saw price appreciations in 2023 are include ADN Telecom, Bangladesh Shipping Corporation, Eastern Housing, Genex Infosys, Heidelberg Cement Bangladesh, LafargeHolcim Bangladesh, and Olympic Industries.
Some other companies experienced price movements before December of this year but finally closed at the floor price.
On the other hand, the majority of the companies which contributed significantly in daily transactions are small-caps.
The turnover value featured by Dhaka Stock Exchange (DSE) also remained insignificant in most of the sessions this year.
Presently, the number of 'Z' category companies is 27. To avoid the junk status, some companies distributed very nominal dividends which do not support their financial statements. C & A Textile is one of those companies.
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