Jute stocks' extraordinary performance on the Dhaka Stock Exchange last week could not go unnoticed. At a time when the index remained mostly flat, the jute sector soared 10 per cent in terms of market value to Tk 3.42 billion by Thursday.
The sector comprising only three small-cap companies saw more share transactions than many other big sectors, such as the banking sector, having captured 1.30 per cent of the week's total turnover of Tk 28.98 billion.
The sector did well even when DSE data over the year through April 6 is considered, which shows a 59 per cent surge in its market value. The main index fell 480 points or 7.2 per cent to 6,214 points during the time.
The irony is that two of the three companies -- Jute Spinners and Northern Jute Manufacturing Company -- have not been in operation for at least three years.
The third one, Sonali Aansh became the eighth top weekly gainer last week. Though it secured a good year-on-year profit growth, the quick price rise made the stock overvalued. Its market-cap rose 13 per cent in just one week.
The non-operational jute stocks traded above most of the blue-chip securities. Only seven of 30 blue-chip stocks were pricier than these jute stocks.
Manipulation is the only explanation behind such abnormal price increases as there was no financial data backing up the trend.
Since large-cap stocks have been static on the bourses for quite a long time, a section of individual investors chase such low-performing stocks knowing they might have been manipulated and they do it for quick capital gains, said Md Sajedul Islam, senior vice president of the DSE Brokers Association of Bangladesh.
Manipulators cash in on the tendency by selling off overvalued stocks to general investors. "A dull market is what manipulators wait for to raise the prices of small-cap stocks."
General investors then join the rally ignoring the company's fundamentals, Mr Islam added.
Prof Abu Ahmed, a former chairman of the economics department of the University of Dhaka, said a group of dishonest traders had been behind the artificial price hike.
"When people started to invest in them, manipulators dumped their holdings," he added.
The overall market has become stagnant as nearly three out of every four issues have remained stuck at floor prices. Against this backdrop, companies having low paid-up capitals have proved to be targets for price manipulation.
Jute Spinners' revenue is zero
Jute Spinners, a junk stock, rose 6 per cent to Tk 238.60 in the two trading sessions through Thursday.
The company has been producing nothing since 2016. Revenue is zero. Other financial indicators are in the negative. Liabilities shot up exceeding twice the value of assets of Tk 296.97 million.
Despite the grim performance, the company's share price escalated 74 per cent in a year. Its stock peaked at Tk 366 in December last year without any disclosure of price-sensitive information, such as dividend, for years.
Company secretary A T M Mostafa himself expressed shock at the inexplicable price surge.
"We don't have any undisclosed price sensitive information, which might influence the share price movements."
Jute Spinners reported a loss of Tk 20 million in the first half of the current financial year. Losses accumulated over the last 10 years to Tk 782 million.
The audit firm of Jute Spinners has raised a red flag.
The company's liabilities might be higher than what had been shown, said auditor Shiraz Khan Basak & Co in a report.
"A hike in the share price was unusual considering the current status of the company," it said.
The company's low paid-up capital -- Tk 17 million -- makes it an easy target for manipulation, said Mr Sajedul Islam.
Price rally "does not match financial performance"
Sonali Aansh Industries' stock jumped 16 per cent in just four trading sessions through Thursday to close at Tk 475.60.
It declared a 100 per cent stock dividend for the FY22 to meet the regulatory requirement of raising the paid-up capital.
Investors were buying shares amid high speculation that the company would declare high dividend or issue rights shares.
Sonali Aansh has reported more than 36 per cent year-on-year growth in earnings to Tk 6.12 million for July-December 2022.
Its annual profit saw a staggering 247 per cent growth year-on-year to Tk 10.62 million in the FY22.
The company's big stock dividend and stellar profit growth drew more investors.
The stock peaked at Tk 961 in November last year just ahead of the dividend declaration. Its shares traded at between Tk 380 and 961 in the last one year.
"The rally was largely driven by speculation and did not match the company's financial performance," said Prof Abu Ahmed.
Company secretary Md. Habibur Rahman Khan refused to comment on the price hike.
No disclosure of financial data since 2020
Northern Jute Manufacturing Company's stock jumped 11 per cent in a week before it slumped 4 per cent in the last two days to Tk 205.60 on Thursday.
The company last disclosed financial data for the July-September quarter of 2020. The company's production has been halted for three years.
It incurred a loss of Tk 13.35 million in July-September 2020 while it had a profit of Tk 15.33 million in the same quarter a year ago.
The stock, however, was traded at between Tk 191.20 and Tk 312.50 on the DSE in the last one year.
Its sponsor-directors hold only 15.33 per cent of the outstanding shares, nearly half the required amount.
Company Secretary Shahadat Hossain Patwary could not be reached over the phone even after repeated attempts.
Mohammad Rezaul Karim, executive director and spokesperson of the Bangladesh Securities and Exchange Commission (BSEC) said a surveillance team was keeping an eye on trading every day.
The commission has been taking actions as per the rules from time to time, if anyone is found guilty, and imposing fines on wrongdoers, he said. Investors should also be careful while buying junk stocks in order to avert any misfortune, he added.
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