The Dhaka bourse saw market cap-to-GDP ratio rise by 6.2 percentage points between May 2022 and February this year, mainly because of the listing of new securities.
The ratio stood at 19.21 per cent on February 28, 2023, up from 13.01 per cent at the end of May last year.
During the entire period, the market was bearish.
The market cap-to-GDP ratio is used to determine whether an overall market is undervalued or overvalued compared to its historical average.
It, however, carries little meaning in the current scenario of the capital market.
The ratio rises follow the price surge of listed securities. The ratio declines if the market value of securities declines.
The market value of the DSE was 5167.65 billion on May 31, 2022, which increased to Tk 7630.09 billion by the end of February this year.
During the time, the market value of the premier bourse rose 47.65 per cent, raising the market cap-to-GDP ratio. The broad price index of the Dhaka Stock Exchange (DSE), however, fell.
So, the inclusion of newly-listed companies played a pivotal role behind the rise in market cap-to-GDP ratio during the period.
The newly listed securities include Midland Bank, Global Islami Bank, Islami Commercial Insurance Company, Chartered Life Insurance Company, Meghna Insurance Company and Navana Pharmaceuticals.
Of the companies, Navana Pharmaceuticals was listed under the book building method and the remaining companies went public through fixed price method.
The benchmark price index of the DSE slid 2.75 per cent or 176 points to 6,216 between May 2022 and February 2023.
The market capitalisation refers to the total value of the shares of listed securities at the current market prices.
To calculate the market capitalisation of the DSE, listed companies, mutual funds, corporate bonds, treasury bonds and debentures are taken into account.
Usually, the price movement of large-cap stocks plays a vital role in the ups and downs of the exchange's market value. But most of the large-cap companies remained stuck at floor prices during the period and even now.
So, the floor price and the listing of new companies resulted in the rise in market capitalization.
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