Tanzim Alamgir The size of the country's capital market is still insignificant compared to the size of the economy mostly because companies prefer banks as a source of capital to the market, said the chief of UCB Investment.
Against the backdrop of a gloomy market outlook, the flow of initial public offerings (IPO) has dried up. Hence, the possibility of market expansion will be thin until the economy rebounds.
"Many companies may think that it's not the right time for entry to the market. Secondly, IPO is not like bonds. It involves a lengthy process," said Managing Director of the merchant bank Tanzim Alamgir in a recent interview with the FE.
UCB Investment worked as issue manager for 28 bonds approved by the securities regulator.
"As an investment bank, UCB Investment strives to provide 360 degree services to their clients." When a company seeks support, it assesses financial data before suggesting a way to raise capital - be it IPO, rights offer or bonds, said Mr Alamgir.
For investors, however, it is time to purchase some stocks considering fundamentals and price levels.
Floor price comes as a hindrance to stock price analysis.
UCB Investment could purchase a huge volume of shares with confidence if there were no floor price, said Mr Alamgir.
"We are to buy [shares] cautiously as stocks' downward spiral following the withdrawal of the floor price is unpredictable.
"I think it would be good for the market if the floor price is withdrawn soon."
The capital market will regain its momentum when the listed companies will perform well. And the companies' returns will depend on productions, expansions and strategic partnerships.
"Investors will be interested in taking positions in stocks if the companies pay good returns." Investors should be happy with an annual return of 10 per cent or above from an investment made in selective securities for a period of two or three years.
Since equity-based securities are not lucrative investment instruments now, Mr. Alamgir said, UCB Investment had diverted 70 per cent of its funds to fixed-income securities.
The merchant bank bagged a profit of Tk 70 million in 2021 and Tk 40 million in 2022. The amount may be around Tk 70 million for this year.
The company earned well for its prudent decisions, said Mr Alamgir.
"Apart from maintaining cash flow, an ideal portfolio manager needs to diversify its portfolio"
The head of the merchant bank, however, discourages taking margin loans in the present context.
UCB Investment has gradually reduced the disbursement of margin loans in an effort to keep clients' portfolios risk-free. "That's why the company and its clients are now free from the burden of negative equities."
Just after the investment bank began its operation in 2021, the company's outstanding margin loans disbursed against clients' portfolios amounted to Tk 100 million. The amount has been cut to Tk 10 million.
"Our company's strategy was not to disburse margin loans more than 50 per cent of the clients' funds at any given time," Mr Alamgir said, adding that margin loans were only meant for short-term investments when the market was buoyant.
Over the last three years, UCB Investment helped companies raise an aggregate amount of Tk 94 billion through bonds, IPOs, and rights issues.
On preferable securities, Mr Alamgir said blue-chip bank stocks had been lucrative before and after the 2010 stock market debacle. With time, investors lost confidence in them. Banks' profit margins declined, while non-performing loans ballooned.
"Economic situation is also a reason behind the ongoing situation." Banks are facing separate problems, but the situation is expected to improve with right interventions.
On banks' reluctance to invest in stocks, Mr Alamgir said the lenders were getting more than 9 per cent returns from fixed-income securities, whereas the stock market was yet to overcome volatility.
The market had to deal with repercussions of Covid-19 and then the Russia-Ukraine war.
During the pandemic, many businesses performed very well. The investment landscape looked rosy because of stimulus packages and deferred payments at the time, said the chief of UCB Investment.
"It's rational that the impacts of those pending issues will be visible [now]."
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