The SME board of the Dhaka Stock Exchange (DSE) suffered a sharp year-on-year decline in 2025, significantly underperforming the main market index.
Sixteen of the 20 SME stocks suffered erosion in market value during the period, many of which had experienced unusual surges without any fundamental factors or corresponding improvements in financial performance.
As a result, the SME index of the prime bourse lost 22 per cent, or 235 points, during the year to close at 856 points-well below its base level set at the board's launch.
The SME board was launched in September
2021 with six companies and a base index of 1,000 points. It peaked at 2,244 points in August 2022 amid a wave of speculative trading.
In 2025, SME stocks endured price erosion ranging from 6 per cent to 65 per cent. Consequently, the market capitalisation of the SME board fell by more than Tk 4 billion to Tk 17.56 billion at the end of the year.
By contrast, the main board of the Dhaka bourse recorded a comparatively modest decline of 6.7 per cent in its benchmark index over the same period.
Market analysts said the downturn in the SME board was inevitable, given the artificial nature of earlier price hikes that were not supported by corporate earnings or operational performance.
SME companies saw profits decline year-on-year in FY25 as overall economic activities remained subdued following the political shift, which also weighed on their stock prices, said Akramul Alam, head of research at Royal Capital.
"SME companies lack the capital intensity needed for expansion and scalability, which ultimately constrains their financial performance and growth," Alam told The Financial Express.
Several SME stocks had surged earlier without any positive earnings disclosures, raising concerns about market manipulation. At the time, analysts flagged speculative behaviour and rumour-driven trading as key drivers behind inflated valuations.
The SME index began to decline after the fall of the Sheikh Hasina-led regime in August 2024, amid speculation that the new securities commission formed after the political transition would take tougher measures against price manipulation.
Himadri, a stock that had previously played a dominant role in driving the SME index upward, witnessed sharp corrections over the past year.
The Financial Express had published several reports highlighting abnormal price hikes in small-cap stocks, particularly Himadri.
Himadri-an SME company operating six potato cold storages in northern Bangladesh-saw its share price plunge 55 per cent to Tk 657.9 per share by the end of last year.
What surprised market observers was that the little-known stock had surged to nearly Tk 10,000 per share in November 2023, despite the fact that many well-performing, dividend-paying blue-chip companies traded at far lower prices.
In November 2024, the securities regulator penalised one individual investor and three firms a total of Tk 17 million for manipulating Himadri's stock.
The fines were imposed following hearings based on investigation reports submitted by the DSE, which found the four investors engaged in manipulating Himadri's shares in 2023.
Despite the sharp correction, Himadri's share price remains elevated, with a price-to-earnings ratio of 178 as of Thursday.
"Himadri shares should never have traded above blue-chip stocks on the main board," Alam said.
Another SME stock, Oryza Agro Industries, which manufactures and markets fish and poultry feed, recorded the steepest price fall, plunging 65 per cent to Tk 8.5 as its profit declined 31 per cent to Tk 49.75 million in FY25.
Meanwhile, Yusuf Flour Mills, another little-known SME stock, surged 86 per cent to Tk 2,200 at the end of 2025, despite weak fundamentals. The stock had peaked at Tk 6,352 per share in June 2024.
Analysts said the price surge was artificial, as Yusuf Flour's financial performance did not justify the rally. The company's profit fell 43 per cent year-on-year in FY25, and it paid only a 5 per cent cash dividend.
"A group of dishonest traders has been targeting the SME board to manipulate stocks," Alam said.
However, the new securities commission has taken several market-supportive measures and initiated tough actions against wrongdoers.
As part of a broader effort to promote sustainable capital market development, the commission has imposed heavy fines on several market manipulators and errant companies for malpractices committed during the tenure of the previous commission.
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