A majority of the companies listed with the SME board plunged since the first week of October, driving down the index by 23 per cent or 373 points to 1,277.
Interestingly, the decline coincided with the corporate disclosures informing investors of the companies' remarkable growth in earnings that inspired good dividends.
Twelve of the 15 companies listed with the board declared 5-15 per cent cash dividend for the year ended in June this year. The disclosures came from early October but that largely failed to bring any positive outcome for stocks.
Except for Yousuf Flour Mills and Star Adhesives, 10 companies have seen their share price fall by 15-42 per cent.
Star Adhesives inched up while Yousuf Flour shot up by 110 times to close at Tk 2,884 on Sunday. The latter jumped 22 times on November 13 alone after the dividend declaration when the circuit breaker was not applicable for the particular listed company.
Market insiders said the persisting downward trend of the main market and frequent policy changes by the Bangladesh Securities and Exchange Commission (BSEC) for the SME board were the reasons behind the bearish trend of the board.
The stock market overall has been going through a tough time due to adversities on the macroeconomic front, said Mostaque Ahmed Sadeque, former president of the DSE Brokers Association of Bangladesh. "The SME market is not an exception."
Moreover, policy changes by the regulator confused investors, bringing down their participation in the SME market, he added.
The index soared 1042 points or 172 per cent in the 10 months through October 2 before the disclosures.
The SME market was introduced to facilitate the growth of small companies that face hurdles while trying to avail bank loans.
Trading on the prime bourse's SME board started on September 30 last year to open up opportunities for small and medium enterprises (SMEs) to raise capital from the stock market. The free-float base index was 1000 points.
Initially, the BSEC did not allow general investors to trade on the SME platform without prior permission considering the high 'risk' posed by small-cap firms. An investment of at least Tk 5 million was needed at the time to be a qualified investor (QI) to trade on the SME platform.
Due to low response from investors, stocks sank pushing the index down below 600 points within five months from early February this year.
A complex registration process and the high minimum investment requirement kept investors away.
To overcome the roadblock, the securities regulator on February 17 cut down the investment requirement to Tk 2 million in listed securities on the SME board. The BSEC also removed the mandatory registration requirement, saying registration would complete automatically if an investor met the criterion.
All these developments triggered a turnaround of the index and it soared by 304 per cent, or 1689 points, to 2,244 points, the highest, between March 3 and August 11.
However, the regulator did not stick to its stance for criticisms by market analysts that easy access had led to the overpricing of SME stocks.
In September, the BSEC revised the minimum investment to Tk 3 million from Tk 2 million for trading on the SME board.
The regulator in its September 21 directive also said that if the minimum criterion was not met, investors would have to leave the board by selling off their securities. But a High Court stay order on November 16 kept the matter hanging.
Meanwhile, Yousuf Flour has been flying high abnormally, sounding an alarm. The DSE served a show-cause notice to the company, seeking an explanation.
The company returned a knee-jerk response last week, saying there was no undisclosed price-sensitive information.
Another listed company, Bengal Biscuits declared a 5 per cent stock dividend for the year ended in June, but that was rejected by the BSEC on the ground that the regulator's approval was mandatory before issuing stock dividends in the first three years after the listing.
Apex Weaving and Finishing Mills declared no dividend while Wonderland Toys is yet to make any disclosure.
Bengal Biscuits' share price dropped 15 per cent, Wonderland Toys fell 14 per cent and Apex Weaving 1.70 per cent since October 2.
Trading of Himadri Ltd has remained suspended since June 29 this year.
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