SME market soared 312 points, or 28 per cent, in the month to Sunday amid an influx of investors chasing SME shares once again in anticipation of quick gains.
During the time, the main market slid 3 points against the backdrop of global and domestic economic downturn.
On Sunday alone, the SME index jumped 70.80 points to close at 1,419 with turnover shot to nearly 11-month high at Tk 278 million.
Except for BD Paints and Yusuf Flour, all SME stocks experienced price surges by 14 per cent to 213 per cent in the month, driven by rumours that their prices would increase further.
What is more surprising is that half of the SME stocks now trade at higher prices than some of blue-chip stocks of the main market, which are well-known for steady growth, strong fundamentals, and good business practices.
The SME stocks -- Yusuf Flour, Himadri, Bengal Biscuits, Wonderland Toys, Nialco Alloys, Star Adhesive, and Al-Madina Pharmaceuticals - have crossed Tk 50 while at least 10 blue chip stocks, including Brac Bank, City Bank, IDLC Finance, and Titas Gas are trading at below Tk 50.
In absence of any valid reason behind the price appreciations of SME stocks, analysts fear that gambling acted as a short-term catalyst.
The listed SMEs have offloaded a small number of shares. So, when speculations do the rounds that a stock would continue going up, buying pressure even from a small group of general investors eventually helps the stock escalate.
Low paid-up capital makes it easy for gamblers to manipulate the price, said Prof Abu Ahmed, a former chairman of economics department at the University of Dhaka.
The SME board has created scope for manipulators to make unprecedented gains at a time when the main market is in distress. "The trading pattern on the SME board looks unusual," added Prof Ahmed.
Himadri, which runs six potato cold storage units in the northern part of Bangladesh and is a subsidiary of Ejab Group, has offloaded only 0.75 million shares, the lowest among the listed SMEs.
Recently, the board of the company decided to expand its authorised capital from Tk 20 million to Tk 500 million to comply with the regulatory requirement.
Himadri's stock price jumped 213 per cent in the month to Tk 735 on Sunday, becoming more expensive than Square Pharma, Grameenphone and BATBC of the main market.
In the last three months, Himadri's price skyrocketed 21 times to appear as the second highest pricy stock on the SME platform after little-known Yusuf Flour.
The share price of Yusuf Flour has been stuck at Tk 1036.80 for nearly two months after reaching the peak at Tk 2884 in December last year.
"As the overall market has remained unattractive for months due to floor price, many investors are rushing to these small-cap stocks seeing some movement in the hope of making short-term gains," said a top official of an asset management company, requesting not to be named.
The price restriction does not apply to SME stocks unlike the companies in the main market.
Hence, the index has been oscillating leading to recurrent gains and losses.
Before the SME index started to rise this time, the index witnessed 57 per cent erosion to 964 points in the seven months to February this year since it peaked in August last year.
Most of the SME stocks appreciated in March despite the fact that there was no significant positive earnings disclosure.
During the period, two companies --- Himardi and Yusuf Flour -- exhibited abnormal price hikes.
The index peaked at 2,244 points in August last year, riding on regulatory relaxation, including the lowering of the minimum investment to Tk 2 million from Tk 5 million.
No fundamental changes took place since then, which could push the stocks up.
"That indicates a group of dishonest traders have been targeting the SME board to manipulate stocks," said Prof Ahmed.
A top official of the Bangladesh Securities and Exchange Commission said the abnormal spike in share prices of small-cap companies had drawn attention of the securities regulator.
"We are keeping a close watch on the shares of small-cap companies to see if there is any insider trading or mal-intent in any big individual investors, which is causing the price manipulation," he said.
The investors also need to be cautious while putting money in such speculative stocks, he added.
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