Stocks extended the losing streak on Thursday as investor sentiment was affected by potential interest rate hikes in the money market following the latest increase in the policy rate.
The latest policy rate hike by a further 50 basis points amid a tightened monetary space fueled concerns among stock investors, market experts said.
The rising interest rates already turned fixed-income instruments more lucrative compared to the equity market, while a further rate hike is likely to exacerbate the situation.
Alongside, a further devaluation of the local currency may intensify damages to the market. Stocks are now feared to take a longer time for recovery.
Export-oriented firms will be benefited while the cost of funds and production costs of import-oriented companies will escalate.
Investors chose to reduce their stock market exposure amidst concerns over the market outlook owing to a challenging external environment.
The market witnessed high volatility throughout the session on Thursday. Sellers took control of the trading floor, leaving the index almost 30 points down from the day before.
The DSEX, the key index of the Dhaka Stock Exchange, finally slid 30 points or 0.52 per cent to settle at 5,661. The DSEX lost 66 points in the past three trading days.
Beximco Pharma, Beacon Pharma, BRAC Bank, National Bank, and Square Pharma suffered the biggest losses and contributed largely to Thursday's market plunge. They jointly accounted for half of the day's index fall.
The blue chip index DS30, a group of 30 prominent companies, also lost almost 11 points to 2015 while the DSES index, which represents Shariah-based companies, shed 8 points to 1,242.
"Stocks extended losing streak as investor sentiment observed a fresh blow amidst emerging external challenges arising from tightened money market conditions following the latest policy rate hike," said EBL Securities.
Mir Ariful Islam, managing director of Sandhani Asset Management, said the government's latest policy rate hike would reduce the fund flow to the stock market for a short-term.
The central bank raised the policy rate five times from 6 per cent to 8.50 per cent since the removal of the interest rate cap in June 2023, in an effort to bring down inflation.
Mr Islam said the policy rate hike would elevate the interest rate further and the cost of funds would go higher.
Although the lending rate may rise initially, the market-based rate is necessary to reduce inflationary pressure and restore macrocosmic stability.
"If the country's macrocosmic stability returns, the stock market will also be benefited in the long-term," said Mr Islam.
Turnover, a crucial indicator of the market, on Thursday stood at Tk 9.11 billion, 5 per cent higher than the previous day.
Investors were mostly active in the pharmaceutical sector, which accounted for 21 per cent of the day's total turnover, followed by the textile sector (18 per cent) and food sector (11 per cent).
More than 66 per cent traded shares saw price fall.
Asiatic Laboratories became the most traded stock with shares worth Tk 393 million changing hands, followed by Malek Spinning Mills, Best Holdings, Lovello Ice-Cream, and Orion Infusion.
Saif Powertec was the day's highest gainer, posting a 9.97 per cent increase, while Beacon Pharma was the worst loser, shedding 3 per cent.
Most of the sectors endured correction with the non-bank financial institution witnessing the highest loss of 2.10 per cent, followed by paper & printing, ceramic, engineering, power and pharma companies.
The Chittagong Stock Exchange ended sharply lower with its All Shares Price Index (CASPI) shedding 81 points to 16,232 and the Selective Categories Index (CSCX) losing 49 points to 9,771.
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