Stocks fell sharply this week, snapping a three-week winning streak as investors rushed to lock in short-term gains amid uncertainty over proposed amendments to margin lending rules and renewed geopolitical tensions.
The benchmark index of the Dhaka Stock Exchange (DSE) retreated after touching a near two-year high above the 5,900-point mark, wiping out all the previous week's gains.
Market operators said the strong rally in recent weeks encouraged many investors to book profits, while uncertainty surrounding the proposed margin financing rules prompted others to adopt a cautious stance.
"The recent rally encouraged many investors to book profits, while uncertainty over the proposed margin rules prompted others to stay on the sidelines," said a leading stockbroker.
He added that escalating tensions in the Middle East further weakened investor sentiment, prompting a broader risk-off mood across financial markets.
Investors are now awaiting greater clarity on the final margin financing rules, which are expected to influence market liquidity and sector-specific demand in the coming weeks, he said.
The market correction came just a week after the DSEX crossed the 5,900-point milestone for the first time in nearly two years, supported by a series of regulatory reforms that had improved investor confidence and revived market momentum.
Sentiment weakened after the securities regulator unveiled draft amendments to the margin financing rules aimed at strengthening risk management and governance in the capital market.
Under the proposed rules, banks and financial institutions with a price-to-book (P/B) ratio above three and insurance companies with a P/B ratio above one would become ineligible for margin financing, raising concerns that reduced access to leveraged buying could curb demand for many stocks in those sectors.
Insurance shares remained under heavy selling pressure throughout the week as investors feared the proposed restrictions would reduce margin financing eligibility.
Profit-taking also spread across major sectors, including insurance, engineering, power, pharmaceuticals, food, banking and telecommunications, after their strong gains in recent weeks.
The market traded all five sessions during the week, with three ending lower and two posting gains. However, renewed geopolitical tensions and policy uncertainty triggered broad-based selling in the final session.
Consequently, the benchmark DSEX index shed more than 96 points, or 1.63 per cent, to close the week at 5,804. The decline also ended a three-week advance during which the benchmark index had gained about 248 points.
According to EBL Securities, persistent uncertainty surrounding the proposed margin rule amendments, coupled with renewed geopolitical tensions in the Middle East, weakened investor confidence and reduced overall risk appetite.
The brokerage said investors initially reacted negatively to the proposed margin rules, particularly concerns over the possible exclusion of many insurance stocks from margin loan eligibility.
Although hopes of regulatory adjustments later helped the market recover temporarily, investors ultimately adopted a wait-and-see approach amid unresolved policy uncertainty and escalating geopolitical risks, triggering widespread profit-taking across sectors.
Selective heavyweight stocks, including Square Pharmaceuticals, Walton Hi-Tech Industries, Beximco Pharmaceuticals, BRAC Bank and BSRM, accounted for nearly one-third of the benchmark index's weekly decline.
The DS30 Index, comprising blue-chip companies, fell 35 points to 2,192, while the DSES Index, which tracks Shariah-compliant stocks, declined 24 points to 1,183.
Trading activity also slowed markedly. Total turnover on the DSE stood at Tk 53.16 billion during the week, down from Tk 73.75 billion a week earlier. Consequently, average daily turnover dropped 28 per cent to Tk 10.63 billion from Tk 14.75 billion in the previous week, indicating that many investors preferred to remain cautious after the recent rally.
Textile companies accounted for the largest share of weekly turnover at 17.6 per cent, followed by pharmaceuticals with 13.3 per cent and banking with 8.8 per cent.
Market breadth turned sharply negative as 240 issues declined, 120 advanced and 26 remained unchanged, reflecting broad-based selling pressure.
Malek Spinning Mills emerged as the week's most-traded stock with transactions worth Tk 1.30 billion. It was followed by Techno Drugs, Shepherd Industries, IPDC Finance and City Bank.
The Chittagong Stock Exchange (CSE) also ended the week lower. Its All Share Price Index (CASPI) dropped 194 points to 15,620, while the Selective Categories Index (CSCX) lost 164 points to close at 9,536.
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