The equity market has remained stunted relative to the growth of the country's Gross Domestic Product (GDP).
Bangladesh's nominal GDP more than tripled in the decade through FY24 to Tk 50.50 trillion, according to the Bangladesh Bureau of Statistics (BBS), but the equity market rose only 11.6 per cent to Tk 3.63 trillion during the same period.
That means the market has failed to keep pace with the economy. However, in an ideal case a stock market should get bigger as the economy it represents does -- over time.
That did not happen because of the lack of good governance that has permeated every part of the country's financial sector, including the market, experts say.
"Our stock market does not represent our economy," said Md Moniruzzaman, managing director and chief executive officer (CEO) of Prime Bank Securities Limited.
In the decade through FY24, as many as 83 companies raised money from the primary market and got listed on the stock exchanges for business growth and expansion. Had they grown as expected, that would have resulted in a significant increase in the value of the market too.
Instead, a significant number of the companies turned out to be inefficient, while some others collapsed due to financial scams and irregularities within a few years after the listing. At the end, investors fell victim to false promises and have been left with unsellable assets. So, the value of those assets plummeted unless manipulated by fraudsters.
The market's value shows how much all the listed companies are worth together. In FY15, the market value to national GDP was 21.43 per cent, which plunged to a mere 7 per cent by the end of FY24.
So, the market experienced a reduction of its size compared to GDP while new companies came in.
"Most of those companies are not good. That's why the market has not expanded," said Shahidul Islam, CEO of VIPB Asset Management.
Out of more than 400 listed companies, only 30 to 35 companies have remained consistent when it comes to financial performance.
Fundamentally-strong and well-regulated companies prefer not to get listed since, according to experts, the tax incentives offered to listed companies are wiped out by the hassles tied to listing.
Besides, tax evasion is rampant. Non-listed companies through bribery and other corrupt practices can easily get away with paying no tax or less than what they are required by legal provisions. Hence, tax benefits are ignored.
Also, the rights of minority shareholders are disregarded in Bangladesh. "Such a culture is a hindrance to the growth of the market," said Mr Islam.
This is the backdrop to the discrepancy between the growth of the GDP and the market.
According to BBS statistics, 11.37 per cent of GDP comes from agriculture. Of that, crops and horticulture constitutes 5.53 per cent, livestock farming 1.64 per cent, forest and related services 1.63 per cent and fishing 2.53 per cent.
But the Dhaka Stock Exchange's food and allied sector comprises only 8.14 per cent of the total market capitalisation. Of the 21 companies listed in the category, only a few have any sort of connection to agriculture.
On the contrary, financial institutions and insurance companies represent 24 per cent of the DSE market capitalisation whereas GDP's 3.27 per cent came from financial and insurance related activities, as per the BBS data for FY24.
The textile and garment sectors, which fetch more than 80 per cent of all export receipts annually, do not have proportionate representation on the DSEX, main index of the Dhaka Stock Exchange. Companies from the sector account for only 3.5 per cent of the market.
Moreover, most of the companies listed under the textile and garment sector are not profitable.
Amid the regulatory failures, investors' confidence faltered. That remains another major discouraging factor for new listings.
The poor state of the market is palpable when compared to the neighbouring countries too.
According to ceicdata.com, Vietnam's stock market is 51.2 per cent of its GDP, Thailand's 104 per cent of GDP, the Philippines' 69 per cent, and India's 123.3 per cent.
Developed countries' market size is even bigger. Singapore's market is equivalent to 119 per cent of GDP, France's 128 per cent and the United States' 156 per cent.
"Our GDP increases at a nominal rate of 15 per cent a year while very few companies on the stock exchanges have maintained a persistent growth at that rate," said Mr Moniruzzaman.
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