Stocks
IPO market should be strengthened: Shanta Equity CEO
A dismal primary market could be viewed as a major reason behind the prolonged weakness of the secondary market, said investment banker Rubayet-E-Ferdous, CEO of Shanta Equity Ltd.
The primary market, through initial public offerings (IPOs), enables companies to raise capital and allows investors to participate in the growth potential of businesses.
“Scarcity of good scrips has become increasingly prominent as a problem for stock investors, especially large institutional funds, in Bangladesh,” he said in a recent interview with the news reporter. “Poor supply of good scrips discourages serious investors, ultimately deterring demand.”
For instance, he noted that in the last nine years since 2015, only 75 firms, including a handful of sizable ones like Walton, Robi, and Acme, have collectively raised a meagre total equity capital of Tk5,700 crore. In contrast, BRAC Bank alone disbursed more than Tk10,000 crore in loans in 2023, while Eastern Bank disbursed over Tk4,300 crore in the same year.
According to the investment banker with over two decades of experience, annual capital raised through IPOs in Bangladesh is even less than what some individual bank branches disburse as loans. This heavy reliance on bank loans for business expansion has become an increasing concern.
Despite Bangladesh’s economy being significantly smaller than India’s, Indian companies (excluding SMEs) raised around 100 times more equity capital from their bourses. This listing activity attracted investors from both domestic and international markets, and the Indian stock market size rose to 130% of its GDP. In contrast, the total value of all listed companies on the Dhaka Stock Exchange (DSE) is still less than 10% of Bangladesh’s GDP, highlighting the severe underdevelopment of the country’s stock market.
The lack of enough good scrips has deterred large, especially institutional investors in Bangladesh, whereas the Indian market has a robust mutual fund industry that grew five times in a decade to $770 billion, engaging four crore investors. In Bangladesh, the struggling mutual fund industry affects market behaviour due to a severe lack of contrarian investors who help maintain market stability while generating wealth for investors over time.
Problems with the primary market in Bangladesh
“Entrepreneurs’ appetite for IPO capital has been lacking due to stringent rules regarding the pricing of primary shares and the usage of public money,” said Rubayet-E-Ferdous, who has led teams managing several large-cap IPOs in the past decade.
“The pricing method for primary shares is too inclined towards past performance and asset base, which does not adequately value asset-light companies with high growth potential.”
He also suggested that the structure for distributing primary shares among investor classes should be revised, with institutional investors – who are better at taking risks – receiving fewer shares compared to retail investors.
“On the other hand, retail investors often oversubscribe to IPOs, regardless of the firm’s quality, mainly focusing on short-term capital gains post-debut.”
Ferdous believes that entrepreneurs or firms should not be deprived of their expected share prices, only for the shares to later surge several times in the secondary market.
“Just as profitable state-owned companies, many successful multinational companies in Bangladesh are hesitant to go public, despite potential tax benefits. The government should prioritise efforts to encourage their listing on the stock market. If not through IPOs, direct listing of MNCs could significantly strengthen the stock market.”
“The government, despite sacrificing some revenue due to tax cuts for listed firms, should offer incentives for listing, as tax revenue from firms’ share trading could offset these costs,” Ferdous emphasised, noting that listed companies generally exhibit greater transparency in their accounting practices.
“We can initiate the journey towards a robust capital market by doubling the number of IPOs annually, both in terms of IPO numbers and the capital raised. At least Tk2,500 crore worth of IPOs should be conducted each year to attract new investors and revitalise existing ones,” he concluded.
Reviewing the U.S. Stock Markets, the Nasdaq Composite, recorded a decent loss of 1,023 points, reaching a closing value of 16,690 points by the end of the week. Similarly, the S&P 500 index showed a positive trend, losing 240 points to settle at 5,408 points. Meanwhile, DJIA Index experienced a notable hike, adding 1,218 points during the week and concluding at 40,345 points after a week of gaining.
In contrast, Russell 3000 Index saw a loss in week performance, with a slight drop of 141 point to reach 3,077 points by the end of the week.
Moving to Russell 2000 Index, demonstrated a notable lost of 126 points, ending the week at 2,091 points.
In the Outgoing week, the European stock market displayed a mixed performance.
Here is the data on the weekly performance of the European Stock Market, The STOXX Europe 600 index, which is considered a leading benchmark for the European market and covers approximately 90 percent of the market capitalization across 17 countries, reported a loss of 18.49 points to close at 506.56.
The United Kingdom’s FTSE 100, one of the most widely followed indices in Europe, also showed a significant drop, losing 195 points or finishing the session at 8,181.
In Germany, the DAX 30 index, added by 605 points to reach 18,301, while France’s CAC 40 decreased by 278 points to stop at 7,352 at the end of the trading day.
Italy’s FTSE MIB, which covers the top 40 stocks traded on the Milan Stock Exchange, decreased by 1,081 points to 33,291. However, Spain’s IBEX 35, lost by 228 points, to close at 11,173.
A review of South Asian stock markets shows that India’s Bombay Stock Exchange (BSE) index BSE Sensex has lost 1,182 points during the week. At the end of the week, the index stood at 82,365 points. On the other hand, the Nifty-50 index of the country’s National Stock Exchange dropped by 383 points last week. At the end of the week, the index stood at 24,852 points.
Pakistan Stock Exchange Index ‘KSE 100’, added 459 points last week. After a week of losing, the index settled at 79,002 points.
On the other hand, The Sri Lankan stock market index loss, and the Colombo Stock Exchange index ‘ASPI’ decreased by 94 points in a week. After a week the index settled at 10,775 points.
Bhutan’s stock market index ‘BSI’ dropped by 9 points hence the index stood at 1,500 points throughout the whole week. Nepal’s ‘NEPSE’ lost 22 points, therefore the index stands at 2,727 points.
Hence Dhaka Stock Exchange: The benchmark index ‘DSEX’ lost by 75.77 points or 1.31 percent, in the outgoing week. At the end of the week, the index stands at 5,728 points.
