By June 20 this year, approximately 102,000 beneficiary owners’ (BO) accounts were emptied, and market capitalization plummeted by Tk 1.37 lakh crore due to prolonged poor returns, frustrating investors and prompting them to exit the market.
Data from the Central Depository Bangladesh Limited (CDBL) reveals that in the six months leading up to June 20, the total number of BO accounts with zero share balance surged by 34% to 398,000, while BO accounts with share balances fell by 91,651 to 1.312 million.
During this period, the benchmark index DSEX of the Dhaka Stock Exchange (DSE) dropped over 1,000 points, closing at 5,244, while the blue-chip index DS30 fell by 218 points, settling at 1,875. The market capitalization at DSE also declined by over 17%, ending at Tk 6.43 lakh crore on June 20.
Rising interest rates, taxes on individual investors’ capital gains from listed securities, and a severe confidence crisis due to regulatory interventions are collectively impacting stock market performance, according to stockbrokers and market experts.
The capital market has been grappling with economic uncertainty, exacerbated by the Russia-Ukraine war. In response to the crisis, the Bangladesh Securities and Exchange Commission (BSEC) imposed a floor price in 2022 to prevent a freefall in share prices. Despite lifting the restriction after more than two years, the bearish trend persisted. Consequently, BSEC reintroduced protective measures, including reducing the circuit breaker limit from 10% to 3%.
Abu Ahmed, former economics professor at the University of Dhaka, explained that unprecedentedly high interest rates, especially on treasury bonds, have driven large investors to shift their funds from the stock market to bonds. “With treasury bond rates steady at around 12%, it’s a risk-free, preferred choice for many investors,” he said. This shift has resulted in a fund crisis in the market, he added.
Ahmed also highlighted a decline in the number of reputable companies entering the market and underperformance in key sectors like banks, insurance, non-bank financial institutions, and manufacturing companies. He pointed out that a lack of good governance and long-term policy support has eroded investor confidence. Additionally, the government is withdrawing previously granted investment benefits.
Md Saiful Islam, president of the DSE Brokers Association of Bangladesh (DBA), stated in a June 11 press conference that factors such as the absence of high-quality initial public offerings (IPOs), governance issues among stakeholders, and the proposed capital gains tax are diminishing investor confidence. He urged the government to withdraw the capital gains tax, asserting that it exacerbates an already bleak market.
Finance Minister AH Mahmood Ali proposed a 15% tax on individual investors’ capital gains exceeding Tk 50 lakh from listed securities in the upcoming fiscal year budget, amid a market downturn. However, Abu Hena Md Rahmatul Muneem, chairman of the National Board of Revenue, argued in a post-budget press conference that taxation was not the root cause of the market’s issues, citing that long-standing tax incentives had not spurred market growth.
Despite these challenges, the benchmark index of the DSE has risen over the last four trading sessions, recovering 174 points to close at 5,244 last Thursday. Stockbrokers attribute this uptick to investor optimism about a potential rationalization of the capital gains tax proposal and a concessional salvage fund for the state-owned Investment Corporation of Bangladesh (ICB).
EBL Securities noted in their daily market commentary that rumors about the possible withdrawal of the proposed capital gains tax have instilled some confidence among cautious investors.
