Govt steps attract mixed reactions from experts
The benchmark index of Dhaka Stock Exchange saw a 6.2 percent jump yesterday, boosted by a government initiative involving five state enterprises in share buying.
Of the five institutions, Investment Corporation of Bangladesh (ICB) received a Tk 200 crore financial assistance from the central bank to buy shares from the secondary market.
The four others — Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank — were instructed by the government to buy shares from the troubled stockmarket with their own funds.
The central bank fund for the ICB is called demand loan, which carries a 90-day repayment period with interests.
The move attracted mixed reactions from economists and market analysts.
Dr AB Mirza Azizul Islam, former finance adviser, said financial assistance to ICB to buy shares gives a signal to the market that government can intervene in a declining situation. But, he said, Tk 200 crore is not a big amount.
He warned the government on the utilisation of the fund and said the money should be invested on fundamentally good shares. Otherwise, the former finance adviser said, the government has to open up another subsidy window.
Islam, also a former chairman of the Securities and Exchange Commission, discounted growing worries over the falling index. “The index should not be the only thing to rely on,” he said.
Monzur Hossain, research fellow of Bangladesh Institute of Development Studies (BIDS), questioned the sustainability of the move (financial assistance) and said the same sort of help was given earlier, but failed.
Hossain also criticised involving state-owned commercial banks into stock buying. “They (banks) are already in trouble and they run on depositors’ money,” he said.
The researcher said rather the government should concentrate more on strengthening the regulatory bodies and synchronise the works and policies of different agencies.
At the end of four-trading session, the General Index of Dhaka Stock Exchange stood at 5,926 points, up 346 points.
Stock trading, however, will remain closed today on the occasion of Eid-e-Miladunnabi, and tomorrow for the World Cup Cricket inauguration.
The government’s latest measures came a day after the market hit 12-month low amid a continuous slump in share prices and also street violence at Motijheel by retail investors, most of whom were lost huge sums due to the ongoing stock debacle.
The government applied the same method two years back when the market was in a similar crisis and after that the market had got back its rhythm.
Earlier on Monday night, the finance ministry and the Securities and Exchange Commission sat an emergency meeting to find out ways to bring back stability in the market, said people close to the issue.
And yesterday’s measures were the outcome of that meeting, they added.
Welcoming the initiatives, market intermediaries said this time the market may turn around, as the latest moves are more effective than the previous ones.
“The initiatives are good and the impact is seen in today’s [yesterday’s] trading. The market would make a comeback in the near future, unless anything unexpected grips it,” said Sheikh Mortuza Ahmed, president of Bangladesh Merchant Banker’s Association.
DSE President Shakil Rizvi said the government move is an evidence of fund supply in the market facing liquidity crunch.
He also said, “The current price earning ratio of the market showed that it is a very good time to go for investment.”
If people invest on fundamental securities for a long-term basis, they must get benefits after a certain period, he added.
Rizvi said merchant banks should play an active role to boost up investor confidence as well as to stabilise the market.
With the reversal sign in the market, buying spree dominated the market almost throughout the session.
Some of the asset managers also followed the suit of the five state-owned enterprises, which went for a buying mood by more or less.
The support was needed on the back of the current market situation,” said Yawer Sayeed, managing director of AIMS of Bangladesh, an asset management company.
He, however, said stability would not be maintained in the market only through giving life support. “Long-term policies are necessary to stabilise the market.”
Ahsan H Mansur, executive director of Policy Research Institute, said it gives signals of what he said in economic terms “moral hazards”. “The private sector would always think that the government would bail them out whenever in trouble,” he said.
On giving the money to the ICB for buying shares, Mansur said, “Is there any guideline on what kind of stocks the ICB should buy?”
He added “It is a complete discretion, and blanket authority.”
The buying pressure was so intensive that there were no sellers for some 80 securities on the trading board.
