There is wisdom in the old adage “stock market is a barometer of the economy” though how well the barometer functions depends on numerous factors like economic and non-economic.
The Dhaka Stock Exchange has witnessed a drop of more than 7% or 350 points in its benchmark index, DSEX, in first half (H1) of this year. It began the new year with 4,941 and ended at 4,583 on June 30.
The decline in first six months of this year comes after two years since launching the DSEX in 2013.
An analyst at a top brokerage firm said short-term profit-booking accelerated by fear of political turmoil eked out earlier gains.
“Businesses suffered resulting in dismal earnings of many companies in first half of this year, putting a lid on the market growth.”
The countrywide non-stop strikes and blockade almost throughout the first quarter made the country’s economic activities standstill.
Manufacturers faced tough time to run their factories due to supply chain disruption, which lowered credit demand and increased non-performing loans.
Most of the sectors retraced in the year, led by the financial sector that has borne the impact of rising non-performing loans.
It declined steeply during the first half, with banks slumping 11.5%, non-bank financial institutions 15.8%, general insurance 22.4% and life insurance 23.2% at the DSE.
Brac EPL in its half-yearly analysis said on the backdrop of political uncertainty that led to sluggish credit growth and poor earnings, the market went to the red in the first six months.
Slowdown in inflation and credit growth paved the way for commercial banks to cut lending interest rates to 11.93% in March – lowest in two years.
The shareholders in financial sectors had to bear the loss as the profitability of underlying companies was expected to take a hit.
In contrast, multinational companies outperformed the market with a 0.5% gain in the first half of 2015. Most of the companies posted healthy financial results with strong balance sheet.
Brac EPL said poor credit demand in the first six months, political unrest, piling up of non-performing loans and the governance of the overall financial sector led to further price correction of the sector.
However, after the city corporation election in late April, political unrest subsided, which helped the market to recover in the following months.
According to the Bank Companies Act (amended), banks will have to cut down their stock market exposure to 25% of their equity by next year.
