Anticipation of a liquidity crisis under the new monetary policy and political uncertainty over the verdict of Khaleda Zia’s case sent key stock index of Dhaka Stock Exchange (DSE) tumbling downwards on Tuesday as investors went on a panicked sell off.
As of on Tuesday, DSEX, the key index of the premier bourse declined by 0.8% or 48.6 points ending at 6,127.8 points. In January, DSEX has seen an 116 points or 1.87% fall.
Single-day turnover stood at Tk4 billion, which was 3.4% lower than the previous session’s value of Tk4.13 billion.
As per DSE data, banking sector played the key role in downswing, contributing a 21% fall in turnover to Tk599.9 million, from Tk759 million in the previous session. The banking sector is the largest contributor to the turnover.
As of on Tuesday, 20 banks out of 30 saw their prices fall and only six traded in the positive. Four banks were unchanged in price movement.
Stock market analysts and economists said the announcement of the half-yearly monetary policy statement that created an anticipation of liquidity crisis was the key factor, while another factor was the looming political uncertainty.
“From the very beginning of the new year, there were strong rumours in the stock market that the central bank is going to reduce the advance-deposit ratio (ADR). As a result, the stock market went through a downward trend since then and the key index has shown its lowest peak in the last three months,” a stock broker told the Dhaka Tribune.
On Sunday, a day before the monetary policy announcement, DSEX saw a 71 point or 1.14% drop to 6,144 points, which was the steepest single-day fall since October 9, 2017.
“There is a liquidity crisis in the money market as the cash flow has been tightened by the prior announcement of reducing the ADR. As a result, tightness in the money market has created depression in the stock market,” DSE Broker Association President Ahmed Rashid Lali told the Dhaka Tribune.
In the monetary policy, the central bank hinted that it would reduce ADR by the end of this year. At present, commercial banks are not allowed to lend out more than 85% of their deposits and Islamic banks and the Islamic wings of commercial banks 90% of their deposits.
Impact of political uncertainty
Political uncertainty over the verdict of Zia Orphanage Trust corruption case against BNP Chairperson Khaleda Zia has created panic among the investors, which led panic sell pressure.
Political uncertainty always creates panic in the market and once again there is panic on the trading floor ahead of the verdict of BNP Chairperson Khaleda Zia, a stock broker told the Dhaka Tribune.
Many investors had gone on a sell-off and were keeping out of new investment, the broker claimed.
The verdict of Zia Orphanage Trust case against Khaleda Zia and her son Tarique Rahman is scheduled to be delivered on February 8.
“There is already a fear of political uncertainty among the investors as it is an election year. Delivery of verdict against the Khaleda Zia over corruption has worsened the situation,” Abu Ahmed, honorary professor at Dhaka University’s Economics Department, told the Dhaka Tribune.
“The new monetary policy is not stock market friendly. Since Bangladesh Bank has hinted it will reduce ADR, the interest rate will go up and cash flow will drop to some extent,” said Ahmed.
“As the political arena is heated ahead of Khaleda’s verdict, I did not make any new investments, rather sold off my shares to remain in the safe zone,” Aminul Islam, a stock broker told the Dhaka Tribune. He also expressed his concern about election period investment, recalling the political violence and unrest after the last election.