Share prices at the Dhaka Stock Exchange (DSE) witnessed sharp decline to lowest in a year, as investors went on a huge sell-off over panic caused by the Bangladesh Bank’s recent policy to tighten the money market.
Stock market analysts and economist said that the central bank’s decision to reduce the ADR has created panic among investors. The index showed negative movements most of the day and fell significantly before recovering only a few points at the last hour.
At the end of the trading session, DSEX, the benchmark index of the premier bourse, dropped 88 points or 1.43%, ending the day at 6,040 points, the lowest since February 02, 2017. In last two trading sessions after the announcement of monetary policy, the DSEX saw a total 137-point fall.
“The stock market witnessed a sharp fall as investors, including institutional investors, went on selling to bring the investment within limit as the BB has asked to reduce ADR,” Ahmed Rashid Lali, a stock broker told the Dhaka Tribune.
Reducing ADR will tighten the money supply in the money market, which may push interest rates up and make stock investors fly to bank deposit, said Ahmed.
He advised investors to remain calm and not to go on panic sale as it may lead to capital loss. He also expressed hope that the market would turn around and those who will hold on to their shares will gain.
On Tuesday, Bangladesh Bank slashed loan-deposit ratio for conventional commercial banks by 1.5% to 83.5% with a view to curbing excessive lending.
As per the central bank’s direction, advance-to-deposit ratio (ADR) for conventional banks has been fixed at 83.5% instead of the existing 85%, while investment deposit ratio (IDR) for shariah-compliant Islamic banks has been set at 89% instead of the current 90%. It will effective by June 30.
Although the market saw a downward trend in indices, the turnover moved up as the sales dominated the trading. Single day turnover at DSE stood at Tk4.7 billion, which was 18.3% higher than the previous session’s value of Tk4 billion.
The banking sector has seen a sharp fall as over 80% banks have seen negative growth in price as of on Wednesday. Only four companies out of 30 saw price gain.
“In line with the previous session, the market started negatively and continued the adverse vibe till the end of the session as the sellers dominated the day’s session,” International Leasing Securities said in its market analysis.
Investors liquidated their position from all the sectors, especially financial institution, engineering, bank, fuel and power, pharmaceutical and telecommunication sectors witnessed most liquidation, the stock broker said.
“The price index fall could be due to the panic among the investors over the impact of monetary policy and ADR reduction. But there is no logical ground behind the sharp fall as the ADR has been reduced with a slight cut,” AB Mirza Azizul Islam, former caretaker government advisor, told the Dhaka Tribune.
On the other hand, the new monetary policy has increased the private sector credit growth and nothing contractionary in cash flow, Azizul, also a former chairman of Bangladesh Securities and Exchange Commission (BSEC), said.
Some might have gone on profit taking to remain safe amid fear of political tension over the verdict of Zia Orphanage Trust corruption case against BNP Chairperson Khaleda Zia.
“But it is too early to have any impact,” said the economist.
The verdict of Zia Orphanage Trust case against Khaleda Zia and her son Tarique Rahman is scheduled to be delivered on February 8.