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Infographic: TBS

After years of a continued meltdown, foreign investor participation in Bangladesh’s capital market has made a visible comeback following the end of Sheikh Hasina’s 15-year rule through her ouster.

According to data from the Dhaka Stock Exchange (DSE), during the first half of August, stock trading by foreign investors surged by 501%, reaching Tk404.82 crore.

A year ago, from 1 to 15 August, foreign turnover at the country’s premier bourse was only Tk67.31 crore.

After Hasina’s fall on 5 August, both turnover and indices at the DSE increased considerably, with the benchmark index climbing by 786 points over the four trading sessions up to 11 August.

With the new interim government headed by Nobel laureate Professor Muhammad Yunus taking over, foreign investors gained a significant boost in confidence in the market, according to market stakeholders.

Significantly, foreign share trading in the first half of August has surpassed that of the entire FY24 at Tk262 crore, which was the lowest in the previous five fiscal years.

According to DSE data, turnover by foreign investors in FY19 was Tk8,091 crore, and the figure further increased to Tk9,664 crore in the next fiscal year.

And in the following fiscal years, turnover by foreign investors was on a downward trend, tumbling down to Tk2,954 crore in FY23.

Market insiders say foreign investors had largely remained “inactive” in the stock market due to forex market volatility, the regulator’s imposition of floor prices to artificially maintain share prices, and economic instability following the Russia-Ukraine war and the Covid-19 pandemic.

The floor prices tightened previous investments, leading foreign investors to withdraw capital rather than reinvest. However, recently, their participation has increased as they are now investing in fundamentally strong companies instead of selling shares.

This renewed investment significantly boosted transaction volumes in the first 15 days of August, according to market insiders.

Ahsanur Rahman, chief executive officer at BRAC EPL Stock Brokerage – a leading trading firm for foreign investors in the capital market – told The Business Standard, “There has been a significant increase in foreign investors buying shares in the capital market.”

“In August, net purchases by foreign investors have been exceptionally high. However, their share sales were much higher in previous months,” he added.

Ahsanur Rahman identified four key reasons for the sudden rise in foreign investment: increased confidence in the capital market due to the new government’s takeover, banking sector reforms, stability in the forex market, and a decline in share prices of quality companies.

“The new government has implemented positive measures in banking sector reforms, and the volatility in the dollar market has stabilized. These factors have contributed to the growing participation of foreign investors in the capital market,” he explained.

Describing the first half of August as very promising for foreign share trading, he predicted that the total foreign share trading for the month will surpass any single month in recent history.

Infographic: TBS

Floor price was the big barrier

Ashequr Rahman, managing director of Midway Securities, told TBS, “In recent years, the floor price has been a major obstacle to attracting new investments in the capital market and has deterred foreign investors from trading shares.”

“Foreign investors typically invest with specific targets or timeframes in mind, but when they encounter floor prices that restrict trading, they lose interest, withdraw from the market, and move to the sidelines,” he explained.

Rahman also noted that significant fluctuations in the value of the dollar have caused foreign investors to shy away from the capital market, leading to more selling than buying in recent years.

“With the new government in place, investors are now seeing new opportunities and are beginning to invest again,” he added.

It is important to note that the Bangladesh Securities and Exchange Commission (BSEC) had imposed the floor price to artificially maintain share prices.

Following the first Covid-19 case in the country, when the stock market hit a multi-year low, the BSEC imposed floor prices on individual stocks in March 2020, preventing their prices from falling below a certain level.

The market began to normalise and was further impacted by the onset of the Ukraine war in February 2022, which triggered a downward trend. On 28 July, 2022, the regulator reinstated the floor price restrictions.

After approximately a year and a half, the floor price for all companies except 35 was lifted on 28 January of this year. Floor prices on shares of Islami Bank and Beximco remain in place, though other companies’ restrictions have been lifted in phases.

Ashequr noted, “Foreign investors have largely stayed on the sidelines in recent years, selling shares and holding onto their funds. They now see opportunities and are increasing their investments, believing that blue-chip companies offer good returns.”

Regarding capital market activity, he added, “Many investors have been unable to send money abroad due to the dollar crisis. With the new government in place, confidence is returning, leading to reinvestment.”

He expressed the hope that if the country’s economic situation stabilises and the dollar market remains steady, foreign investment in the capital market will increase.

Infographic: TBS

Stocks closed last week in positive territory after two consecutive weeks of losses, with investor sentiment rebounding due to the new commission’s strict measures against market misconduct.

Due to an additional public holiday, last week was shortened to four trading sessions instead of the usual five.

The benchmark index DSEX of the Dhaka Stock Exchange (DSE) edged up by 104 points to reach the 5,800 mark after two weeks, while the blue-chip index DS30 gained 34 points to close at 2,124.

The Chittagong Stock Exchange (CSE) also ended the week in positive territory, with the all-share price index CASPI rising by 0.86% to reach 16,520 points and the general index CSCX increasing by 0.90% to 9,954 points.

EBL Securities said in its weekly market review, the capital market of the country showed signs of recovery, with the benchmark index of the Dhaka bourse crossing the 5,800 mark again after two weeks as buyers continued their dominance across the trading floor owing to a slight rebound in investor sentiment, while some recent reformation attempts taken by the stock market regulator also worked as a catalyst to restore some investor confidence.

Buyers remained on the dominant side as opportunistic investors sought to take positions in particular scrips, which they deemed lucrative at the prevailing price levels, it added.

Stockbrokers said that the expectation for an interference-free and fair trading environment energised an increasing number of investors following the political and regulatory regime change earlier this month.

Under the previous chairman Shibli Rubayat-Ul Islam, the Bangladesh Securities and Exchange Commission (BSEC) was known for its attempts to control prices through floor limits or restrictions on daily declines whenever it feared a market correction.

According to market participants, this unprecedented frequency of market interference undermined the core nature of the stock market, and investors hope such a regulatory regime does not return to Bangladesh.

The new commission, led by Chairman Khondoker Rashed Maqsood, has withdrawn the floor price restrictions except for Islami Bank and Beximco Limited, and lifted the lower circuit breaker limit of 3% imposed by the previous commission.

Additionally, the new commission has warned of punitive actions against those who fail to pay dividends on time.

Investor participation in the market also increased by 27% to Tk792 crore compared to the previous week at the DSE. Among the traded stocks, 293 advanced, 86 declined, and 18 remained unchanged.

On the DSE, the banking sector had the highest turnover, contributing 24.5% of the total amount. It was followed by the pharmaceutical sector, which contributed 15.7%, and the food sector, which contributed 12.7%.

BAT Bangladesh topped the DSE turnover list, followed by Olympic Industries and Grameenphone. Investors received the highest returns from the insurance, engineering, and textile sectors.

Specifically, the insurance sector provided a return of 10.25%, the engineering sector delivered a return of 9.21%, and the textile sector offered a return of 5.74%.

Among the top ten gainers, six were insurance firms, indicating strong buying interest in these stocks. However, Khan Brothers PP Woven Bag, a loss-making company, topped the gainers’ list with its share price jumping by 29% to reach Tk104.2, followed by National Life Insurance and Pragati Insurance.

Sonali Paper performed the worst last week, with its share price dropping by around 14%, followed by Shahjibazar Power and Khulna Power.

Former senior district and sessions judge Md Ali Akbar has been appointed as a commissioner of the Bangladesh Securities and Exchange Commission (BSEC) for a four-year term. 

His salary and benefits will be determined by his employment contract with the government, according to a notification issued by the Financial Institutions Division (FID) today (28 August).

The BSEC, which has a five-member commission, requires a quorum of at least three commissioners (including the chairman) to conduct meetings.

However, after the ouster of Sheikh Hasina, the BSEC was left without a quorum as the chairman, Shibli Rubayat-Ul Islam, and two commissioners, Dr Shaikh Shamsuddin Ahmed and Dr Rubana Islam, resigned.

Although Khondoker Rashed Maqsood was appointed as the new chairman on 18 August, the commission still couldn’t hold meetings due to the lack of a quorum.

With the appointment of Ali Akbar, the BSEC now has three active commissioners – ATM Tariquzzaman, Md Mohsin Chowdhury, and Md Ali Akbar – allowing it to resume its operations.

Regulatory officials claim that the commission was unable to make any policy decisions due to the quorum crisis during this period. As a result, the commission could not hold any meetings after Shibli Rubayat-Ul Islam resigned, leading to many significant issues being left unresolved, which now require attention through a commission meeting.

Shibli Rubayat-Ul Islam, an active member of the pro-Awami League Blue Panel at Dhaka University, ended his premature tenure as the chairman of the BSEC just five days after the fall of the Sheikh Hasina-led government.

Shibli, who joined the commission in May 2020, faces numerous allegations, including resorting to autocratic practices, facilitating market manipulators, and approving companies with poor fundamentals to raise funds from general investors.

The banking and insurance professor was reappointed on 28 April this year for a second four-year term but resigned on 10 August, just four months after his reappointment.

Previously, Md Ziaul Haque Khandker was forced to step down without completing his tenure as BSEC chairman following the stock market crash in 2010.

Highlights

Republic Insurance’s financials in April- June 2024

• Tk13.74 crore net premium income
• Tk3.29 crore profit after tax
• Tk2.41 crore net claims payment
• Minimised agents’ commission by 15%

Republic Insurance Company experienced an 11.35% increase in premium income during the second quarter (April to June) of 2024 compared to the same period in 2023.

Specifically, its premium income rose to Tk13.74 crore in 2024, up from Tk12.34 crore in the previous year.

However, the company’s profitability was impacted by a sharp rise in claims payments.

During the second quarter of 2024, Republic Insurance paid Tk2.41 crore in claims, a substantial increase from the Tk55 lakh in the same period the previous year. These higher claims payments largely offset the company’s net profit.

Republic Insurance Company reported a slight decline in net profit for the second quarter of 2024. The net profit stood at Tk3.29 crore, which is 2.08% lower than the Tk3.36 crore reported in the same period of the previous year.

The company managed to reduce its agents’ commission by around 15% during this quarter, bringing it down to Tk2.73 crore from Tk3.22 crore in 2023.

For the January to June 2024 period, Republic Insurance’s gross premium income was Tk48.58 crore, a decrease from Tk51.89 crore in the same period the previous year.

During the first six months of 2024, the company’s earnings per share (EPS) were Tk1.19, down from Tk1.23 in the previous year. By the end of June 2024, the net asset value (NAV) per share stood at Tk18.41.

On Sunday, the company’s share price closed at Tk31.90 on the Dhaka Stock Exchange, which represents a 26% decline from Tk43.10 on 9 July this year.

Republic Insurance Company operates in all areas of insurance, guarantee, and indemnity business, except for life insurance, and has been listed on the stock exchanges since 2009.

The company recommended an 11% cash dividend for their shareholders for 2023.

Out of the company’s total shares, sponsors and directors jointly hold 40.48%, institutional investors 21.09%, and general investors 38.43%.

Currently, there are 81 insurance companies – 36 life and 45 non-life – in the insurance sector of Bangladesh. Of them, 58 are listed on the stock exchanges.

Experts have been saying for a long time that Bangladesh is one of the most untapped insurance markets in terms of penetration rate.

Awareness and a strong culture of insurance service behind economic activities can help the industry thrive.

National Tea Company Limited has extended the subscription period for its placement shares by one month, now set to close on 19 September.

Previously, the closing date was set for 19 August, with the subscription having initially begun on 19 July.

The decision to extend the subscription period was made by the company’s board of directors and was disclosed on the stock exchanges’ website today.

On 17 July, the National Tea announced the new subscription date for its Tk279.7 crore placement shares, originally scheduled around a year ago but postponed by the regulator, as mandated by a recent court order.

The purpose of issuing placement shares is to support business growth, finance working capital needs, and repay bank loans.

However, the company could not complete the modernisation project and other initiatives due to a lack of funds. As a result, its turnover is decreasing due to the declining average sale price in the auction market for its products, according to company officials.

In July last year, Jakir Hossain Sarkar, who owns only 10 National Tea shares, filed a writ petition with the High Court against the company’s scheme of issuing fresh shares approved by the Bangladesh Securities and Exchange Commission (BSEC), alleging that the firm did not treat all its existing shareholders equally.

Although the High Court initially upheld the BSEC’s consent, the chamber judge of the Appellate Division later put the High Court order on hold following a petition by the market regulator.

All these issues and delays have impacted shareholders, particularly after the record date, as the price of National Tea shares dropped in adjustment with the upcoming increased number of shares. The uncertainty surrounding the issuance of placement shares has further added to shareholders’ concerns.

In April last year, National Tea secured BSEC approval to raise its paid-up capital by issuing 2.34 crore shares at Tk119.53 each, including a Tk109.53 premium per share.

Of the shares, the government, Investment Corporation of Bangladesh, and Sadharan Bima Corporation will get 1.24 crore shares at an average ratio of 4.43 new shares for each existing share, sponsor-directors 13.8 lakh shares at a ratio of 3.21:1, and general shareholders nearly 96 lakh shares at a 2.85:1 ratio.