DSE market cap-to-GDP ratio falls sharply as DSEX keeps bleeding

The Dhaka Stock Exchange’s market capitalization-to-GDP ratio declined significantly in the just concluded fiscal year as the key index continued to plunge taking cue from the weak macroeconomic front.

Its market cap-to-GDP ratio stood at 11.6 per cent as of July 2022 while it climbed to its peak at more than 50 per cent in 2010 just ahead of the market crash. It was 24 per cent in 2014.

The market recently wobbled due to dwindling foreign reserve, rising inflation, and depreciation of taka, according to analysts.

In addition, certain policy moves from the government, such as the closure of diesel-powered power plants to decrease electricity generating costs, put further strain on the ailing market.

The DSE market cap-to-GDP ratio was 17.6 per cent in July 2021, which was 15.2 per cent in December of the same year. According to EBL Securities data, it was 11.6 percent as of Thursday.

The current market cap to GDP ratio of the DSE is now the lowest among the emerging Asian-Pacific countries.

On Thursday, the DSEX, the key index of the DSE, declined by 12.3 points and settled at 6,127 points against 6,139 points at the end of the day. And the DSE market cap stood at Tk 5,03,119 crore, which was Tk 3,50,800 crore in December 2010. Market capitalisation, or market cap, is calculated by multiplying the total number of a company’s outstanding shares with the current market price of its shares.

The DSE market cap-to-GDP ratio came down to 33.23 per cent a year after the market crash in 2010-11. The ratio was 12 per cent in 2019, 17 per cent in 2018, 21 per cent in 2017, 20 per cent in 2016 and 21 per cent in 2015.

The market has been unable to maintain its early upward momentum because investors started dumping equities as they are taking every bounce back as an opportunity to exit the bearish market, a top executive of a leading brokerage house said.

However, investors should not look at the market cap-to-GDP ratio in isolation, as there are a few mitigating factors for the rise and fall of the market, he said.

“The stock market is a good source of funds. But its true potential still remained untapped. To attract entrepreneurs, the government needs to set an example by offloading shares of state-owned companies,” he added.

Attracting good companies, simplifying the listing process, and bringing government and multinational companies will help the market grow, said the analyst.