Will the capital market turnaround in 2023?

The country’s capital market is expected to remain wobbly in 2023 and volatility is likely to persist due to concerns regarding the global gloomy outlook and the slashed GDP growth forecast of Bangladesh for the fiscal year 2022-23.

Investors are likely to remain watchful in the next year as well due to the possibility of persistent inflationary pressure, upward adjustments in interest rate cap, and liquidity crunch in the money market, according to analysts.

Besides, soaring energy prices and import costs are likely to hurt the top-line growth and profitability of the major manufacturing companies in the year to come, they said.

Moreover, a decline in discretionary spending in the economy might have an ominous effect on the capital-intensive sectors mainly the construction, electronics, automobiles etc.

Meanwhile, the possibility of a resurgence of political movements ahead of the national election might also exacerbate the worries of the investors, said EBL Securities, a leading stockbroker, in its new-year market forecast.

The market sentiment, however, is expected to stabilise by the latter part of the year, as economic tensions are expected to ease due to recent decline in LC opening and import bills, as well as receiving the first tranche of the IMF loan installments, which would pave the way to a possible improvement in the country’s current account deficit and foreign exchange volatility during the period, it added.

The DSEX, the benchmark index of the Dhaka Stock Exchange (DSE), the country’s premier bourse, might hover around 5,500-6,500 points with an expected average daily turnover of Tk 600 crore to Tk 800 crore, EBL Securities stated.

The stock market regulator in the coming year is expected to continue frequent policy updates, including lifting of floor price restrictions in order to restore investors’ confidence and enhance market participation, analysts say.

Besides, the launch of ETFs, ATB, and commodity exchange is expected to take place by next year, allowing investors to diversify their investment portfolios.

Meanwhile, companies with sound fundamentals in the FMCG and Pharma sectors, along with well-governed banks and NBFIs might stand out in 2023, while the cement, engineering and textile sector might extend their sufferings.

Hence, with the anticipation of a gradual economic recovery, the capital market is also likely to be driven towards a vibrant momentum by the latter part of the year, according to EBL Securities’ new-year market forecast.

How was the year 2022?

The year 2022 would be a year for the capital market investors seeking to be forgotten as Bangladesh’s stock market had a tough ride in the ongoing year due to the economic challenges resulting from the Russia-Ukraine war.

The DSEX, the broad index of the Dhaka bourse, plunged by 549.8 points or 8.1% to settle the year-end at 6,207.

However, the listing of government securities led the market capitalisation to jump by Tk 2,18740 crore or around 40 per cent during the period though debt securities’ exclusion would reduce it by 7.9 per cent.

Despite the year started on a positive note owing to investors’ optimism regarding the economic recovery from the impact of Covid 19 restrictions, the momentum could not sustain for long time after the start of the Russia-Ukraine conflict.

With war posing a serious global recessionary pressure, pushed an intense bearish sentiment into Bangladesh’s capital market, forcing the regulator to impose a 2 per cent lower circuit breaker to pacify the ailing market.

This regulatory move, however, couldn’t alleviate investors’ worries much after several contractionary policies taken by the Bangladesh Bank to tame the rising inflation, soaring dollar rates, depleting foreign currency reserve and declining balance of payments.

Meanwhile, the capital market also felt the heat as the core index of the country’s premier bourse plunged below the psychological threshold of 6,000-mark, propelling the stock market regulator to reinstate the floor price at the end of July 2022.

The floor price, however, could not entice investors for long, as economic fears were exacerbated by a decade-high inflation in August 2022, following a 20-year high hike in fuel and energy prices.

Moreover, the government’s austerity measures in the face of power and energy crisis in the country affected the operations of already struggling manufacturing companies, putting further strain on their financial performance.

Meanwhile, the imposition of floor price curbed liquidity in the market, causing the daily average turnover to fall by 35 per cent to Tk 950 crore compared to that of the previous year since the market had been concentrated on selective stocks while the majority of stocks were stuck at the floor price without having potential buyers who deemed the reference price as overvalued, according to the EBL Securities’ yearly market evaluation note.

However, the stock market regulator recently lifted the floor price restrictions from 168 scrips to enhance liquidity in the market, but the 1 per cent lower circuit breaker on those scrips turned out to be an impediment to lure investors’ participation.

Instead, following that decision, the single-day turnover fell to a 30-month low on December 26, 2022.

Despite continuous efforts from the regulators, including timeline extension by the Bangladesh Bank to adjust the capital market exposure of banks, the market displayed a dismal performance in the outgoing year.