Foreign investors park in pharma stocks

Foreign portfolio investors show immense interest in the domestic pharmaceutical sector as on February this year due to the growing demand for drugs and good governance in these companies.

Among the listed companies with foreign ownership, Brac Bank Ltd had the highest foreign holdings of 33.5 per cent as on February 2023, followed by Beximco Pharma with 29.2 per cent. Navana Pharma, Renata Ltd, and Square Pharma stay in the top ten companies with the highest foreign shareholding.

The companies which manufacture hygiene products, logged healthy profits over the last decade as per analysts’ data. Especially during the pandemic, the profits skyrocketed as per an analysis by The Business Post.

However, investors were advised to exercise caution in placing their bets on the stocks, as the current growth phase might not happen in the future.

Bangladesh’s pharmaceutical products were exported to 199 countries, generating over $180 million in turnover in the FY22. The sector meets 97 per cent of the domestic demand, worth almost $3.5 billion.

Meanwhile, foreign investors’ investments accounted for 11.80 per cent of the total pharmaceutical sector’s market capital on the Dhaka Stock Exchange.

According to IDLC Finance’s monthly business review, Navana Pharma ranks third with 27.7 per cent foreign ownership, followed by Renata with 22.7 per cent, Olympic Industries with 21.1 per cent, Islami Bank with 20.2 per cent, Delta Brac Housing Finance Corporation (DBH) with 18.2 per cent, BSRM Ltd with 17.3 per cent, Square Pharma with 13.4 per cent, and Shepherd Industries with 9.5 per cent.

Currently, 355 companies, including 34 of the pharmaceutical & chemical sector and 36 mutual funds remain listed on the DSE’s trading board.

Market insiders said that companies in the pharmaceutical sector have witnessed amazing returns in recent years, with Covid paving the way as they made record profits and declared the highest ever dividends.

Experts have attributed the higher growth of pharmaceutical firms to the rising demands for hygiene drugs in both the local and foreign markets due to the culture shock during the pandemic.

Square Pharmaceuticals Ltd, one of the leading drug manufacturers of the country witnessed a 12.58 per cent year-on-year surge in export receipts in FY22, thanks to policy support and the incorporation of advanced machinery to produce quality drugs.

“We have incorporated modern technologies, including machine learning, artificial intelligence, and biotechnology to fortify or foothold both in domestic and global markets,” the company mentioned in its latest annual report.

Besides this, time-befitting policies to support is a must to let the country’s drug manufacturers compete in the global market, according to its annual financial report.

Square Pharma’s medicines are now available at pharmacies in over 45 countries, according to the company. It was now trying to grab more slices of the global market.

Market operators also noted that a series of banking scandals along with a lack of good governance in the capital markets had also discouraged foreign investment.

On the issue, a top stock broker told The Business Post, “Companies with good fundamentals do not want to be listed in the stock market due to a lack of transparency in the IPO process and overall market operations”.

“There are very few (seven to eight) companies listed on the country’s stock market where foreign investors are eager to invest”, he added.

Wishing anonymity, another stockbroker said, “A lack of confidence on the investors’ part in the market resulted in continued share sales by local and foreign investors alike.”

Quoting foreign investors, he phrased there was a lack of transparency and accountability in the markets, which was a major barrier to making the market vibrant. The presence of foreign equity investors in Bangladesh’s capital market has long been fading away but this exodus got intensified in January of 2023.

They were now pulling out their funds to a larger extent, according to analysts, mainly to eliminate losses from the FOREX rate volatility caused by the ongoing Russia-Ukraine war.

The outflow of foreign stock investment from the DSE, the country’s premier bourse, stood at Tk 135 crore in January this year against an inflow of only Tk 21.26 crore in the same period.

In December of the previous year, overseas investors sold securities worth Tk 101 crore in exchange for Tk 36 crore in buying costs.

Market insiders say the securities regulator, the BSEC, has been continuing the floor price system for a long time, which is preventing foreign equity investors from buying and selling shares of companies with sound fundamentals.

But they are now selling shares in the block market after getting the opportunity. Besides, the currency disruption caused by the Russia-Ukraine war was also a prime reason which stimulated foreigners to offload shares from the capital markets of developing countries like Bangladesh, market insiders said.

Meanwhile, the US Federal Reserve recently raised its main interest rate by 75 basis points—the biggest increase since 1994—to a range of 1.5–1.75 per cent to tame inflation.