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Capital market makes no direct contribution on industrialisation for first time

Niaz Mahmud
09 Jan 2024 21:39:38 | Update: 09 Jan 2024 21:39:38
Capital market makes no direct contribution on industrialisation for first time

Funds raised from the capital market in the just concluded year could not directly contribute to the industrialisation and business expansion in the country, which is the first time in the history of this market.

A staggering 85 per cent of the Tk 106 crore fund raised by two companies and a mutual fund through initial public offerings (IPOs) was invested in the fixed deposit receipt (FDR) and government securities.

The remaining 15 per cent was invested in the capital market including IPO expenses. No funds went to business expansion and opening of new units last year. It should be noted that in 2022, 10 per cent of such funds went to expansion of businesses.

Speaking to the Business Post, former president of the Bangladesh Merchant Bankers Association (BMBA) Mohammad A Hafiz, said on Tuesday, “For the past few years, stock market funds have not been able to play a significant role in industrialisation.

“I have seen such a low contribution several times. But it is absolutely zero this year. This happened for the first time in the history of the capital market. ”

Hafiz, who has been involved in the capital market for 34 years, blames the current recession more on the economic situation, adding, “We have all the infrastructure and laws of the market.

“But its proper use should be boosted. All relevant organisations need to work together to facilitate, and encourage entrepreneurs to raise funds from the capital market.”

According to experts, if a company raises fresh capital, it reflects the fact that economic activities will pick up soon. When companies in the manufacturing or services sector do not raise fresh capital, it indicates a bad trend for the economy.

Market insiders said the IPO funds would normally help increase cash flow in the market, create jobs, and help with economic recovery. A smaller part of the funds has been used either for expanding the existing capacity or setting up new units in the last few years.

Furthermore, stagnant trading activities have also impeded the listing of new securities in the market, as only two companies got listed on the main board through IPOs during the year, compared to nine companies in 2022.

Overall, the capital market navigated through a gloomy landscape in 2023, owing to internal constraints and challenging external factors.

AB Mirza Azizul Islam, a former adviser to the caretaker government, said, “The quality of the IPOs is a key factor for business expansion. If the IPO quality and quantity are low, the expansion will be lower.

“Also, the overall economic situation last year was not optimistic for businesses. The stock market can be a great source of funds, although the potential remains untapped.”

To attract entrepreneurs, the government has to set an example by offloading shares of state-owned companies to the stock market,” the economist had said.

In the yearly market review for 2023, LankaBangla Securities, a leading stock broker on the stock exchanges, said the country’s capital market remained tepid as it navigated through rough times in the year due to broader economic uncertainties, political unrest stemming from the election, market volatility, and a sluggish global economy.

In the last year, only two companies – Trust Islami Life Insurance and Midland Ban, and one mutual fund – Capitec Grameen Bank Growth Fund got listed on the Dhaka Stock Exchange (DSE), raising a capital of Tk 106 crore, the least amount raised within the last decade on the Dhaka bourse.

Due to economic unrest and the existence of a floor price on the main bourse, investor participation has been low, resulting in a reluctance to list new securities this year, LankaBangla said.

From the IPO proceeds collected, 85.2 per cent and 9.35 per cent of the funds have been used for G-Sec, FDR Investment, and Capital Market Investment, respectively. The rest of 5.45 per cent was used for IPO expenses for the year.

On its debut trading week, Trust Islami Life Insurance Limited emerged as the best-performing IPO in 2023, boasting a 93 per cent return, followed by Capitec Grameen Bank Growth Fund with a return of 76 per cent, and Midland Bank with a minimal return of only 2 per cent.

In 2022, 10.13 per cent of Tk 1,088 crore was raised by nine companies through IPOs. In 2021, 56.5 per cent was invested in business expansion amid the COVID-19 pandemic.

Twenty companies raised Tk 1,150.86 crore in 2021, hitting the highest level in nine years. This is nearly double the Tk 985 crore raised through eight IPOs in 2020 and close to the previous best of Tk 1,842 crore raised in 2012.

The stock market is a great source of funds for industrialization, said Abu Ahmed, a former professor of Dhaka University’s economics department. The stock market regulator, stock exchanges, and issue managers also have key roles to play in attracting companies to get listed with the exchanges.

"Some multinational companies are doing business in our country, but they are not listed with the bourses. However, they are publicly listed in neighboring countries. They should be offered a tax waiver in the interest of our capital market."

The more multinational companies get listed, the more the country’s capital market becomes stable, he added.

Around Tk 550 crore was raised in 2019, Tk 655 crore in 2018, Tk 1,442 crore in 2017, Tk 950 crore in 2016, Tk 675 crore in 2015, Tk 3,263 crore in 2014, Tk 910 crore in 2013, Tk 1,842 crore in 2012, Tk 3,233 crore in 2011, Tk 3,390 crore in 2010, and Tk 917 crore in 2009, according to the Bangladesh Securities And Exchange Commission (BSEC) data.