Stocks of multinational companies (MNCs) are disappointing investors, as their capital gains remain poor in the first half of current year, while shares of many small-cap firms continued to rise sharply on the Dhaka bourse, an indication of investors believing they have hit potential.
There are 13 multinational companies listed on the Dhaka Stock Exchange (DSE) – the country's premier bourse, and stock investors have not yet earned any capital gains from their investments from seven of these companies in the last six months.
The listed MNCs had displayed an extremely bleak performance back in 2022, with a 14 per cent negative equity return.
Meanwhile, shares of many small-cap companies continued to rise sharply in the country’s prime bourse in the last six months, with stocks of most large-cap firms remaining stuck at floor prices.
Investors in Emerald Oil Industries, which traded under the “Z” category, have earned a 297 per cent capital gain in the last half year, according to DSE data.
Analysts and stock market insiders said this is not a good sign for the country’s stock market. If the trend continues in the days ahead, it would pose a threat to market stability.
According to market insiders, in the January-June period of 2023, many investors were seen rushing towards rumour-based junk stocks, which helped many small-cap issues top the gainers board.
Commenting on the recent market trend, AB Mirza Azizul Islam, former finance advisor to the caretaker government, told The Business Post, “This is not a good sign for the capital market. Those who buy junk shares should be investigated.”
“The securities regulator should take legal action against price manipulators.”
Most of the paid out dividends of MNCs declined in 2022 when compared year-on-year.
The multinationals have been playing a central role in keeping Bangladesh’s capital market vibrant, with these 13 companies jointly contributing over 26.5 per cent to the market capitalisation of the Dhaka bourse.
Market capitalisation or market cap, is calculated by multiplying the total number of a company’s outstanding shares by the current market price of those shares.
Capital gain from MNC stocks
As per a half-yearly global capital market review conducted by Green Delta Dragon Asset Management Company, the Dhaka bourse’s heavyweight multinational Grameenphone accounts for over 8.5 per cent of the DSE total market cap – the highest holding in the bourse.
A stock investor in that multinational company has not earned any capital gains from investments in the company in the last six months of this year.
During the period, only six companies out of 13 were able to disburse capital gains to their investors. The remaining seven MNCs, including GP, returned zero per cent in the period. There are top big companies that touched the floor prices on the Dhaka bourse.
The seven companies that did not pay any capital gains or returns from shares in the H1 of 2023 are – Grameenphone, Robi Axiata, Singer Bangladesh, Linde Bangladesh, Marico Bangladesh, British American Tobacco Bangladesh, and RAK Ceramics Ltd.
Meanwhile, the six companies’ capital gains were 48.8 per cent of Heidelberg Cement, 4.1 per cent of Berger Paints, 7.3 per cent of LafargeHolcim Bangladesh, 2.4 per cent of Reckitt Benckiser, 6.8 per cent of Bata Shoe, and 17.4 per cent of Unilever Consumer Care.
Ibrahim Hossain, a stock investor through a brokerage house of DSE, said, “I invested in a multinational company last year hoping to get a good profit. Even after investing in a good company, I am now counting losses.
“I cannot even sell it for the floor price. I could not imagine that it would happen. I don't know when these losses will be recovered.”
Capital market analyst Professor Abu Ahmed said, “The financial base of multinational companies is so strong. The companies regularly pay big stock dividends.
“Shares of some companies, including Grameenphone, have recently seen selling pressure from foreign investors. This has had a negative impact on the share prices of multinational companies.”
Moreover, the overall stock market has been in recession for several months. All in all, the share prices of multinational companies have fallen, he added.
In the previous year, the MNCs displayed an extremely bleak performance with a 14 per cent negative equity return, which was much higher than the 8.14 per cent negative return of the key index of the DSE.
Out of the 13 listed companies, only Marico posted a positive return of 5.2 per cent in 2022.
Heidelberg Cement was the year’s worst sufferer with a loss of 34.3 per cent, according to a report prepared by Brac EPL Stock Brokerage.
According to the report, MNCs showcased a good performance in 2021.
Market analysts said the country’s macroeconomic concerns and the global economic slowdown caused by the Russia-Ukraine war triggered investors’ worries, pulling down the market in the last year.
The DSEX, the key index of the premier bourse, plunged by 549.8 points or 8.1 per cent to settle at 6,207 at the end of 2022.
On July 28 of previous FY, the Bangladesh Securities And Exchange Commission (BSEC) intervened in the market by reintroducing floor prices to curb price swings and stabilise the market.
The average price, calculated for each security, is considered the floor price and the lowest limit of the circuit breaker.
Previously, the securities regulator took a similar step in an attempt to limit the free fall of share prices during the Covid-19 outbreak on March 19 of 2020, when the DSEX fell below the 3,000 level.
When a floor price is fixed, no company’s shares will be traded below the fixed price. If the share price of a company is trading at the floor price, then that will be the lowest price for that company.
In addition, the BSEC said the upper limit of the circuit breaker and other existing conditions would remain unchanged.
BSEC chief Prof Shibli Rubayet-Ul-Islam said, “The floor price was introduced to protect the country’s capital market, but they are now mulling lifting the mechanism within the shortest possible time.
“Still, the stock market is a little bit tighter, and we always feel the security of investors. As soon as the market reaches a stable situation, we will immediately lift the floor price system.”
The DSEX showed a mixed performance in the first half of 2023, though its six-month return was much lower than those in peer countries Sri Lanka and India, as well as Vietnam and the USA.
In the January-June period of 2023, DSEX – the benchmark index of DSE – rose 137.3 points to close at 6,344, indicating a 2.20 per cent index return in the period.
