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Small-cap cos outperform DSE heavyweights

Niaz Mahmud
11 Jul 2023 22:12:12 | Update: 12 Jul 2023 13:31:33
Small-cap cos outperform DSE heavyweights

Top large-cap stocks yielded virtually no returns in the first half of 2023, while shares of many small-cap companies continued to rise sharply on the Dhaka Stock Exchange (DSE), an indication that the investors believe they have hit their potential.

The market’s heavyweight multinational billion-dollar Grameenphone accounts for over 8 per cent of the DSE total market cap, which is the highest single 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.

Not just GP’s investors, but investors in top market-cap companies have been disappointed in the first six months (Jan-Jun period of 2023) of this year, amid the Bangladesh Securities and Exchange Commission’s imposition of floor price for stocks.

Meanwhile, shares of many small-cap companies continued to rise sharply in the country’s prime bourse in the last six months, while stocks of most large-cap firms remained stuck at their 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, show DSE data.

Analysts and stock market insiders said this is not a good sign for the country’s stock market. If the trend goes unabated, it would pose a threat to market stability.

During the period, many investors were seen rushing towards rumor-based junk stocks, which helped many small-cap issues top the gainers board, they said.

Top market cap firms’ shares hit floor prices

The top 10 market capitalisation companies of the Dhaka Stock Exchange in the first half of the year 2023, though their six-month return was much lower as they stuck at their floor prices.

As per a half-yearly global capital market review conducted by Green Delta Dragon Asset Management Company, the top 10 market cap companies are Grameenphone, Walton Hi-Tech Industries, British American Tobacco Bangladesh (BATBC), Square Pharmaceuticals, Robi Axiata, Renata Limited, United Power, BEXIMCO Ltd, Berger Paints, and LafargeHolcim Bangladesh Ltd.

A company’s market capitalisation is calculated by multiplying the total number of outstanding shares with the current market price of its shares.

Almost all remained stuck at the floor price despite lucrative price levels, market insiders said.

In the first six months of this year, only three companies out of 10 were able to give capital gains to their investors; the remaining seven big companies' return was zero per cent in the period. There are top big companies’ touched the floor prices on the Dhaka bourse.

The three companies’ capital gains were 7 per cent of Renata Ltd, 4.1 per cent of Berger Paints, and 7.3 per cent of LafargeHolcim Bangladesh.

On July 28, of last year, 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, 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 on Tuesday said the floor price was introduced to protect the country’s capital market, but they are now mulling to lift 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,” he added.

Small-cap stocks dominated top gainer ranking

All the top 10 gainers at the capital bourse, five were the ‘B’ and ‘Z’ category or low-performing companies in the first half of 2023.

When a company fails to provide at least a 10 per cent dividend to its shareholders, it is downgraded to the ‘B’ category from the A category.

Four of the top 10 gainers in the first half are from the life insurance sector, of which Trust Islami Life Insurance Limited is an initial public offering (IPO) share.

According to the Green Delta Dragon Asset Management Company’s study, Trust Islami Life Insurance, an N-category company, saw the highest return of 667 per cent in the six months at the Dhaka bourse.

This ranking is based on total returns, capital gains, and dividend yield.

Emerald Oil Industries, which traded under the ‘Z’ category, gains a 297 per cent in the period, following National Tea Company by 224 per cent, Rupali Life Insurance Company by 187 per cent, Gemini Sea Food by 125 per cent, Fine Foods by 97 per cent, Legacy Footwear by 89 per cent, City General Insurance by 79 per cent, Khan Brothers PP Woven Bag Industries by 74 per cent and Meghna Life Insurance by 63 per cent.

Commenting on the recent market trend, AB Mirza Azizul Islam, former finance adviser 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 examined.”

He pointed out that the securities regulator should take legal action against price manipulators.

Equity market in H1 2023

The Dhaka Stock Exchange’s key index 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.

Meanwhile, the return on the US key index, USA S&P 500 was 15.90 per cent, followed by 11.40 per cent on Vietnam’s VNI 30, 11.10 per cent on Sri Lanka's CE All-Share index, and 6.40 per cent on India’s BSE Sensex in the first half of this year.

Bangladesh, however, fared better than Pakistan, the UK, and Indonesia in terms of index returns during the period.

The return on Pakistani key index – Karachi100 – was 2.2 per cent, while it was 1.10 per cent on the UK’s FTSE100, and 2.80 per cent negative on the Indonesian IDX Composite index, according to a half-yearly capital market review.

Broad indices of most markets generated comparatively higher returns, driven by the improving situation of macroeconomic indicators, and the reverse trend of the US Fed rate, the review read.

Overall, investors’ participation had been satisfactory during the period, and the DSE’s daily average turnover remained above Tk 600 crore during the period despite the prevailing floor price regime keeping a large number of stocks illiquid.