Capital Market on the Perspective of Dhaka Stock Exchange
Subject: Finance | Topics:

Main principle of this report is to analysis Development and contribution to economy of Bangladesh capital market on the perspective of Dhaka Stock Exchange. Other objectives are make an overview of Dhaka Stock Exchange and investigate the functions, activities and developments of DSE. Finally draw SWOT analysis and suggest recommendation based on capital market.

Introduction

The capital market is the market of securities, where companies and the government can raise long-term funds. The capital market includes the stock and the bond market. The SEC is the capital market watch dog which regulates the capital market operation to ensure is protected against fraudulent activities.

The capital market plays vital role in the industrialization of the required to create employment opportunities for the unemployed people and a strong capital base for the economic modernization to alleviate poverty.

The growth of capital market largely depends on the policy decision of the Government. Capital market is the mechanism to mobilize excess liquidity of the market to form a strong capital base required for rapid industrialization. A vibrant capital market in one of the key players to strengthen the pace and process of industrialization in a developing country like Bangladesh.

Objective of the study :

  • To make an overview of Dhaka Stock Exchange.
  • To investigate the functions, activities & developments of DSE.

Methodology of the study :

  1. In preparing the report published materials, papers and documents of DSE are used. Also consultation in made with personnel belonging to Anwar Securities Ltd. , Dhaka Stock Exchange Library. , Security Exchange commission (SEC). ,Central Depository Bangladesh Limited. Also materials are obtained from websites
  2. Data finding, analysis and interpretation.

 

Definition of Capital Market :

It is a Platform/Board/Forum, usually recognized by the concerned Regulatory Authority – Security Exchange Commission (SEC) in Bangladesh, Where shares or securities listed with the Stock Exchanges are traded by the general Public through Stock Brokers.

However, where the debentures, debts, bonds, etc are traded that is usually called Bond market. Also, where the business/ventures futures are traded that is classified as Future market.

Identically, where commodities are traded that is called commodities/commodity-wise (named) Market like the Metal market-London, Oil market-Singapore, Gold market-South Africa and Commodities market-Canada.

Unfortunately, no such formal Market like Bond, Future and Commodities has/have yet been introduced/ established in Bangladesh.

 

Structure of Capital market :

Financial Markets can be categorized as those dealing with newly issued financial claims into Primary market and Secondary Market.

Primary market: The first portion is primary market where securities issues for raise equity for respective company/organization.

Secondary market : The market for exchange financial claims those previously issued in market and a secondary market is that in the secondary market the issuer of the asset does not receive funds from the buyers Rather the existing issue changes hands in the secondary market and the fund flow from the buyer of the asset to the seller.

Third Market : It is one kind of OTC market where trading of share of listed on an exchange.

Fourth Market : It is a financial market where trading occurs between two parties directly with out help of intermediary.

 

Capital market Instruments :

Bond

Bond by Coupon –

  • Fixed rate bond.
  • Floating rate bond.
  • Zero coupon bond.
  • Inflation indexed bond.

Bond by issuer –

  • Corporate bond.
  • Government bond.
  • Municipal bond.
  • Sovereign bond.

Equities (Stocks)

  1. Stock
  2. Share
  3. IPO
  4. Short Selling.

Investment fund.

  1. Mutual Fund.
  2. Exchange traded fund (ETF).
  3. Close-end fund.
  4. Segregated fund.

Derivatives

  1. Credit derivatives.
  2. Hybrid securities.

Structured finance.

  1. Asset backed security.
  2. Collateralized debt obligation.
  3. Collateralized mortgage obligation.
  4. Credit linked note.
  5. Unsecured bond.
  6. Agency securities.

 

Market participant in the stock market :

Sl.     Name of the participant                            Status

01      Members (Broker/Dealer)                           Market intermediary

02      Securities and Exchange commission         Regulator

03      Clearing House                                 Operator & Settlement

04      Depositor & depository participant Operator

05      Custodian                                         Operator

06      Sub broker                                        Agent

07      Credit rating agency                                   Analyst

08      Financial Institution                                   Intermediary

09      Foreign institutional investor            Intermediary

10      Issuers/Register and transfer agent   Intermediary

11      Exchange Authority                                   Management Body

12      Investor (Public/Institutional)           Market maker.

13      Market Analyst (fundamental/technical)     Analyst.

 

History of Dhaka Stock Exchange :

The DSE was first incorporated as East Pakistan Stock Exchange Association Limited on April 28, 1954. However formal trading began in 1956 with 196 securities listed on the DSE with a total paid up capital of about Tk. 4 billion. On June 23, 1962 it was renamed as East Pakistan Stock Exchange Limited. After 1971, the trading activities of the stock Exchange remained suppressed until 1976 due to the liberation was and the economic policy pursued by the government. The trading activities resumed in 1976 with only 9 companies listed having a paid up capital of Tk. 137.52 Million on the stock exchange. In May 13, 1964 it was rename as Dacca Stock Exchange and in 1986 was renamed as Dhaka Stock Exchange Limited.

 

Support organization: Securities & Exchange Commission

About SEC:

The Securities and Exchange Commission (SEC) was established on 8th June, 1993 under the Securities and Exchange Commission Act, 1993. The Chairman and Members of the Commission are appointed by the government and have overall responsibility to administer securities legislation. The Commission, at present has three full time members, excluding the Chairman. The Commission is a statutory body and attached to the Ministry of Finance.

Missions of SEC :

  1. Protect the interests of securities investors.
  2. Develop and maintain fair, transparent and efficient securities markets.
  3. Ensure proper issuance of securities and compliance with securities laws.

Functions of SEC :

  1. Regulating the business of the Stock Exchanges or any other securities market.
  2. Registering and regulating the business of stock-brokers, sub-brokers, share transfer agents, merchant bankers and managers of issues, trustee of trust deeds, registrar of an issue, underwriters, portfolio managers, investment advisers and other intermediaries in the securities market.
  3. Registering, monitoring and regulating of collective investment scheme including all forms of mutual funds.
  4. Monitoring and regulating all authorized self regulatory organizations in the securities market.
  5. Prohibiting fraudulent and unfair trade practices relating to securities trading in any securities market.
  6. Promoting investors’ education and providing training for intermediaries of the securities market.
  7. Prohibiting insider trading in securities.
  8. Regulating the substantial acquisition of shares and take-over of companies.
  9. Undertaking investigation and inspection, inquiries and audit of any issuer or dealer of securities, the Stock Exchanges and intermediaries and any self regulatory organization in the securities market
  10. Conducting research and publishing information.

 

Support Organization : Central Depository Bangladesh Limited

About CDBL :

Central Depositor Bangladesh Limited (CDBL) was incorporated as a public limited company on 20th August 2000 to operate and maintain the Central Depository System (CDS) of Electronic Book Entry, recording and maintaining securities accounts and registering transfer of securities; changing the ownership without an physical movement or endorsement of certificates and execution of transfer instruments, as well as various other investor services including facilitation of the secondary market trading of Treasury Bills and Government Bonds issued by the Bangladesh Bank.

Central Depository Bangladesh Limited (CDBL), a joint venture company setup by banks, stock exchange, Asian Development Bank and other institutions operates the Central Depository System (CDS) in Bangladesh.

CDBL, by converting physical certificates into electronic form, will eliminate the risks of damaged, lost, forged and duplicate share certificates. The instantaneous delivery through electronic book entry will result in immediate transfer of ownership, which presently can take over a month. CDBL, in the long term, will also reduce the costs of the investing public.

Participants of CDBL :

  • Stock brokers/dealers (members of the Dhaka and Chittagong Stock Exchanges);
  • Financial institutions;
  • Insurance companies;
  • A statutory organization;
  • Merchant bankers;
  • Asset managers;
  • Custodians; and
  • Other capital market intermediaries registered with the SEC.

Category of CDBL Participants:

  1. Trading Participant : May only settle stock exchange trades and cannot maintain accounts on behalf of customers;
  2. Full Service Participant : This is a stock exchange member who may hold shares and operate accounts on behalf of  customers.
  3. Custody Participant : May hold shares and operate accounts on behalf of customers but is not a stock exchange member;
  4. Settlement Agent Participant : May settle stock exchange trades on behalf of stock exchange members.

Method of Operation of CDBL :

  • The investor opens an account with a participant or CDBL
  • Certificates are ‘ dematerialized’ by lodging them at the issuer.
  • The issuer updates the register and moves the holding to the depository portion of the register.
  • The investor sells on a stock exchange through a stockbroker and another investor buys.
  • The stock exchange advises CDBL to update its records.
  • CDBL debits the sellers account.
  • CDBL credits the buyers account.
  • Investors may dematerialize if they wish.

Functions & Activities of Dhaka Stock Exchange :

Functions of Dhaka Stock Exchange :

  • Listing of Companies. (As per Listing Regulations).
  • Providing the screen based automated trading of listed Securities.
  • Settlement of trading. (As per Settlement of Transaction Regulations)
  • Gifting of share / granting approval to the transaction/transfer of share outside the trading system of the exchange (As per Listing Regulations 42)
  • Market Administration & Control.
  • Market Surveillance.
  • Publication of Monthly Review.
  • Monitoring the activities of listed companies. (As per Listing Regulations).
  • Investor’s grievance Cell (Disposal of complaint bye laws 1997).
  • Investors Protection Fund (As per investor protection fund Regulations 1999)
  • Announcement of Price sensitive or other information about listed companies through online.

Activities of Dhaka Stock Exchange.

Clearing and Settlement :

The Clearing and Settlement module provides the management of trade from the point of entry into the Settlement Pool trade database until it has been delivered and settled and removed from the Settlement Pool. It consists of three major business processes.

Clearing: Participant trade reporting and affirmation, billing, assigning settlement instructions.

Settlement: the process of overseeing that delivery of all instruments to the buyer and payment of all moneys to the seller has occurred before removing the trade from the settlement pool.

Regulation 4 of the Settlement of Stock Exchange Transactions Regulation 1998 has been given effect time to time. A new directive was made by SEC dated on 18th March 2003 “Adjusted due position mechanism for settlement of scrip only as provided by regulation 4(1) of settlement of Stock Exchange Transaction Regulations, 1998 shall remain suspended from 19th March 2003 until further order”.

As per Commission (SEC) decision, dated 5th December 2006, new netting settlement system has been implemented from 10th December 2006. Some of the listed instruments had been placed in non-netting group and others were in netting group. The “day netting” system was continuing for the netting instruments. Non- netting group, which is in compulsory spot market, the transactions are not netted. The transactions are settled by depositing all the shares sold and paying full amount for the shares purchased.

Here is a complete picture of the settlement system for all of our 310 Instruments in Five (5) groups in the four (4) markets.

A Group: Number of Instruments are 145 (123 + 8D + 14M), Here D for Debentures, M for Mutual funds & TB for Treasury Bonds (Trading in Public, Block & Odd-lot Market with trade for trade settlement facility for scrip only through DSE Clearing House on T+1, T+3 basis). “A” and “DA” is marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading Software.

B Group: Number of Instruments are 33 (Trading in Public, Block & Odd-lot Market with trade for trade settlement facility through DSE Clearing House on T+1, T+3 basis). “B” and “DB” is marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software.

G Group: Number of Instrument is 1 (Trading in Public, Block & Odd-lot Market with trade for trade settlement facility through DSE Clearing House on T+1, T+3 basis). “G” and “DG” is marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software.

N Group: Number of Instrument is 4 (Trading in Public, Block & Odd-lot Market with trade for trade settlement facility through DSE Clearing House on T+1, T+3 basis). “N” and “DN” is marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software.

Z Group: Number of Instruments are 93 (Trading in Public, Block & Odd-lot Market with trade for trade settlement facility through DSE Clearing House on T+3, T+7 basis). “Z” and “DZ” is marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software.

 

SETTLEMENT FOR DIFFERENT CATEGORIES INSTRUMENTS

01) For A group Instruments :

Market nameTrade for Trade SystemSettlement & Settlement Period
PublicTrade for Trade*T+1 & T+3
SpotTrade for TradeT+0 & T+1
Odd + BlockTrade for TradeT+1 & T+3

02) For B group Instruments:

Market nameTrade for Trade SystemSettlement & Settlement Period
PublicTrade for Trade*T+1 & T+3
Odd + BlockTrade for TradeT+1 & T+3
Spot (Before Book closer)Trade for TradeT+0 & T+1

03) For G group Instruments:

Market nameTrade for Trade SystemSettlement & Settlement Period
PublicTrade for Trade*T+1 & T+3
Odd + BlockTrade for TradeT+1 & T+3
Spot (Before Book closer)Trade for TradeT+0 & T+1

04) For N group Instruments:

Market nameTrade for Trade SystemSettlement & Settlement Period
PublicTrade for Trade*T+1 & T+3
Odd + BlockTrade for TradeT+1 & T+3
Spot (Before Book closer)Trade for TradeT+0 & T+1

* As netting system for shares has withdrawn, for A, B, G & N group instrument, member will have to deposit the full shares at the DSE on T+1 after selling the shares, In case of purchasing such shares, the buyer will have to deposit the Balanced (Netted) money traded in Public, Block & Odd-lot market at the DSE on T+1.

05) For Z group Instruments

Market nameTrade for Trade SystemSettlement & Settlement Period
PublicTrade for Trade*T+4 & T+7
Odd + BlockTrade for TradeT+4 & T+7
Spot (Before Book closer)Trade for TradeT+1

** Under the Trade for trade settlement system, member will have to deposit the full money at the DSE on T+3 after purchasing the shares, In case of selling such shares, the seller will have to deposit the full shares at the DSE on T+3.

 

Surveillance at DSE :

The main objective of the Surveillance function of the Exchange is to promote market integrity in two ways–

  • By monitoring price and volume movements (volatility) as well as by detecting potential market abuses at a nascent stage, with a view to minimizing the ability of the market participants to influence the price of the scrip in the absence of any meaningful information.
  • By managing default risk by taking necessary actions timely.

Market Abuse is a broad term which includes abnormal price/volume movement, artificial transactions, false or misleading impressions, insider trading, etc. In order to detect aberrant behavior/ movement, it is necessary to know the normal market behavior–

The department carries out investigation, if necessary, based on the preliminary examination/analysis and suitable actions are taken against members involved based on the investigation.

All the instruments traded in the market come under the Surveillance umbrella of DSE.
Surveillance activities at the Exchange are divided broadly into two major segments:

  • Price Monitoring : Price monitoring is manly related to the price movement/ abnormal fluctuation in prices or volumes etc.
  • Position Monitoring : The position monitoring relates mainly to abnormal positions of members, etc. in order to manage default risk.

 

Price Monitoring

The functioning of the Price Monitoring is broadly divided into following activities–

  1. On line Surveillance :

One of the most important tools of the Surveillance is the On-line Real Time Surveillance system with main objectives of detecting potential market abuses at a nascent stage to reduce the ability of the market participants to unduly influence the price and volumes of the scrips traded at the Exchange, improve the risk management system and strengthen the self regulatory mechanism at the Exchange. The system provides facility to access trades and orders of members.

  1. Off-Line Surveillance :

The Off-Line Surveillance system comprises of the various reports based on different parameters and scrutiny thereof–

  • High/ Low Difference in prices
  • % change in prices over a week/ fortnight/ month
  • Top N scrips by Turnover over a week/ fortnight/ month
  • Top N scrips by Volume over a week/ fortnight/ month
  • Trading in infrequently traded scrips
  • Scrips hitting New High / Low etc.

The Surveillance actions or investigations are initiated in the scrips identified from the above-stated reports.

  1. Investigations :

Conducting in-depth investigations based on preliminary enquiries/analysis made into trading of the scrip. In case of irregularities observed , necessary actions are initiated or investigation case forwarded to SEC, if necessary through the CEO.

Surveillance Actions :

  1. Warning to Members : The department may issue verbal/ written warning to member/s when market irregularities in the scrip is suspected.
  2. Imposition of penalty/ suspension : The department, through the CEO, imposes penalty or suspend the member/s who are involved in market irregularities, based on the input/ evidence available from investigation report.

Rumor verification :

  • Liaising with Compliance Officers of companies to obtain comments of the company on various price sensitive corporate news items appearing in selected News Papers.
  • Comments received from the companies are disseminated to the market by way of online news bulletin.
  • Investigations based on rumor verifications are carried out, if required, to detect cases of suspected insider trading.

 

Position Monitoring

The Surveillance Department closely monitors outstanding exposure of members on a daily basis. For this purpose, it observes various off-line and on-line market monitoring reports. The reports are scrutinized to ascertain whether there is excessive purchase or sale position build up compared to the normal business of the member, whether there are concentrated purchases or sales, whether the purchases have been made by inactive or financially weak members and even the quality of scrips is considered to assess the quality of exposure.

The following key areas are examined to assess the market risk involved –

  1. Online monitoring of Brokers Position : surveillance closely monitors brokers gross turnover exposure for ensuring margin calls in time.
  2. B/S Statement of Trading Members : Scrutinizing the statement on daily basis. It is for keeping a watch on the exposure of the members & ascertain the quality of exposures.

A detailed report on the net outstanding positions of top purchasers and top sellers in individual scrips, is prepared, if considered necessary.

  1. Concentrated B/S : It is considered a risky issue. In case, such a situation is noticed, fundamentals of the scrips, their daily turnover, their nature of transactions are ascertained. Thereafter, based on the market risk perception appropriate surveillance actions are taken.
  2. B/S of scrips having thin trading : It is closely scrutinized as comparatively high market risk is involved in trading in such scrips. Details of trades in such scrips, if necessary, are called from members to assess the market risk involved & decide on the appropriate surveillance action.
  3. Verification of Institutional Trade : The institutional trades executed by the trading members are verified to ascertain the genuineness of trades.
  4. Verification of Foreign Trade : The foreign trades executed by the trading members are verified to ascertain the genuineness of trades.
  5. Verification of Cross Reporting Trade : The report crossing trades executed by the trading members are verified to ascertain the genuineness of trades.
  6. Verification of Dealers own trades : Trades executed by the trading members (Dealers) are verified to ascertain the genuineness of trades.
  7. Verification of Sponsor’s Trade : The Sponsors trades executed by the trading members are verified to ascertain the genuineness of trades.
  8. Snap Investigation : To carry out, wherever considered necessary, preliminary investigation of certain dealings to verify irregularities. Further actions, viz., referring the case for detailed investigation, referring the case to the Sec, depending on the findings of preliminary investigation.
  1. Market Intelligence : The rumors floating in the market are verified with the data available with DSE, Newspapers, Television news channels & Reuters to ascertain the national & global factors affecting the market sentiments. This enables the Exchange to avert market problems before it causes a serious damage.

Review Block Trades : To determine —

  • whether the block was executed at a price, even if at a discount or premium which was in line with other trading of the stock.
  • whether there was any news on the company which caused the price increase or decrease subsequent to the block transaction.

Review List of Settlement Failures : To identify —

  • broker/s with frequent failures
  • a particular stock with a pattern.

Verify Company Accounts : To scrutinize company announcements, company reports, auditors qualifications & other notes of special interests in the published accounts of such company

Review Media Information : To scrutinize press articles or other media on the daily basis, the news relevant to the share prices of companies.

Monitoring on Newly Listed Stock : To review all activities of a newly listed stock for the first 1 / 2 weeks to identify any abnormal deal.

Develop Good Liaison : To develop & maintain good liaison with staff members of SEC & listed companies & member firms as well.

Develop market contacts & to pick up Intelligence.

 

Trade segment of markets :

  1. Public market : For general trading of securities.
  2. Spot Market : For pre-book closer trading.
  3. Odd Lot market : Any transaction for odd lot.
  4. Block Market : Block market trannsaction involved trading of Tk. 0.5 milion or above

 

Trading sessions :

Trading at DSE is performed through a Non-stop platform in following sessions :

Continuous Trading Hours     :     10.00 an to 2.00 pm.

Trading day                                 :     Sunday to Thursday.

 

Criteria of Share category.

“A” Category Companies : Companies which are regular in holding the Annual general meeting and have declared dividend at the rate of 10 percent or more in a calendar year.

“B” Category Companies : Companies which are regular in holding the Annual general meeting but have failed to declare dividend at least  at the rate of 10 percent in a calendar year.

“Z” category Companies : Companies which have failed to hold the annual general meeting or failed to declare any dividend or which are not in continuously for more than six months or whose accumulated loss after adjustment of revenue reserve, if any, is negative and exceed its paid up capital.

”G” Category Companies : Green field Companies.

“N” Category companies : All newly listed companies expect Greenfield companies will be placed in this category and their settlement system would be like B-category companies.

 

Types of Securities listed in market :

Types of securitiesListed
Shares266
Debenture8
Corporate Bond1
Mutual Fund14
Govt. T-bill61

 

Contribution of DSE and opportunity for NRB investments to DSE

Market Capitalization to GDP.

Market capitalization to GDP Ratio
Financial Year2003-042004-052005-062006-072007-08 (E)
GDP (in percent)6.275.966.636.516.5
Market capitalization to GDP ratio4.15.995.1810.1815.88

 

Portfolio Investments vs Foreign Direct investment.

Portfolio investment Vs. Foreign Direct Investment

Portfolio/FDI2003-042004-052005-062006-072007-08 (oct)
Portfolio (US$ mn)603210648
FDI (US$ mn)385776743760263

 

Opportunity for NRB investments to DSE:

The authority has already offered a wide range of facilities and incentives for attracting investment from both foreigners and Non resident of Bangladeshi’s.

Opportunities for foreign investors: Bangladesh has adopted a very liberal industrial policy to attract foreign investment.

  • No limitations pertaining to equity participation. i.e. up to 100 percent foreign private investment allowed.
  • Greater facility for establishing industry in EPZ.
  • Except five reserve sectors, all in industries are open for private investment.

Non-Resident Bangladeshi’s can enjoy the existing facilities : Non-Resident Bangladeshi’s enjoy facilities similar to foreign investors.

  • Allowed to buy newly issued shares/debentures of Bangladeshi companies.
  • 10 percent reserved quota for NRB in primary shares.
  • FC deposits in the NFCD account.

Investment guarantee:

  • Foreign private investment (promotion & protection) act 1980 ensures legal protection to foreign investment in Bangladesh against nationalization and expropriation.
  • It also guarantees repatriation of capital and dividend and equitable treatment with local investors.
  • Adequate protection is available for intellectual property rights such as patents, designs & trademarks and copyrights.

Other facilities and incentives :

  • Tax holiday 5-10 years depending on location of industries.
  • 15 years tax holiday for private power generation companies.
  • Facilities for repatriation of invested capital, profit & dividend.
  • Exemption of tax on interest on foreign loan.
  • Tax exemption on royalties, technical know-how & technical assistance fees.
  • Avoidance of double taxation on the basis of bilateral agreements.

 

Market analysis from several aspects

Demand and supply of securities.

Securities Demand of the perspective of IPO
Sl.Name of the CompanyG. Pub share
(Tk. Core)
Sub. (Tk. Core)Low <1 &
High >1
1Khaza Mosaic Tiles and St. Indus. Ltd1.000.420.42times
2Keya Detergent Limited3.607.362.04
3Mutual Trust Bank Limited12.50107.728.62
4Jago Corporation Limited2.002.041.02
5Agni Systems Limited2.0015.157.58
6First Lease International Limited2.0054.7727.39
7Standard Bank Limited11.00155.5614.14
8Daffodils Computers Ltd.4.503.120.69
9JMI-Bangladesh Ltd.3.005.971.99
10Lafarz Surma Cement Ltd.15.0038.872.59
11Export-Import (EXIM) Bank Limited40.80501.1212.28
12Mercantile Insurance Limited9.0065.617.29
13Pragati Life Insurance Limited4.50173.4938.55
14Berger Paints Bangladesh Limited1.16122.79105.94
15Progressive Life Insurance Company Limited4.50164.3636.52
16Islamic Finance And Investment Limited10.00170.8017.08
17Sonar Bangla Insurance Limited9.0036.064.01
18Summit Power Limited20.00239.0411.95
19Asia Pacific General Insurance10.5013.761.31
20Premier Leasing International Limited10.05120.8112.02
21Prime Finance & Investment5.00115.4423.09
22Nitol Insurance Company Limited9.0024.722.75
23Meghna Life Insurance Company Limited4.5070.0515.57
24Popular Life Insurance4.5054.5912.13
25Fareast Islami Life Insurance4.5090.1020.02
26Peoples Leasing and Financial Services Ltd.6.3638.266.02
27Global Insurance Company Limited9.0070.427.82
28Agrani Insurance Company Limited9.0065.277.25
29Prime Islami Life Insurance Ltd4.50141.7031.49
30BRAC BANK Limited85.00417.704.91
31Industrial Promotion and Development Company of Bangladesh Ltd.13.90226.1916.27
32BD Industrial Finance Company Ltd.:11.10159.6714.39
33Lanka Bangla Finance Limited9.00148.3216.48
34Alam Cold Rolled Steels Limited10.8044.214.09
35Jamuna Bank Limited38.61389.6510.09
36Continental Insurance9.00111.3612.37
37Fidelity Assets & Securities Company Limited14.06274.2919.50
38Mudaraba Perpetual Bond (MPB) of Islami Bank Bangladesh Limited.150.00324.092.16
39City General Insurance Company Limited9.0019.322.15
40Paramount Insurance Company Limited9.0029.893.32
41Trust Bank Limited70.00799.4211.42
42Phoenix Finance & Investments Limited12.50277.8322.23
43Bangladesh Finance & Invest. Co. Ltd.7.00217.6131.09
44International Leasing and Financial Services Ltd.11.25343.2330.51
45Union Capital Limited7.50298.6039.81
46The Premier Bank Limited84.50537.066.36
47Golden Son Ltd.6.0063.9910.66
48Shahjalal Islami Bank Limited93.58402.574.30
49ICB AMCL 1st NRB10.0094.469.45

Interpretation: Given data table shows company offer IPO to offload shares to public and found feedback as subscription amount high 105 times and average 15 times for every security. And that implies public demanding for quality securities.

 

P/E ratio by sector.

Sector wise Price Earning Ratio (Weighted Avg.)
Sl.Industry name 20032004200520062007
1Bank8.7221.7417.9015.4924.97
2Insurance12.3626.9220.8710.2415.59
3Investment8.848.276.556.1320.29
4Food & Allied10.2210.119.1318.6923.28
5Pharmaceuticals & Chemicals10.7618.1910.8411.7621.05
6Textile13.6515.3019.1512.0112.14
7Engineering15.2218.6214.1417.3428.57
8Ceramic17.3725.7417.0614.8829.85
9Tannery Industries9.4710.5110.288.0015.38
10Paper & printing9.281.824.696.626.23
11Jute12.8119.5612.556.747.98
12Cement31.5425.2316.1318.5312.61
13Fuel & Power15.4814.7933.5218.8735.95
14Services & real Estate34.239.618.1612.628.82
15IT10.7125.1110.4611.1215.25
16Miscellaneous10.0513.217.8311.0514.43

 

Dividend payment performance by industry.

Dividend Performance (Simple Average)
Sl.Industry name 20032004200520062007
1Bank3.6918.8434.9835.0525.82
2Insurance18.1613.6019.2818.3315.42
3Investment10.2613.5650.3940.2441.47
4Food & Allied24.2122.2420.8112.445.42
5Pharmaceuticals & Chemicals18.5821.1222.6225.4930.64
6Textile5.085.354.766.387.37
7Engineering19.3818.2525.3120.3120.35
8Ceramic7.948.228.228.438.33
9Tannery Industries16.6620.1023.657.5439.57
10Paper & printing0.31 7.509.002.57
11Jute2.612.177.502.896.67
12Cement1.211.015.996.567.63
13Fuel & Power54.44105.1532.7127.9228.57
14Services & real Estate1.971.9710.7912.1915.00
15IT8.9210.6322.579.3313.71
16Miscellaneous8.577.0718.9623.4931.20

Investor Projection By year.

Category20032004200520062007Total
Public 1286355208542283737126371590499
Institute24856108985714394241
NRB 5235293104062043536657

 

Total Issued capital Vs Total Market cap. By securities.

Types of securityTotal Issued cap. (US$)Total Market cap.Market increase
All listed sec$ 3154 mn$ 10994 mn3.49 times
All company shares$ 1284 mn$ 9064 mn7.01 “
All mutual fund$ 13 mn$ 76 mn5.85 “
Debenture$ 2 mn$ 8 mn4 “
Gov. T bond$ 1785 mn$ 1785 mn0 “
Corporate bond$ 44 mn$ 61 mn1.38 “
Total$ 6282 mn$ 21988 mn3.5 times

Growth pattern of market by listed Securities.

Growth name20032004200520062007
Listed issues2.69-4.1211.728.3912.9
Issued capital & debenture30.837.5541.9568.4481.09
Market capitalization36.94130.833.6231.94135.28
Turnover-45.25177.6821.910.38396.11
Daily average transaction-48.89196.3326.6413.58377.28
IPO582.41-64.93197.0913.29223.45
Public Subscription203.89-76.3153.4-3.5148.9

Comparative position DSE with Asia pacific Domestic equity market capitalization. (end of Nov’07 in US$ mn)

Asia pacific domestic equity market capitalization
  
ExchangeUSD Nov’07
Colombo SE7470.6
Tokyo SE4523507.9
Bursa Malaysia307967.2
DSE1072991.32
Thailand SE193381.5
Taiwan SE corp.747795.2
Sing. Exchange568685
H.K. Exchange2723633.2
Philippine SE96375.1
Jakarta SE204184.1
BSE (India)1611476.4

Comparative Index of DSE with international market.

CountryIndex nameindex
Bangladesh(DGEN)3017.21
India(BSE 30)19079.60
Pakistan(Karachi 100)14508.30
Japan(Nikkei 225)15207.90
Singapore(straits times)3369.30
Indonesia(Jakarta comp)2646.20
Malaysia (KLSE Composite)1385.50
Thailand(SET)813.90
Taiwan(Taiwan Weighted)7807.40
Hong Kong(Hang Seng)26732.90
Germany(DAX)7850.70
UK(FTSE 100)6279.30
USA(NASDAQ Composite)2569.00

 

Comparison of Market cap. to GDP ratio with international SE.

ExchangeMarket cap. To GDP
Colombo SE25.07
Tokyo SE105.15
Bursa Malaysia191.81
DSE15.74
Thailand SE88.13
Taiwan SE corp.204.7
Sing. Exchange389.27
H.K. Exchange1349.73
Philippine SE72.29
Jakarta SE50.1
BSE (India)163.73

 

SWOT Analysis of DSE :

Strength :

  • Tremendous growth of new investor.
  • Over 137% growth of market capitalization.
  • Financial sector performance growing upward trend.
  • New introduction of Govt. Bond & corporate bond market.
  • Established Central Depository Bangladesh Limited.
  • Strong monitoring & controlling of SEC over DSE.

Weakness :

  • Lack of market skillfulness.
  • Share price rise inconsistently.
  • Unavailability of investment consultant.
  • Complexity of tax structure.
  • Information was not sufficiently transparent and efficient.
  • Don’t establish any capital market institute.
  • The unwillingness for providing the flow of information by the DSE.
  • Scarcity of foreign investment.
  • The lack of Varity of the securities.
  • Lack of operation monitoring of listed company.
  • The lack of quality securities.

Opportunity :

  • Growth of new investor demanding for more security.
  • Perfect opportunity for privatization of Govt. weak company.
  • To create more participation to General public.
  • To give alternative source of investing from capital market to public.
  • Alternative financing source to Government to infrastructure or development finance.

Threat :

  • Supply more liquid money to invest on limited security by merchant bank or participant.
  • Lack of confidence of the new investor.
  • Public always looking for capital gain with in short time for that market fluctuation is very high.
  • Lack of public awareness.
  • Code of ethics not being followed and dubious role-played by professionals Chartered Accountant in certifying financial statements along with the valuation of assets properties.
  • Influx of new and unsophisticated investor and speculators.
  • Insider trading and off-loading of shares by the directors of the company.
  • Political situation of the country.

 

Finding of the study

  • The general characteristics of the skill market do not exist here.
  • The devastating fall down of share in 1996 has shattered the confidence of the new investors. Thus the challenges ahead for Bangladesh stock market are to revamp the share market by restoring confidence among investor.
  • The stock market bubbles up but rises in the share price are not consistent with the share market fundamentals.
  • The tax structure of our country is complex. Some times companies hide their real income because of sickness of industrial sector. As a result the potential investors can’t take appropriate investment decision because of hidden income.
  • In our country the industrialist suffer a lot of problems. They lost their eagerness for the unequal market positions. As a result the rolling of capital decreases.
  • The flow of foreign investment in our country is not satisfactory but foreign investment is essential for development of the stock market.
  • For active stock market high quality of stock is essential but most of the listed companies are in bad position.
  • Varity of securities are limited in market.
  • Poor opportunity to portfolio investment.
  • Don’t command to industrialization by DSE.

 

Recommendations

The following guidelines may be helpful to boost up the stock market in Bangladesh.

  • Set up a training center for newly investors in the share market to reduce risk of the capital market.
  • Capital Market Institute has to be setup.
  • To setup financial consultation by more financial experts.
  • To make the rule easy for paying the income tax.
  • Influence the foreign investors by providing extra facility.
  • To make the market easy for product marketing.
  • To make the market active by making the industry strong.
  • Strengthening the Securities and Exchange Commission.
  • To make easy rule for the establishment of the industry to increase the rolling of capital market.
  • To make rule so that high quality securities are bound to come to stock market.
  • To provide tax benefit of the listed companies in order to encourage none listed companies to be listed with the stock exchange.
  • Bringing all securities under Central Depository System (CDS) with one year.
  • Enhancing Bond market through bringing in government and bonds beside the corporate bond.
  • Internet based trading creating provisions for investment form any where in the world.
  • Ensuring grater degree of transparency in financial discloser for better corporate governance.
  • Initiating the process of creating derivative and future market.
  • Create more mutual funds through capital market to proper support to wear industry.
  • Government can use capital market for infrastructure and development finance source as alternative of foreign loan from World Bank, International Monetary Fund.
  • Making the market competitive from regional securities market perspective through ensuring market friendly rules and regulatory framework.
  • Ensure proper audit of the financial statements of the companies by the qualified Chartered Accountants.
  • Ensure full discloser of the financial information of the listed companies within frequent interval.
  • Make financial transaction smooth, efficient and prompt by computerization.
  • Make suitable arrangements for providing custodial service by the financial institutions.
  • Any sort of securities clearing and settlement time should be conduct within 2 days.
  • To give the opportunity and investment facility to district people by give more membership of Stock Exchange.
  • Regional Stock Exchange can be setup for efficient operation.
  • Create more awareness to entrepreneur for understanding the greater benefit of capital market.
  • All Multinational Companies has to be introduced their shares in capital market.
  • Government have to offload shares of govt. own company.

 

Conclusion

The role of Dhaka Stock Exchange has been remarkable in recent years. It has gained the confidence of public and is able to attract more and more funds.

The DSE has been able to attract a sufficient volume of public, institute, NRB and foreign investors is growing day by day and market performance of DSE as Market capitalization, market turnover increasing remarkable. If this trend continues DSE market will be efficient one in the near future. At the end of the year 2010 DSE is expected to become one of the major stock market in this region.;

So far we have observed that DSE has suffered from ups and downs and it can be attributed to the efficiently of the members and some of the consistent policies of the Government with more experience. In the coming year in dealing with such busy capital market both the DSE members and government policy makers are expected to be more consistent in their practices and policies. Their product role in the future will certainly be a major factor in the performance of Dhaka Stock Exchange market.

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