Dec 18
Stocks Rising, Investors Upbeat PDF Print E-mail

By Ziaur Rahman

Despite multifarious problems, stocks in Dhaka and Chittagong Stock Exchanges are on the rise amid increased market participation by enthusiastic investors. They are expecting better days ahead.

The prime index of the Dhaka Stock Exchange (DSE) reached a new height last week since its inception on January 27, 2013. The core index crossed the 6300 point-mark on November 19.

Brokers said the market rebounded as investors showed their buying appetite on telecommunication, pharmaceuticals and food and allied sectors, anticipating positive momentum.

The stock markets have performed relatively well during the first half of 2017, thanks to revived investors’ confidence during the period. Catalysts such as strong year-end earnings, higher dividends coupled with positive economic outlook have played important roles at making the market more vibrant, said several analysts.

Although the market experienced some minor corrections over the last few months investor are now gradually returning to the market, said stock brokers who themselves are also hopeful about the country’s capital market. Investors were seen injecting fresh funds in the market during the past six months amid low returns from parking money with banks.

Market has been notably vibrant in the first half and there is hardly any reason change in the coming second half, said Ahmed Rashid Lali, president of Dhaka Stock Exchange Brokers Association of Bangladesh, recently while talking to journalists. ‘There will always be ups and downs in the market, but the important factor is to have a vibrant market.’

Furthermore, the market stayed positive over the last few months, which indicates that investors have welcomed the measures the government has undertaken to revive the market, he added.

Even the Finance Minister Abul Maal Abdul Muhith recently said that the capital market is passing through a prosperous time and the trend should be maintained for a viable economy.  The Finance minister made the remark while addressing a seminar on ‘Raising Awareness on Various Aspects of the Capital Market’ at Bangabandhu International Conference Center (BICC) in the city on November 9.

“Once Bangladeshi people who felt shy to introduce themselves in abroad are now proudly presenting themselves before the world because of the economic progress,” said the minister also indicating that the investors once shy have become active anticipating a vibrant market in coming days.

 

Large-cap stocks gain more

According to market insiders, most of the major sectors generated positive returns last year riding on the back of price gains in large cap companies. Telecoms, banks, non-bank financial institutions, food and allied, and pharmaceuticals performed well and achieved a remarkable gain in share prices, especially in case of multinational companies, said securities analysts.

The Dhaka bourse extended its winning streak several times in last month as investors continued their buying binge targeting the large-cap stocks. Insiders said enthusiastic investors focused on shares of June-closing companies as most of the companies disclosed their quarterly earnings and year-end dividend declarations.

The turnover activities also reflected the bullish sentiment as the total turnover reached Tk 10 billion last month with banking sector kept its dominance grabbing about 30 per cent of the total transaction, followed by engineering and pharmaceuticals sectors.

A stockbroker from a renowned securities house said, "The market closed higher last week as the optimistic investors were active on the June-ending stocks after observing the year-end corporate declarations."

After observing the year-end and quarterly earnings of most of the companies, investors started to rebalance their portfolios with stocks from textile, fuel and power, pharmaceuticals and engineering sectors, said an analyst at a brokerage firm.

Among the multinationals listed with the stock market, the Grameen Phone (GP), which has the largest market capitalisation, logged in the highest profit in its 19-year history last year thanks to healthy growth in internet subscription and a reduction in operational expenditure. The country's leading mobile phone operator recorded Tk 2,250 crore in net profit in 2016, up by 14.16 percent from the previous year.

The operator's earnings per share stood at Tk 15.51, up from Tk 13.41 in 2015. The GP also announced a total of 175 percent cash dividends for the year 2016 as against 140 percent in 2015.

Each share of GP crossed Tk 500 at DSE on November 14, the highest price since listing with the bourses in 2009. The price was Tk 285 just a year ago. Being the largest listed company, the GP impacts the index largely.  GP accounted for 16 per cent market cap of the bourse alone.

Square Pharmaceuticals Limited, the flagship company of Square Group, is holding the strong leadership in the pharmaceutical industry of Bangladesh. The company, the second largest stocks by market capitalization, declared 42.5 percent dividend, including 7.5 percent stock, for the year 2016. Prices of the company started rising even after the record date because of investors’ appetite for large-cap issues amid optimism.

British American Tobacco Bangladesh Company Ltd (BATBC), whose share is considered most expensive on the stock market, also made a remarkable gain in last one year. With a Tk 10 face value, the market price of each share of BATBC now stands at Tk 3345 as against 2540 last year.

Meanwhile the NBR’s action to realize the arrear bill from the GP makes investors confused and the price level came down to Tk. 373 on November 21. The National Board of Revenue  (NBR) said that the company ‘owes’ Tk 2,015.27 crore to NBR as SIM replacement tax, VAT on rent for space and establishments, VAT and supplementary duty on SIM cards and unlawfully taken rebate.

Large Taxpayers Unit (value-added tax) of NBR on November 14 made the request to the regulatory commission for the country’s stock market. There are eight disputes involving Tk 2,015.27 crore between GP, the country’s leading mobile operator, and the LTU (VAT). The disputes have remained pending at different courts and in some cases, the verdict from the lower courts came in favour of the tax authority.

Likewise Bangladesh Bank’s interference in fixing the price of Holcim Cement dragged down the prices of Lafarge Surma to Tk 56 per share from Tk 87 just in January this year.

Lafarge Surma Cement, one of the largest multinational company listed with local stock exchanges, wants to remit $117 million (about Tk 950 crore) to the Netherlands to complete the process of buying its shares in Holcim Cement Bangladesh.

In December last year, Lafarge Surma signed a share purchase agreement with Holderfin to buy 88,244 shares at $1,325.88 or Tk 106,000 each. BB okayed the share transfer of Lafarge Holcim for merger but said that the share is overpriced and asked Lafarge Surma to submit documents related to share valuation of Holcim Cement.

Very recently, the Bangladesh Bank approved remittance of Tk 5,047.81 million which, as of September 17, 2017 exchange rate published by Bangladesh Bank, is equivalent to $62.52 million. The valuation of 88,244 shares of Holcim was agreed between the parties as $117 million while the central bank on Sunday gave approval of $62.52 million.

Multinationals asked to offload shares

The government is also trying relentlessly to enlist the multinational companies working in Bangladesh with the country's stock exchanges in an effort to increase the number of quality shares available to local investors.

The Ministry of Industries (MOI) has already asked the multinational companies, including Unilever Bangladesh Ltd, to place proposals to their parent organisations to offload their shares, an inside sources said.

The decision was taken at a meeting with representatives of multinational companies in September last with MOI Senior Secretary, Md Mosharraf Hossain Bhuiyan in the chair. In addition to Unilever Bangladesh, Sanofi Bangladesh Ltd and Novartis Pharma Ltd were also present.

The ministry, according to sources, will inform all the stakeholders and arrange a high-level meeting for offloading the shares, if the Financial Institutions Division takes an initiative regarding the move.

Representative of some multinational companies, however, informed the meeting the ministry’s proposal cannot be fulfilled unless their parent companies allow the proposal.

“The proposal needs to be approved by the parent company’s board,” said a representative from Unilever.. “We will give a written statement to the ministry after our managing director gives his consent.”

The representative said Unilever Bangladesh does not need extra funds from the stock market for its operation in Bangladesh, and that it is also not possible to offload its shares in the stock market because there is a shortage of existing paid-up capital.

The Novartis Pharma Limited representative expressed his company’s interest in offloading their shares but also said they do not have enough paid-up capital. After issuing two right shares, Novartis’ paid-up capital stands at Tk11.75 crore.

“However, Novartis will place the proposal to offload shares as per the ministry instructions,” the representative said. The representative from the Bangladesh arm of Sanofi, a French multinational pharmaceutical company, said the Bangladesh government holds a total of 45% of their shares.

“We have no choice. We have to place the proposal in our next board meeting with the parent office,” he said. No representative from Karnaphuli Fertiliser Limited, a company owned by a Japanese firm, attended the meeting so its decision was not discussed.

Earlier, Finance Minister AMA Muhith said at a meeting that the government was considering the possibility of offloading 10 percent of its shares in Unilever Bangladesh Limited. “The government owns a 39.25 percent share of Unilever, but Unilever is not interested in offloading it in the local stock market,” he said.

“Multinational companies, like Unilever, are also not interested to increase their share in the market, although they are making huge profits here.”

According to the banking division, the government currently also holds 45.32 percent of Sanofi Bangladesh Limited, 12.92 percent of Novartis Pharma Limited, 51percent of Fisons (Bangladesh) Ltd, 12.92 percent of Organon Bangladesh Ltd, 0.64 percent of British American Tobacco, and 43.88 percent of Karnaphuli Fertiliser Limited.

It also has 48 percent stake in Hoechst Bangladesh Ltd, 21.88 percent in Industrial Promotion Development Corporation (IPDC) Finance Ltd, 20 percent in Mirpur Ceramics Works Ltd, and 3.79 percent in Reckitt Benckiser Bangladesh Ltd