At a time when the key index of the Dhaka Stock Exchange (DSE) is on the decline and turnover plummeting, the SME index has skyrocketed for an influx of investors lured by “risky” shares on speculations that they would rise further.
The DSE SME index surged around 170 per cent to 1,573 points in the past month, data from the premier bourse of Bangladesh showed on Tuesday.
The DSE-SME, a small-cap board, was rolled out on April 30, 2019, so that small and medium enterprises (SMEs), having a paid-up capital between Tk 5 crore and Tk 30 crore, could avail of financing from the stock market.
Considering the risk of the SME companies, the Bangladesh Securities and Exchange Commission (BSEC) did not allow general investors to trade on the new board without prior permission. The investment requirement was set at Tk 50 crore.
But due to the absence of general investors, the stock prices of the SME companies had remained low, and most of the shares were in the hand of institutional investors.
This prompted the BSEC, in February, to relax the requirement, saying if an investor has an investment of Tk 20 lakh, they will not need to take any permission to trade on the SME board and they will be eligible to buy shares automatically.
This allowed the institutional investors to get the chance to sell the stocks to general investors.
“The SME board may become a cause for concern for the general investors as had small capital-based companies posed in the main market,” said Mohammad Saiduzzaman, an investor who has been in the market since 2009.
As the number of shares of the SME companies is low, investors speculate that the stock price will rise further and so they are buying the shares, he added.
The SME index has started to soar after the BSEC brought the new rule into effect. However, the main index of the DSE remains low.
In the last month, the DSEX, the benchmark index of the Dhaka Stock Exchange, shed 62 points. Turnover dropped to the lowest in the past year to Tk 490 crore on Wednesday.
“Investors’ participation was low in the SME market and the BSEC’s move has changed the situation,” said Md Moniruzzaman, managing director of IDLC Investments.
However, the trading pattern on the SME board looks unusual as a 15 per cent to 20 per cent daily rise of the stocks is not justifiable, he said.
“The regulator should look into it.”
The SME board has nine companies. Prices of most of the stocks more than doubled in the past month.
For instance, stocks of Apex Weaving and Finishing Mills rocketed 319 per cent, Nialco Alloys climbed 290 per cent and Wonderland Toys surged 218 per cent.
“It might throw investors off the scent if they invest into these stocks without conducting any analysis because some of the companies of the SME board came from the over the counter (OTC) market,” Moniruzzaman said.
The companies had been sent to the OTC market for disappointing performance and had remained there for many years.
Moniruzzaman agrees that SME companies have potential but they are yet to be tested.
“So, making investment on the basis of speculations might not be a safe option.”
Sayadur Rahman, president of the Bangladesh Merchant Bankers Association, says the participation of the general investors has increased after the BSEC removed complexities over entry to the market.
As the number of shares of the SME companies is low, the share prices rose fast, he said, urging the investors to be careful about their investment.
“If investors are not careful when buying stocks, it will turn out to be harmful to them as well as for the market.”
The SME companies’ shares were under-priced but now they have reached a standard level, so the stocks may become stable now, said Mohammad Rezaul Karim, spokesperson of the BSEC.
Normally, SMEs and tech-based companies carry more risks, so investors need to be cautious, he said, adding that where the risk is high, the return is high too.
“So, the investment should be research-based.”
Keeping this in mind, the BSEC did not allow all investors here but only those who have a minimum investment of Tk 20 lakh, added Karim, also an executive director of the stock market regulator.
Because of the rapid fluctuation in the prices, the SME stocks were allowed to rise or fall by 20 per cent in a single day. Seeing the continuous rise, the BSEC yesterday decided to bring down the circuit breaker to 10 per cent.
