The shares of many low-performing companies might have risen to surprising levels at the Dhaka Stock Exchange in the last one year, but it is the firms with strong earnings and dividend records that contributed most to the premier bourse.
The DSEX, the benchmark index, surged more than 60 per cent in the last year, adding 2,425 points.
Twenty-five “A” category companies, which usually provide the highest amount of dividend to shareholders, accounted for 78 per cent, or 1,897 points, of the increase, according to data compiled by amarstock.com, which tracks the market.
Companies that pay more than 10 per cent in dividends fall in the “A” category.
The highest contribution came from Grameenphone, the largest listed company in Bangladesh in terms of market capitalisation, which added 374 points since the first day of June last year.
“We have seen that many stocks with poor dividend payment records and insurance stocks advanced four to five times. But, their contribution to the index was low,” said Ali Xahangir, chief executive officer of amarstock.com.
Provati Insurance topped the gainers’ list in the previous one year as it went up by 889 per cent between June 10 this year and June 10 last year.
Bangladesh National Insurance advanced 658 per cent, Pioneer Insurance jumped 572 per cent, Asia Insurance rose 507 per cent, and Global Insurance gained 440 per cent, DSE data showed.
When a company’s paid-up capital is higher, its impact on the key index is also higher if it goes up or down, Xahangir said, adding that the paid-up capital of most weak firms and insurance companies was low. For example, the paid-up capital of most of the insurers is below Tk 50 crore. Junk stocks and some other companies are not considered while computing the key index.
Banks and some institutional investors poured money in the last one year. They preferred the stocks with sound fundamentals, which ultimately sent the index to the higher level, said a merchant banker.
“Most general investors put money in the stocks that fluctuate now and often. But they are risky bets and have an insignificant effect on the index,” he said.
Though most of the contribution to the DSEX came from the A category stocks, some of them rose at a very risky pace compared to their earnings and potential.
Prof Abu Ahmed, an analyst, said: “Our market has only a handful of good stocks, so their movement dictates the index to a large extent.”
The Bangladesh Securities and Exchange Commission (BSEC) is inviting foreign investors to invest in the market. “But it does not have many good companies where people can park funds,” he said.
“So, the BSEC should bring in good companies to the market first.”
The former professor of economics at the University of Dhaka pointed out a gloomy side of the market: general investors are not keen to buy high-quality stocks. Rather, they chase low-performing stocks to make money overnight.
Insurance and many small-cap stocks rose abnormally in the last one year, so investors should be cautious about them, he said.
“If they invest in good stocks, they will gain in the long run.”
Ahmed said the BSEC was not taking adequate steps against the people who played a part in the abnormal rise of some stocks.
“The regulator is focusing only on seeing a higher index by any means.”
British American Tobacco contributed the second-highest points to the index, putting in 291 points.
Walton Hi-tech Industries added 177 points, Beximco Pharmaceuticals 104 points, Beximco Ltd 88 points, Square Pharmaceuticals 83 points, and ICB 80 points. Beacon Pharma contributed 66 points, and Renata 66 points.
Brac Bank, Islami Bank, and Dutch-Bangla Bank chipped in with 49 points, 39 points and 34 points, respectively.
Some banking stocks have huge scope to contribute to the index.
“But they are yet to perform better as investors fear that banks’ earnings would be affected by the pandemic in the upcoming days,” said a top asset manager.
“So, banking stocks are struggling.”
Institutional investors have invested hugely in pharmaceutical and construction-related stocks as they have growth potential.
Construction-related companies listed on the DSE include LafargeHolcim, BSRM, Berger Paints, and Heidelberg Cement.
A top official of the exchange said data showed that the key index rose on the back of the performance of quality stocks. “All of the top five contributors are good companies.”
However, only 25 stocks contributed more than 78 per cent to the rise, he said.
“This means we don’t have many good quality stocks. As a result, the investment of institutional investors is concentrated in a few securities.”
Some 349 firms are listed on the DSE.