Shamsul Huq Zahid

The investors, it seems, has been able to overcome the much-talked-about psychological barrier. The DSE general index (DGEN) last Tuesday reached the all-time-high level of 3280 points with the second highest turnover (over Tk.11 billion) recorded one the day.

The market trend suggests the bull-run would continue unless the investors come to their senses.

Honestly speaking, the market pundits are also baffled by the market behaviour. Everybody predicted a negative impact of the Grameenphone's initial public offering (IPO), the largest in the country's history, on the stock prices and daily turnover. But they were proved wrong. The value and volume of daily transactions, instead of going down, went up throughout the subscription period of the GP IPO.

What is more interesting is that the GP IPO has been oversubscribed. The rate of over-subscription, though yet to be announced officially, according to unconfirmed sources, could be between four to five times the IPO size, meaning that general investors have put in their funds worth between Tk. 18 billion and Tk 20 billion.

However, the prediction about the negative impact of the GP's IPO on the market was based on investors' behaviour in the past when arrival of two or three IPOs at a time prompted general investors to offload stocks in their hand and use the fund for IPO subscription purposes. The daily turnover at the bourses and the level of IPO subscription do suggest that the market is awash with liquidity.

Investors, retail and institutional, have reasons to be elated by the current market up-trend. For it suits them best. But there are times when it is better to take stock of the situation and behave accordingly, keeping in mind the market-maxim, 'what goes up must come down' or vice-versa.

If not anyone else, the securities regulator, the Securities and Exchange Commission (SEC) is aware of the market developments. That is why on the first day of the current week it held an emergency meeting with market operators and discussed the ways to cool off the overheated market. The SEC advised the merchant banks and brokerage houses to maintain margin rules strictly. It also advised the investors to pick up stocks carefully.

But going by the turnover trend, one has reasons to believe that general investors are no more major players in the market and institutional buyers, including banks and other financial institutions, have become rather hyper-active as far as investment choices are concerned.

There are, apparently, no takers of the general advice coming from the SEC or the management of the bourses to invest in stocks having strong fundamentals. Investors, general as well as institutional, are not interested in long-term investments. They are now guided more by the motive of profit taking within the shortest possible time. This sort of pillow passing is not at all healthy for the market, particularly when there exists no earthly reason for a large number of stocks to reach their present price levels.

Market insiders tend to believe that a good number of banks and financial institutions have brought in a substantial part of their idle fund to the market and their behaviour is, in many cases, not different from that of general investors.

However, most institutional investors have already pocketed sizeable profits out of their investments in stocks. Banks, which are awash with excess liquidity, are, in fact, considering it as a god-sent opportunity to remain afloat during a period when demand for funds from the private sector is at a low-ebb.

There is no denying that the market has now more depth than before and enough liquidity to absorb more new stocks. But the question is: what is the price limit of the existing stocks that are, in most cases, are over-priced.

A stock price correction is not an unlikely event. But how deep that correction will be is difficult to predict right at this moment. Yet the securities regulator does need to devise ways to take away a part of the heat generated in the market. In that case, the use of the usual tool called margin rule may not be that effective since it does not concern the institutions that are investing heavily in stocks.

It is hard to believe that the market has reached the current level because of all fair practices. Suspicion is growing that a few institutional players are playing in the hands of certain influential quarters. The SEC should detect the foul play, if there is any, and do the needful before the time runs out.