Making stock exchange vibrant

Dhaka,  Tue,  26 September 2017
Published : 21 Aug 2017, 22:11:30
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Making stock exchange vibrant

Bangladesh Securities and Exchange Commission can take steps against companies for not complying with the provisions of the company law or any action which adversely affects the interest of the general investors, writes Syed Mahbubur Rashid
Some share market experts find stock exchange buoyant and stable when the ratio between market capitalisation and gross domestic product (GDP) hovers around 35 ps. This kind of comparison between market capitalisation and GDP in 2009-10 fiscal year by the mandarins of the Ministry of Finance sent a wrong message to the investors which ultimately led to the share market debacle. 

Let us know what market capitalisation means. Market capitalisation is the total market value of all listed securities on a particular day. It varies from day to day and even from hour to hour. Whether single share of a company has been traded or not or only a few shares have been traded is not to be taken into consideration. Value of all shares of a company will be calculated for determining market capitalisation. So this figure is a fancy, not reality. It does not have any intrinsic value. So it cannot do the job of value addition. Of course, its movement is definitely a determinant of price movement of securities of a bourse. 

If the share market is broad-based and if there is unusual and meteoric rise of the price of the shares, then the figure of market capitalisation may exceed GDP. It will not affect either the base as share market of Bangladesh is not wide. So, on both the occasions in 1996 and 2009-10, the market crashed due to unusual price hike. Initial public offering (IPO) can help widen the base of share market. These increase the number of neophyte investors who ultimately go to the stock exchange for trade. 

The Ministry of Finance has offered various incentives to allure companies to go public. At present, there is a 10 per cent corporate tax difference between listed and unlisted issues, let alone other incentives. But unfortunately, there has not been significant development of IPO culture in the private sector. One reason may be rogue banking i.e default culture. It is being observed that the bigger the amount is, the greater is the chance of default. Because behind the big loan amount lies the hands of high-ups and delinquents try to find escape routes. 

The IPO virtually compels a company to be accountable to the public through the Annual General Meeting (AGM). Moreover, Bangladesh Securities and Exchange Commission (BSEC), regulatory authority of the securities market, can take steps against companies for not complying with the provisions of the company law or any action which adversely affects the interest of the general investors. A bourse will have to be developed both vertically and horizontally if it is to be kept buoyant and stable. For horizontal growth, more and more securities need to be listed. 

During his long tenure as the Finance Minister A.M.A Muhith on several occasions asked for unloading shares of state-owned enterprises to the public but unfortunately nobody paid heed to it. Recently, he held a meeting with the concerned government agencies and regulatory authorities and advised for partially unloading the shares of the profitable state-owned enterprises. Regarding the units which are red, he suggested to make them profitable and then unload the shares. But this may not be a fully acceptable proposition. 

There may be some units which cannot escape the clutches of the loss. It is better that these units are disposed of as the government should get rid of wastage of public money for running those. In this connection it may be mentioned that culture, rules and regulations for winding up of losing concerns are dormant in Bangladesh. These rules should be updated and state-of-the-art mechanism should be applied for taking actions against the sick or losing concerns or companies charged with fraud. The concerned authorities should pay attention to these issues.

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