Govt faces challenge to restore confidence in stock market

Finance minister AHM Mustafa Kamal is to ensure stability in the share market and restore confidence of the investors, say stakeholders.

They said the investors are waiting to see measures in the upcoming budget and to tackle the challenges.

Various expectations have been created among share market investors ahead of the upcoming budget of 2019-20. The finance minister himself has createred these expectations.

Following the continuous fall in the share market, in reply to a question in parliament on 28 April, the finance minister said there will be incentives for the share market in the next budget as the capital market and the economy were closely related. Investors are eagerly waiting for the incentives pledged by the finance minister.

Lack of confidence among the investors is the main crisis in the share market. The confidence has become weak for various issues at different times. There is also crisis of good shares in the market.

Former finance minister Abul Maal Abdul Muhith announced more than once that 26 state-owned companies would be enlisted in the share market, but this didn’t happen. Moreover, private and multinational companies also did not enter the share market in last ten years.

There is manipulation in the share market. No action is taken against the manipulators.

Stakeholders said a number of new investors invested in the share market when Grameenphone was enlisted in the share market in 2009. The share market collapsed in 2010. Several thousands of investors were affected. Several cases were filed following investigations.

The names of those involved in the share market manipulation were published. But none of them has been punished till date. As a result, the investors have little confidence on the capital market’s regulatory body Securities and Exchange Commission (SEC).

Besides, the role of the regulatory body is questioned for permitting low category companies in the share market.

Under such circumstances, the stability of the share market depends on what steps the finance minister will take for reforming the share market. The share market is on the rise ahead of the budget, but the crisis of share transaction still remains.

Professor of the School of Business at United International University, Mohammad Musa, said the confidence of the investors has to be strengthened to bring stability to the share market. Incentives alone will not do much until confidence is restored in the share market, he said.

Mohammad Musa said there is a huge liquidity crisis in the banking sector. Liquidity in the share market will not improve unless steps are taken to solve the liquidity crisis in the banking sector.

In November of 2015, the chairman of the Securities and Exchange Board of India (SEBI) at the time, UK Sinha, speaking at a programme in Bangladesh said the investors at home and abroad don’t show interest in investing in a market where there is a lack of good governance.

If there is good governance in the share market, a small number of investors may be apprehensive, but it increases confidence among most of the investors, he added.

The factors mentioned by the former SEBI chairman about the stability of a share market, are all absent in the Bangladesh share market. There is a weakness in implementing the law in the market, and also a serious crisis of confidence.

Stakeholders said the law has to be implemented strictly to bring stability in the market and to attract investment. It has to be ensured that manipulators are not spared by simply paying a small of fine. Besides, the mutual fund sector has to be reformed to bring the savings of common people to investment through the share market. Currently, the investors have no confidence in mutual funds, the stakeholders said.

DSE Brokers Association (DBA) president Shakil Rizvi told Prothom Alo that a negative perception about the share market has been created among the common people for various reasons including lack of good governance, crisis of good shares and mismanagement in the mutual fund sector.

As a result, the common people are not investing in the market and good investors are not showing interest in fear of losing their reputation, Rizvi, also former president of Dhaka Stock Exchange (DSE), said.

Shakil Rizvi also said, “Big companies and investors in the world feel proud if they can enlist their companies in the share markets in New York and Hong Kong, but the opposite happens in our market. Many reputed companies and investors hesitate to enter the market in fear of losing their image. It is a big challenge for the government to get rid of negative perception about share market,” former DSE president said.

Incentives in the upcoming budget

Dhaka Stock Exchange has proposed an exemption of tax on the dividend up to Tk 100,000 from existing Tk 25,000.

The organisation also demanded a gap of 15 per cent corporate tax between the listed and non-listed companies.

Bangladesh Securities and Exchange Commission (BSEC) spokesperson and executive director Saifur Rahman told Prothom Alo, “The finance minister has already said there would be some incentives for the stock market in the budget. We are also hoping that some initiatives would be taken in the budget to improve the market. BSEC has already given some proposals to the finance ministry to this end.”

According to finance ministry sources, there would be a package of incentives for stock market in the upcoming budget. Investors as well as companies would get tax exemption.

Tax on the dividend up to Tk 50,000 may be exempted, from the existing Tk 25,000, said a source of National Board of Revenue (NBR).

Companies will get a different type of corporate tax cut. Currently, companies give bonus and cash dividends to the investors. The government wants to encourage companies to provide cash dividends to investors. The companies, which will give the investors cash dividends, would receive tax cuts. Currently, enlisted companies pay 25 per cent corporate tax.

There would be incentives to boost the bond market too. Initiatives would be taken to reduce the cost for enlisting bonds in the market.

At present, the only corporate bond in the stock market is IBBL Mudaraba Bond of Islami Bank. There are 221 treasury bonds enlisted in the market. There are no transactions of these bonds.

*This report, originally published in Prothom Alo print edition, has been rewritten in English by Rabiul Islam and Galib Ashraf.