DSEX: Investors misguided as good cos removed, manipulative scrips dominate 

Investors are getting a wrong message as a significant number of good companies have been excluded from the key index – DSEX – of the Dhaka Stock Exchange (DSE) and the manipulative scrips have subsequently been dominant.

At the DSE, prominent companies like ACI, RAK Ceramics, Titas, Crown Cement, Walton, IDLC, and IPDC, who are known for their robust fundamentals, have been sidelined from the DSEX index. 

In contrast, some companies with questionable performance, including Imam Button, Jute Spinners, Khan Brothers PP Woven Bag, and Northern Jute, are now dominating the index. 

The DSEX represents the overall health of the capital market and helps investors make crucial decisions about pouring funds into stocks. 

Market insiders said the companies that have registered unusual price hikes during the last one and a half years through irregularities and manipulation are now determining the rise and fall of the prime bourse’s key index. The representation of good companies has shrunk significantly in the index, essentially giving rise to the contribution of bad scrips. Now, the DSEX is sending misleading messages to investors about the market.

At the same time, it gave rise to a burning question as to who the index is representing. The DSEX is now determined by a total of 250 companies when the number of listed companies is 356. So, transactions of the remaining 106 companies are not reflected here. Also, the current number of DSEX-determining companies is the lowest in five years. 

On 21 January, the authorities adjusted the Dhaka bourse’s prime index as per annual transactions and removed 83 companies. It was the highest number of companies to have been excluded from the index and most of them are with solid fundamentals. The removal came as the scrips did not register significant transactions due to the regulator's floor pricing system.

According to the index calculation method, the higher the market capitalisation of a company based on tradable shares, the greater its impact on fluctuations on the index. 

Faruq Ahmad Siddiqi, former chairman of Bangladesh Securities and Exchange Commission (BSEC), said the main index is now sending a wrong message to the market due to the status of index-determining companies. There were no significant transactions in shares of good companies due to a single decision of the regulator, and it has nothing to do with the particular companies’ trading performance. 

Investors are getting ‘distorted’ information as the index is being calculated keeping more than 100 companies out of consideration. They may face difficulties while making investment decisions, he added. 

The BSEC lifted the floor price from all shares in the stock market from 21 January, except for some 35 companies. The floor price was imposed on 28 July, 2022, to prevent a free fall in the stock market as no shares could slip below the pegged price.

When the stock market regulator lifted the floor price after one and a half years, it also adjusted the Dhaka bourse’s prime index on the same day, dropping 83 companies and adding 16 new scrips. The new additions include some defunct and underperforming companies like Imam Button, Zeal Bangla, and Legacy Footwear. There are allegations that these shares were pumped up through manipulations throughout the last one and a half years. 

Against such a backdrop, experts believe that the DSEX is not reflecting the real picture of the market. They said nearly 30 per cent of the listed companies are now outside the main index of the Dhaka bourse. 

Asked about the issue, BSEC Executive Director and Spokesperson Mohammad Rezaul Karim said, “The index calculation is done by the DSE. We were not aware of the fact that good companies were dropped from the DSEX index due to non-trading for the floor price. If it happens, the BSEC must take necessary steps to correct the index as per international norms.”

The removal of 83 companies from the DSEX on the day the floor price was lifted gave rise to a question if it was a strategy to understate the fall in the index. However, the DSE officials claimed that the alignment is merely a coincidence and that the adjustment was made as per established protocols. 

They said the annual index adjustment is usually done on the third Thursday of January every year and it comes into effect from next Sunday. The rule has been followed this year, but it coincided with the day of withdrawal of the floor price.  

ATM Tariquzzaman, managing director of the DSE, said, “The issue of withdrawing the floor price was not in limelight when the initiative was taken to adjust the index. As the floor price has been lifted, we should now think again about the index adjustment method. But the index was rebalanced as per the rules.”