Faruq Ahmad Siddiqi, former secretary and former chairman of Bangladesh Securities and Exchange Commission (BSEC), in an exclusive interview with Prothom Alo, talked in various economy issues including the condition of the stock market and more.
Prothom Alo: Why did the stock market collapse?
Faruq Ahmad Siddiqi: I will not say that it has collapsed, but I won’t say that it is stable either. But the market is sliding from bad to worse. If it continues in this manner, things may come to a standstill. But given the prevailing condition of the market, it is not likely to face a debacle.
Prothom Alo: Why are you reluctant to call it debacle?
Faruq Ahmad Siddiqi: If the shares were overvalued, or if the index was high, then the share market would collapse. The prices of most of the shares are at the bottom now. The prices may go down further, but not fall to a great extent. There is little fear of drastic ups and downs as in 2010. The situation may not turn like that. The index fell from 9000 to 3000 points at that time.
Prothom Alo: Prothom Alo on 18 April reported that the stock market couldn’t be retrieved despite efforts. What would you say?
Faruq Ahmad Siddiqi: The share market cannot be forcefully lifted. It is a free market. If you want to raise the market by getting persons to purchase shares, this would be sustainable. The market will run its own course. The market can be raised for a day or two by getting people to purchase shares, but that is not the solution. Confidence has to be established for a permanent solution.
Prothom Alo: But the bottom line is that the downslide of the share market cannot be controlled.
Faruq Ahmad Siddiqi: The regulatory body is trying to raise the index. It may not be wrong, but the market must be brought back to its normal course.
Prothom Alo: Do you think the 30 December polls had any impact on the stock market?
Faruq Ahmad Siddiqi: Ahead of the election, people feared that the law and order situation may deteriorate. That did not happen. Before the election, the stock market was boosted up a bit. The market was rising due to the political stability after the election. Two things may work in this regard. Some people thought that the index will increase as there are investors who are with the new government. Some people may have tried to manipulate the market. Some quarters probably wanted to push up the market index. In last couple of years, it was noticed that some quarters tried to raise the share market ahead of the new budget, monetary policy or any other event. The entire market can be controlled if shares of 30 to 40 companies can be influenced. That can be done by spreading rumours. The motive of this is to gain profits by controlling prices. They will buy shares again if the prices fall. Some quarters try to act in this way. Most of our investors are inexperienced and unaware. Those who are experienced, come out of the market in time.
On the other hand, inexperienced investors sell out shares whenever the market falls. Experienced ones have patience and keep shares for some days. Some might gain when they buy shares from a bearish market. You can profit if you have long term plans. But most of our general investors cannot invest for a long time. They cannot afford long term investment. They are not investors, they are traders. Shares have to be bought from a bearish market and to be sold as the market rises. But most of the investors do not buy shares from the downtrend market, fearing further fall in share index.
Prothom Alo: How to manipulation of stock market?
Faruq Ahmad Siddiqi: Manipulation in the share market takes place in all countries. But it happens in our country frequently as the size of market is not big. It is easy to manipulate a smaller market. The means of prevention is to widen its depth and to bring more new companies into the share market. Unfortunately, new companies are not coming to the market.
A probe body is being formed to look into the manipulations. Some persons have been fined. But the people do not know how much manipulations have been carried out and to what degree crime has been committed. The confidence of the investors would have increased had transparency and accountability been ensured.
Prothom Alo: You have talked about investigation. A committee headed by former Bangladesh Bank deputy governor Ibrahim Khaled was formed after the collapse of the share market in 2010. The committee submitted a report accusing some companies. What happened after that?
Faruq Ahmad Siddiqi: With due respect, I want to say that the report simply made some sweeping remarks and that’s about it. There must be specific allegations to take action against anybody. It needs to specify the sections of the Securities Commission Law which were violated so action can be taken against those involved. The committee report did not specify anything.
Prothom Alo: They talked about further investigation.
Faruq Ahmad Siddiqi: Then why did they make such a fanfare about it all? It seems that the prestige of people involved is at stake. None can be accused without evidence. They themselves could carry out the investigation further. We have no idea about whether BSEC carried out any further investigations, if anyone was proven guilt and if any punitive measures were taken.
Prothom Alo: There is a perception that that those who manipulated the market were the ones who later controlled the BSEC.
Faruq Ahmad Siddiqi: It is unfortunate if that happened. Are they so powerful? If the regulatory body is under their control, the officials of the regulatory body should step down from their posts. There is no word about Bangladesh Bank in the report prepared by the committee led by Ibrahim Khaled. I think Bangladesh Bank was also responsible for manipulation of the share market in 2010. Around 10 to 12 banks bought shares violating the law. The funds taken for implementing projects have been invested in the share market. One or two banks have unlawfully invested 30 to 40 per cent of their capital. This is proven. Bangladesh Bank has the responsibility to see whether the banks are operating as per law. They cannot invest more than 10 per cent of their capital. All this did not appear in the report of the Ibrahim Khaled committee. They did all this for six months. There was no coordination between Bangladesh Bank and BSEC.
Prothom Alo: The index fell to 4000 points from 9000 in 2010. This year the index fell to 4000 from 6000. The panic remains.
Faruq Ahmad Siddiqi: I think the incident of 2010 will not be repeated. At that time, the index fell by a big margin in a day. Now the index is rising and falling. Although the index is on the downtrend, it does rise at times.
Prothom Alo: How to restore confidence of the investors or to keep the market stable?
Faruq Ahmad Siddiqi: I think good companies have to be brought to the market. Many public companies did not enter the share market although they commit to do so. This is a violation of commitment. The companies will come to the market whenever they need capital. But funds are easily availed from our commercial and financial institutions. As a result, many companies are not interested in entering the market. On the contrary, there was an initiative to bring the multinational companies to the market. The matter was discussed with the government, but no conclusion was reached. Multinational companies have to be given some facilities to bring them to share markets.
Prothom Alo: Does the fragile state of banks have any impact on the share market?
Faruq Ahmad Siddiqi: Certainly. The price of shares of banks is very low. The confidence of clients in banks has fallen. Default loans in the banking sector constitute 11 per cent of the loans. Four banks had no profit last year. They artificially showed profits. The rate of interest is very high. Profits will fall if the quality of bank loans falls. Dividends will fall. Several banks are doing well, the rest have provision deficiency.
Prothom Alo: Were those involved in the 2010 market manipulation tried?
Faruq Ahmad Siddiqi: No. Cases were filed against some people, but no one was punished.
Prothom Alo: Can this impunity lead the share market to another debacle?
Faruq Ahmad Siddiqi: It is taking it towards disaster. There are no signs of the bearish trend abating.
Prothom Alo: It is said that the size of economy is increasing. Growth is increasing. But the share market is small in comparison to that.
Faruq Ahmad Siddiqi: Private investment is not increasing despite the increase of growth. Private investment remains at 22 to 23 per cent in comparison to gross national product (GNP). There is a low demand for loans although the banks have funds. There is little possibility of any improvement in the share market if the liquidity in the banks remains in such condition. The people will be interested to invest in the share market when the banks are unable to provide funds money and when the investments will be too high for the banks to meet. Therefore, investment in the private sector has to be increased.
Prothom Alo: What are the ways now to invigorate the share market?
Faruq Ahmad Siddiqi: Good companies are to be brought to the share market. IPO has to be given cautiously. An initiative has to be taken to bring in the multinational companies, in which the government has shares. Bureaucrats do not want that happen. They have no concept about the stock market. Many suggest forcing them to come to the market. Companies have to be brought to the market through negotiations, not by force.
Prothom Alo: Was the initiative to bring Grameenphone to share market taken during your tenure?
Faruq Ahmad Siddiqi: We had to do a lot to bring Grameenphone to share market. Chief adviser Fakhruddin Ahmed called me over phone to bring Grameenphone to the share market. Although the initiative was taken at that time, Grameenphone entered share market after the caretaker government left. Behind the scenes, BSEC did this indirectly.
Prothom Alo: Now investors have little confidence on the regulatory body. How will stability come to the market?
Faruq Ahmad Siddiqi: It is not enough for the regulatory body to do good work. The people have to have confidence it it. The investors and market stakeholders must believe the regulatory body will not be unfair. That is very important. The activities of the regulatory body are not visible. All the organisations must follow the law, not flout the laws. It also needs to be examined whether the BSEC chairman is being appointed as per the law.
Prothom Alo: Thank you.
FA Siddiqi: Thank you too.
*The interview, appeared in Prothom Alo print edition, has been rewritten in English by Rabiul Islam