The stock market declined by 38% over a period of 16 years

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The combination of high inflation and various market missteps significantly eroded the stock market's real value, leaving investors to bear the brunt of the losses.

During a discussion yesterday, Dhaka stockbrokers highlighted key issues contributing to the stock market's decline, including political interference and inconsistent regulatory actions.

Over the years, the market struggled to attract high-quality companies for listings and initial public offerings (IPOs). In the last 15 years, 134 IPOs were launched, but nearly one-third of the listed firms fell into the "Z category"—underperforming stocks with little investor confidence.

Additionally, the practice of margin loans—where brokers lend money to investors for stock purchases—exacerbated market instability. This led to negative equity and further weakened overall market performance.

In his keynote presentation, Md Saifuddin, Senior Vice President of the DSE Brokers Association of Bangladesh (DBA), noted that while the Dhaka Stock Exchange (DSE) achieved a compound annual growth rate (CAGR) of 4.2 percent, inflation surged at a CAGR of 7.1 percent. The CAGR is used to assess long-term returns, and with inflation outpacing market growth, the inflation-adjusted return stood at an annual negative 2.9 percent.

He further explained that due to mismanagement and the limited presence of growth-oriented companies, listed firms failed to generate sufficient income. As a result, overall income from the stock market declined, leading to an inflation-adjusted market contraction of approximately 38 percent in real terms.

"This data is alarming for the market," Saifuddin emphasized during the discussion titled "The Current State of the Bangladesh Capital Market and Way Forward," held at the DSE auditorium and organized by the DBA.

He pointed out that while 134 IPOs were introduced in 15 years, raising Tk 9,000 crore, a significant portion of these companies ultimately landed in the struggling "Z category."

Furthermore, margin loans intensified financial distress, with Tk 9,700 crore in negative equity weakening market intermediaries, banks, and the broader stock market.

At the event, BNP Standing Committee Member Amir Khasru Mahmud Chowdhury criticized the misuse of the stock market for political gain rather than for investor benefit.

"The stock market plays a crucial role in promoting savings habits and generating employment. BNP plans to integrate it into the mainstream economy," he stated.

He advocated for a significant deregulation effort, allowing the regulatory body to serve as an oversight authority while enabling the stock exchange to adopt a self-regulatory approach.

"Excessive regulation leads to corruption. The regulator should avoid direct involvement in daily market operations, while the stock exchange should manage its own affairs with complete transparency," he added.

Ahmad Rashid Lali, a former Senior Vice President of the DSE, stressed that margin loan mismanagement devastated the market, impacting even those who did not utilize such loans.

He proposed stricter eligibility requirements for margin loans, suggesting that only investors with more than Tk 50 lakh in investments should qualify.

Lali also called for the revocation of Section 2CC, which grants the Bangladesh Securities and Exchange Commission (BSEC) unchecked authority, arguing that it had been used primarily for market control.

"It was a tool for excessive control. The next government should repeal it," he asserted.

Former BSEC Chairman Faruq Ahmad Siddiqi highlighted several policy failures, such as halting forced sales after the 2010 market crash. This decision, he said, led to long-term instability.

Another major misstep was the introduction of the floor price mechanism, which contradicted fundamental market principles and restricted investor trading for about 1.5 years.

"This policy may have been politically motivated to artificially inflate stock values before elections. However, it severely damaged investor confidence, particularly among foreign investors," he remarked. "The consequences were irreversible."

Governance concerns also plagued the stock market, with many poorly managed companies being allowed to list.

"The market cannot recover unless well-governed, high-performing companies enter, and the overall macroeconomic environment improves," he added.

To attract foreign portfolio investment, local investors must be encouraged, and a stable political climate is essential, noted Prof. Rashed Al Mahmud Titumir, a director at Bangladesh Bank.

"Unfortunately, this has been lacking," he stated.

He further pointed out that several companies misrepresented their financial standing while raising funds, which further damaged market integrity.

The event also featured discussions from former lawmaker Zahiruddin Swapan, Ganosamhati Andolon Chief Coordinator Zonayed Saki, DBA President Saiful Islam, and DSE Director Minhaz Mannan Emon.