Bank, NBFI, cement stocks gaining ground
Investor participation in the local stock market's banking, non-bank financial institution (NBFI), and cement sectors soared last week while the insurance sector was lacklustre in attracting funds.
"Since these three had a lower price-earnings ratio compared to other sectors, people were more attracted to them," a market analyst said.
"On the other hand, investors have become aware that the insurance sector is overvalued and so, people are losing interest in it," he added.
The cement sector's daily average turnover more than doubled to Tk 76 crore in the last week compared to the week before, according to the weekly market statistics of LankaBangla Securities.
Similarly, turnover in the NBFI sector soared 101 per cent to Tk 228 while that of the banking sector increased 39 per cent to Tk 218 crore.
"People became cautious about the insurance sector after its turnover fell but they should keep up this attitude since the sector remains quite overvalued," an asset manager said.
Turnover in the general insurance sector dropped 34 per cent to Tk 104 crore while that of the life insurance sector fell 16 per cent to Tk 28 crore, market data shows.
"Bank stocks still have lower prices and so, investors are more interested in them even though the sector has the lowest price-earnings ratio of all," he added.
The banking sector's price-earnings ratio was 8.1 last week.
However, the asset manager went on to say that the bank stocks regularly pay dividends, making them an easy choice for investors.
Still though, the banking sector has concerns about its asset quality and provisioning.
So, investors should take this into consideration also, he said.
"Investors are similarly interested in the cement sector since it has performed better amid the ongoing coronavirus pandemic compared to other sectors," the asset manager added.
Besides, a relaxed policy for loan classification was announced for more than one year to bring confidence to local entrepreneurs.
"And thanks to this relaxed policy, the amount of classified loans has reduced alongside provisions, which ultimately boosts the lenders' profits," said a top merchant banker.
"This means that the real scenario may emerge soon after the normal policy for classified loans is implemented," he added.
Some prudent banks have already kept aside a huge provision in anticipation of the upcoming risk and so, these are exceptions.
"But overall banking profits may fall," he said, adding that their profits might be reduced by the lower interest rate regime.
From April 1, 2020, the banking sector has been following single digit interest rates for deposits and lending.
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