Stock index near 6,000: Will it sustain the growth?

The stock market index is hovering around 6,000 points now, raising questions among investors over whether it would remain stable here or take a plunge like before.

The DSEX, the Dhaka Stock Exchange's (DSE) prime index, went past 5,900 points four times since its inception in 2013.

Analysts are saying that this year there was a huge possibility for it to not roll back because confidence was prevailing among many people alongside a lower interest rate in the banking sector.

The sustainability of the index around the 6,000 points level depends on many things, said Mokta Rani Sarker, assistant professor of the Department of Finance at Jagannath University.

If the recent rise of the index happened for fundamental reasons, it will sustain but any artificial rise cannot be sustained, she said.

On the positive side, investor confidence on the market returned while a lower interest rate in banks pushed investors over here, she said.

"But our market size is small, so it is susceptible to risks of manipulation, although some steps have been taken recently," Sarker added.

"Our technical analysis shows that the market has a chance to cross the 6,000 points level and hold onto that advancement," said Ali Xahangir, CEO of amarstock.com, a stock market-based data provider.

The market was sluggish for the past seven or eight years and now the index is at its closest to the 6,000 points level, where many stocks are still undervalued, he said.

Especially, stocks of banks and non-banking financial institutions have remained stagnant at the same place as they had been before the rally, he added.

Meanwhile, the market normally remains buoyant in months when the country's annual budget is announced in the hope of incentives, he added.

Despite the pandemic, the stock market index and turnover had remained high this year which indicates that people are investing here with a lot of confidence, said Sharif Anwar Hossain, president of DSE Brokers' Association.

Normally the market remains sluggish during the month of Ramadan but this year was an exception, he said.

Due to the increase in confidence for the presence of a new regulatory commission, lower interest rate in banks and limited scope for investment in other instruments, the stock market has been undergoing a rising trend, said the association leader.

If the index crosses the 6,000 points level, funds will be mobilised in larger quantities, all of which are now stuck, he said.

"On the other hand, the index rose mainly through insurance and some stocks being gambled with but many fundamental stocks are still lucrative," he said.

"So, I hope this year the index will stay above the 6,000 mark," added Hossain, also managing director of Md Sahidullah Securities.

M Sayadur Rahman, president of Bangladesh Merchant Bankers' Association, believes the market would go beyond the highest it has ever been.

The index had reached the highest 6,336 points on November 26 of 2017, shows the DSE data.

"There are many reasons for the hope," he said, adding that this year fixed deposit rates at banks were very low, less than the inflation rate, for which the stock market was more preferable to the people.

Listed banks provided higher dividends for 2020, taking the dividend yield over 5 per cent on an average, he said, adding, "It is also attracting investors."

Corporate tax may also be lowered next fiscal year, meaning all the indicators are positive for the market, said Rahman.

The new regulatory commission has taken up many reformative steps too, which will leave positive impacts on the index, he added.