Investors misjudge BSEC steps, still running after junk shares
Junk stocks sold like hot cakes at the country's bourses yesterday as investors are hopeful of seeing returns due to an ongoing effort from the Bangladesh Securities and Exchange Commission (BSEC) to bring corrections to underperforming shares.
"Many general investors think that junk stocks will become profitable due to the steps taken by the stock market regulator," said a senior official of a leading brokerage firm.
Last week, BSEC upgraded 12 junk stocks and asked 22 companies to share their business plans in order to bring them into accountability.
"But investors are chasing a mirage as this does not mean that the companies will begin to perform well soon," the broker said, adding that share prices have skyrocketed as a result.
Since junk stocks are overpriced, it would be wise to refrain from making major investments in non-performing companies, according to market analysts.
Among yesterday's top five gainers, three were non-performing companies, as per data from the Dhaka Stock Exchange (DSE).
RN Spinning Mills, one of the non-performers, topped the gainers' list with a 10 per cent increase while Jute Spinners stood second with 9.95 per cent.
The most demanded Z category shares were: Zeal Bangla Sugar Mills, Shyampur Sugar Mills, Golden Son, Imam Button, Meghna Milk, Familytex BD and Meghna Pet Industries.
Of the total 42 junk stocks available, 37 advanced while prices of only two fell and three remained the same.
Investors are misjudging the steps taken by the BSEC, said a top official of a merchant bank.
"The junk companies won't start making profits as soon as the BSEC takes the steps. It takes time for a company to book profits again. Some companies are not even in a position to bounce back at all," he added.
As a result, many of these companies will remain in the red and may face delisting or liquidation.
"BSEC should also investigate whether stock gambling fuelled the rise in share prices," he said.
However, the DSEX, the benchmark index of the DSE, crossed the 5,000 points-mark yesterday after a break of around one year.
The index rose 39.6 points, or 0.79 per cent, to close at 5,011.
Turnover, another important indicator of the stock market, fell 4.92 per cent to Tk 1,024.54 crore.
Of the total stocks, 190 advanced, 117 declined and 49 remained unchanged, according to DSE data.
Beximco Pharmaceuticals topped the DSE's turnover list with trades worth Tk 55.33 crore followed by Beximco Ltd, Brac Bank, Orion Pharmaceuticals and Orion Infusion.
Pragati Life Insurance shed the most -- 9.96 per cent -- followed by LR Global Mutual Fund One, Premier Insurance, United Insurance and NLI First Mutual Fund.
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