Banks losing edge
Abdullah Al Farabi, a retail investor in the stock market, once owned shares of some banks. Just a month ago, he disposed of the shares and invested in other sectors, eyeing quick profits.
“I sold my shares at huge losses and invested the money in securities of other sectors. I not only recovered my previous loses but also bagged a good amount of profit,” he says.
Mohammad Shamim, another retail investor, says: “If I buy shares of banks now, I may earn a nominal amount early next year, when the banks will make corporate declarations. However, I will make more money by investing in securities of other sectors.”
“Then why should I invest in the banking sector?”
Investors claim it is difficult to get returns from investments in the banking sector.
Abdullah Al Farabi or Mohammad Shamim is not alone in their quests. Thousands of retail investors at the Dhaka Stock Exchange (DSE) are concentrating on the non-banking sectors, although the banking sector presides with around 50 percent of total market capitalisation.
The investors' interests in the non-banking sector are also reflected in the daily transactions on the DSE. The representation of shares from the banking sector, which is supposed to dominate daily transactions, slipped to around 20 percent as of yesterday. But a year ago, the sector's representation in daily transactions was more than 60 percent, according to DSE statistics.
The remaining representation of 80 percent was led by the pharmaceuticals sector with 20.12 percent, fuel and power with 14.28 percent, engineering with 8.09 percent, investment with 6.33 percent, insurance with 6.05 percent and the services sector with 4.13 percent.
As of September, the banking sector took up 47.32 percent of market capitalisation, while, among others, fuel and power accounted for 13.76 percent, pharmaceuticals 9.88 percent, insurance 5.99 percent, cement 5.11 percent, investment 4.76 percent and engineering 2.49 percent.
The retail investors point to the bearish trend in the banking sector. “If you analyse the share prices over the last couple of months, you will observe a continuous decline,” says Shamim.
Besides, he says, banking sector entities are based on large capital amounts, while the non-banking sector companies are based on small capital amounts. “Prices of shares of a large capital base company moves very slowly, while the shares of the small capital base companies moves faster,” Shamim says.
Market analysts however differ with the retail investors' point of view. They say the present concentration on trade of non-banking securities is courtesy of several reasons, the primary being the speculative nature of investors. Investors take decisions based on speculations or rumours, instead of considering the company fundamentals or financial strengths.
They say it is very easy to disseminate rumours revolving the non-banking sector in contrast to the banking sector. And driven by rumours, investors lean towards securities, whose prices fluctuate often. This means they can make capital gains in a short span of time, the analysts say.
“The banking sector securities are not short-term investment tools; long-term investments are required to gain expected benefits. On the contrary, most retail investors want to make short-term gains. That is why investors look up securities through which they can make short-term gains,” says Yawer Sayeed, managing director of AIMS of Bangladesh.
Such short-term gain seekers now dominate the stock market. “This is why the market is now witnessing a volatile situation,” he says. “A speculative culture is not a good sign for the capital market."
Sharif Ataur Rahman, managing director of SAR Securities, also says, “Despite the banking sector shares being risk free investments tools, it appears that trading now concentrates around non-banking shares.”
“To turn back the retail investors towards the banking sector, merchant banks can increase the margin loan ratio against the sector shares,” he observes.
Additionally, he advises, investors should not follow rumours or speculations, as in most cases these do not come true.
In opposition, retail investors say the break up from the banking sector is just temporary. They will start re-investing in the banking sector in December this year, as the banks begin announcing their corporate declarations from January next year.
“I will sell all my shares of the non-banking sector companies and get back into the banking sector,” says Abdullah Al Farabi.
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