Face value change decision, no gain tax
speculation drive market before budget
Dhaka stocks have swelled in four weeks before the national budget as investors are trading heavily because of the government decision to allow change of face values of issues and with anticipation that the budget will have no provision for capital gain tax for individual investors.
The prices and trading of power and fuel stocks have increased in a few days as investors are hoping the government will increase allocation in the next budget for the power and energy sector, analysts and experts said.

They said there were speculations that the government might not allow investment of undisclosed money in the stock market in the next budget which had prompted many investors to make investments with such money before the end of the financial year.
The benchmark general index, which was at 5,567.52 points on May 10, gained 635.15 points or 11.41 per cent to close at 6,202.67 points on June 3, breaking records in almost every other day, after the government had decided it would allow change of face value of shares to Tk 10 from Tk 100.
The all share price index of the DSE also gained 527.31 points or 11.51 per cent from 4,580.08 points to close at 5,107.38 points.
Following the government decision on May 10, investors rushed to buy shares with higher earning and lower earning per share ratio, especially bank issues, which had lower prices.

‘Investors bought bank issues heavily as most of the issues had face value of Tk 100 with higher earning after the government decision to allow change of face value to Tk 10. They expected good profit once the face value is changed. Prices of many not-so-good shares also increased on the rising market,’ said a stock broker.
Once the investors took heavy profits from bank issues, by the end of May prices of power and energy issues started their rally with investors’ anticipation that the government will give power and energy sector more allocation in the budget, he said.

‘At this point, probably, the investors are shifting towards power and energy shares as they have heard the government is going to give more emphasis on the sector in the next budget,’ said Akhter H Sannamat, managing director of the merchant bank Prime Finance and Investment, on Sunday.
Former DSE president Md Rakibur Rahman said investors rushed for power and fuel shares with good fundamentals on Thursday. ‘The government should immediately allow offloading of more shares of state-run power and energy companies to meet the demand of the market,’ he said.
‘The indices rose because of an in increase in price-earning ratio. The country has its “real investment” going down in the national economy. The fund has flowed into the bourse for lack of investment in other areas. The indices may rise further and fall after the budget as for market correction,’ said Salahuddin Ahmed Khan, who teaches finance at Dhaka University.

The stock markets witnessed huge slides in April over rumor that the government would impose taxes on capital gain of general investors in the budget.
‘But there is now anticipation that the government will not impose taxes on capital gain, which has prompted investors to remain active on the market,’ said another expert.
‘Besides, there are speculations that the next budget might not have any provision to allow undisclosed money in the bourse. Apparently people are injecting undisclosed money in the stock market before the budget thinking it was their last chance,’ said Professor Mahmood Osman Imam of the finance department in Dhaka University.

Experts, however, gave a warning the investors should also be prepared for a slide in stock prices when market correction would start.
They also recommended increasing number of good shares on the market both in public and private sectors to protect the bourse from becoming overheated.

-The New Age