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18 February, 2021 11:11:19 PM

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Big fall in the capital market? Be patient, and don’t panic

If the stock market can be managed through research-based investment, professionalism and mutual funds, then stability is possible. It is possible to establish equilibrium in the capital market only by training general investors and making behavioural changes
Mazhar Mannan
Big fall in the capital market? Be patient, and don’t panic

Rising and falling in the stock market is a very normal phenomenon but if it causes panic, it is very worrying. A few days ago, the index rose sharply in the stock market and investors were very optimistic.

But suddenly there has been a big fall in the capital market again and at the same time panic has intensified. Investors cannot be relieved if there is no stability in any business. In just one month, the Dhaka Stock Exchange index fell 533 points and transactions have dropped by about 62 percent. The transaction which was above 2,000 crore taka per day a month ago, has now come down to about 800 crore taka. There has been renewed panic among ordinary investors. The stock market regulators are unable to find any specific reason for such a sudden fall in the market. There has been a major price falling of fundamental and big companies in the last few days, which has fueled investor panic. According to capital market experts, the market has fallen due to excessive selling pressure from institutional and large investors. Although various steps have been taken at different times to prevent the sudden big collapse of the capital market, they have not played any effective role. The biggest crisis in the domestic capital market is the lack of confidence of investors. There is also a great lack of confidence and stability among institutional and large investors. The stock market is a free market. It is very important to have an atmosphere of trust here.

Prices are raised by spreading rumors in the capital market and ordinary investors listen to these rumors but they do not understand the real truth due to their lack of skills. There is always a secret manipulation in the stock market to take profits by increasing the share price. When the market starts to fall, all these manipulators start to grab the shares slowly again. Most of the ordinary investors in this country are inexperienced, incompetent and unaware which puts them at extreme risk with their investments. Skilled and experienced investors patiently observe the market but unskilled investors quickly give up their shares when the market falls and it causes them to incur more losses. Investors who have a clear idea about ​​the stock market, movements of the company, and investment policy hold the shares in their hands for a certain period of time. It is a good time to buy share when the market is down but ordinary investors in our country do the exact opposite and they buy share when the market is up.

It is very important to understand the movements of the risky capital market otherwise the investors will face losses. There is a tendency or culture among investors to take quick profits which leads to market's instability. Ordinary investors don’t want to make long-term investments or they can’t. Ordinary investors invest in businesses with their limited capital so that they cannot stay there in the long run. When the stock market starts to fall, the general investors are under the impression that there may be a drastic fall, so they rush to release all the shares in their hands, which makes the market more volatile. Our capital market is very small and it is also very easy to manipulate here. The depth in this market is not created due to the behavioural instability of institutional and general investors. There is also a lack of transparency and accountability in the capital market. Although many new companies have been added to our capital market, the number of companies with good quality and fundamentals is very few.

It would be useful to take steps to bring multinational companies to market where the government has shares, but there are also bureaucratic complications. There is no similarity between the world market and the capital market of our country because the price of bad shares rises fast and the price of good shares does not rise easily. And for this reason, even though investors have confidence in good companies in other markets of the world, the picture in our market is just the opposite. Investors here stumble to buy shares of a company whose price rises without judging the company's quality. Due to non-observance of the grammar of the capital market, the market falls quickly. Due to the turbulent state of the stock market in Bangladesh, it has not yet been possible to create an atmosphere of confidence in this market. In 2018, the Shanghai and Shenzhen Stock Exchanges of China joined the Dhaka Stock Exchange as strategic investors, but failed to mobilize domestic and foreign investment.

If the protection of the investor is not ensured with the investment then the desired result will never come in the market. Investors' knowledge and skills are their first protection.  Investing in the stock market is undoubtedly risky and it is the work of an information sensitive professional. The general investors in our country's capital market have a considerable lack of professional skills and knowledge. The number of general investors and individual investors in the stock market is about 75%. And investors in this market have an extreme lack of professional skills and knowledge. Their investments are always under threat due to lack of stock trading skills. Due to their ignorance and skill and carelessness, they become destitute and turn away from the market, which creates negative perceptions and makes the market more volatile. Institutional investors are at risk due to lack of research-based investment skills. Share prices are raised by gathering secret company information or spreading rumors through collusion with gamblers. Ignorant and incompetent investors run after these rumors and invest without realizing it. In developed and even developing countries, 70 to 90 percent of the daily investment in the stock market is done by institutional investors. But in our capital market, a different picture is observed. The number of institutional investors is very few.

If the stock market can be managed through research-based investment, professionalism and mutual funds, then stability is possible. It is possible to establish equilibrium in the capital market only by training general investors and making behavioural changes. In our capital market, good stocks are still devalued and as a result, the market goes backwards. Why the price of a company suddenly rises in our capital market is not investigated and everyone starts investing in it in a hurry. As a result, the manipulators can easily grab the shares.  Those who engage in market manipulation play with the mindset of ordinary investors. Manipulators create bubbles in the market from time to time that ordinary investors cannot imagine.

Warrant Buffett says that he is apprehensive when others show too much enthusiasm to buy shares and when others are afraid to buy shares, he becomes interested in buying shares. This is a great advice and motto for permanent investors. Investors need to be patient when capital markets start to plummet, not volatile. An investor should never give up shares in a downward market. And if there is an opportunity, the investor will have to buy some more shares in the downtrend market. Investors must remember a proverb before investing in the capital market and that is ''Look before you leap.''

The writer is Assistant Professor, B A F Shaheen College, Kurmitola, Dhaka Cantonment.

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Editor : M. Shamsur Rahman

Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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