A big challenge for finance minister AHM Mustafa Kamal is to ensure stability in the share market and restore confidence of the investors, say stakeholders.
They said the investors are waiting to see measures in the upcoming budget to tackle those challenges.
Various expectations have been created among share market investors ahead of the upcoming budget of 2019-20. The finance minister himself has cratered these expectations. Following the continuous fall in the share market, on 28 April, the finance minister in reply to a question in parliament said there will be incentives for share market in the next budget as the capital market and the economy are closely related. Now investors are eagerly waiting for the incentives pledged by the finance minister.
Lack of confidence among the investors is the main crisis in the share market. The confidence has become weak for different issues at different times. There is also crisis of good share in the market. Former finance minister Abul Maal Abdul Muhith announced more than once that 26 state-owned companies would be enlisted in the share market, but he couldn’t do. Moreover, private and multinational companies also did not come in the share market in last ten years.
There are repeated incidents of manipulation in the share market. Those who are involved in the manipulation are not punished.
Stakeholders said a number of new investors invested in the share market when Grameenphone was enlisted in the share market in 2009. The share market collapsed in 2010. Several lac investors were affected. Following an investigation, more than one case was filed. Names of those involved in share market manipulation were published. But none of them was punished till date. As a result, the investors have little confidence on the capital market’s regulatory body Securities and Exchange Commission (SEC). Besides, the role of the regulatory body is questioned for permitting low category companies in the share market.
Under such circumstances, the stability of the share market depends on what steps the finance minister will take for reforming the share market. The share market is on the rise ahead of the budget. But the crisis of share transaction still remains.
Professor of School of Business at United International University, a private university, Mohammad Musa said the confidence of the investors has to be strengthened to bring stability in the share market. Only incentives will not do a lot until the confidence is restored in the share market, he said.
Mohammad Musa said there is a huge crisis of liquidity in the banking sector. The liquidity situation in the share market will not improve if steps are not taken to solve the liquidity crisis in the banking sector.
In November of 2015, Securities and Exchange Board of India (SEBI) the then chairman UK Sinha at a programme in Bangladesh said the investors at home and abroad don’t show interest to invest in the market where there is a deficiency of good governance.
If there is good governance in the share market, a small number of investors are afraid of it, but it helps increase the confidence of most of the investors, he added.
What former SEBI chairman said about the stability of a share market, all those are absent in the share market in Bangladesh. There is a weakness in implementing law in the market, and also there is serious crisis of confidence on the market.
Stakeholders said the law has to be implemented strictly to bring stability in the market and to attract investment. It has to be ensured that manipulators are not spared for paying a small of fine. Besides, the mutual fund sector has to be reformed to bring the savings of common people to the investment through the share market. Currently, the investors have no confidence on the mutual fund, the stakeholders said.
DSE Brokers Association (DBA) president Shakil Rizvi told Prothom Alo that a negative perception about the share market has been created among the common people for various reasons including lack of good governance and crisis of good shares and mismanagement in the mutual fund sector.
As a result, the common people are not investing in the market and good investors are not showing interest in fear of losing reputation, Rizvi, also former president of Dhaka Stock Exchange (DSE), said.
Shakil Rizvi also said, “Big companies and investors in the world feel proud if they can enlist their companies in the share markets in New York and Hong Kong.”
“But the opposite happens in our market. Many reputed companies and investors apprehend to enter market in fear of losing their image. It is a big challenge for the government to get rid of negative perception about share market,” former DSE president said.
Incentives in the upcoming budget
Dhaka Stock Exchange has proposed an exemption of tax on the dividend up to Tk 100,000 from existing Tk 25,000.
The organisation also demanded a gap of 15 per cent corporate tax between the listed and non-listed companies.
Bangladesh Securities and Exchange Commission (BSEC) spokesperson and executive director Saifur Rahman told Prothom Alo, “The finance minister has already said there would be some incentives for stock market in the budget. We are also hoping that some initiatives would be taken in the budget to improve the market. BSEC has already given some proposals to the finance ministry to this end.”
According to finance ministry sources, there would be a package of incentives for stock market in the upcoming budget. Investors as well as companies would get tax exemption.
Tax on the dividend up to Tk 50,000 may be exempted, from existing Tk 25,000, said a source of National Board of Revenue (NBR).
Companies will get a different type of corporate tax cut. Currently, companies give bonus and cash dividend to the investors. The government wants to encourage companies to give cash dividend to investors. The companies, which will give the investors cash dividend, would enjoy tax cut. Currently, enlisted companies pay 25 per cent corporate tax.
There would be incentives to boost the bond market too. Initiatives would be taken to reduce cost for enlisting bond in the market.
At present, the only one corporate bond in the stock market is IBBL Mudaraba Bond of Islami Bank. There are 221 treasury bonds listed in the market. There are no transactions of these bonds.
*This report, originally published in Prothom Alo print edition, has been rewritten in English by Rabiul Islam and Galib Ashraf.