The stock market's current price index that crossed 7,000 points is not risky, rather there is more room for it to go up, given the price-to-earnings ratio, said Professor Shibli Rubayat-Ul-Islam, chairman of the Bangladesh Securities and Exchange Commission (BSEC).
The commission is not concerned about the bank's overexposure to stocks as the market is not now driven by the banking sector, the BSEC chairman said, referring to the central bank's recent move on overplay of banks into stocks.
In an interview with The Business Standard on the sidelines of the roadshow in Zurich, Switzerland on 20 September, Prof Shibli Rubayat-Ul-Islam, said, "The size of the market is now Tk5.77 lakh crore, while investments made by the banking sector account for 7%-8%. So, there will be no effect on the market whatever happens in the banking sector."
The BSEC chairman said bank investment in the stock market widened in 2010, which met with a market fall.
The broad index DSEX of the Dhaka Stock Exchange (DSE) crossed the 7,000-mark on 5 September this year for the first time in its history, which was 43% higher than in the previous year at the same time. The daily average turnover of the DSE also crosses Tk2,000 crore this year, which was only Tk200 crore a year ago. At the end of the 21 September trading session, the DSEX stood at 7,258 points.
The BSEC chairman said the broad index was at 6,000-7,000-mark in 2008-09, while the size of the economy was too small.
"But the situation prevails no longer as the size of the economy has burgeoned. The size of the market has expanded too. So, now there is no concern over potential risks," he noted.
"However, the buying or selling prices of shares totally depend on investors. We will only monitor the PE [price-to-earnings ratio] of the companies or shares. We will be concerned only when the ratio crosses the risky level. Since the overall PE ratio now hovers around 20, there is nothing to be concerned about," he added.
Recently, the Bangladesh Bank fined NRB Commercial Bank Tk23.50 lakh and NRB Bank Tk49.50 for overexposure to stocks. Banks were also asked to submit reports regarding daily money-market transactions.
The latest developments have widened up the gap between the two regulators.
In this regard, the BSEC chairman said, "I do not understand why the Bangladesh Bank is worried about the rise of the market."
He said, "I think the Bangladesh Bank is overly enthusiastic in the capital market. Such decisions are coming out because of some junior officers at the Bangladesh Bank. These are creating a gap between the two regulators, and the central bank should pay attention to the issue."
He said the banking sector had a major impact on the market in 2010. But the Bangladesh Bank abruptly changed the laws and asked the banks to reduce their investments in the market – leading to a market collapse.
"Everyone in the macroeconomy has their role in the rise of the current capital market. The retail investors have a crucial role while domestic, foreign banks and institutions have the participation. No one alone has a big investment here. It can be said that the stock market is now standing on its own feet," he said.
He said if the stock market becomes dependent on banks or any sector, or institutes, that sector alone can dominate the market. The sector can raise or lower the index. So it is better to have more influence from the retail investors. When there are too many retail investors, the market cannot be manipulated unless a large group does so.