The finance minister has admitted that the decision to offload shares of state enterprises was not a timely step and some sections tried to cash in on it by reducing stock prices.
But the decision has already led the General Index of Dhaka Stock Exchange (DGEN) to lose almost 950 points within two days, putting thousands of investors into despair.
In the wake of the current stockmarket debacle, the government yesterday shelved its plan, for now, to offload shares of all state enterprises.
The Securities and Exchange Commission offered no explanation for the delay, but analysts said investors have no appetite for new shares. They said newcomers would drive down the prices of the existing shares.
Analysts and bankers blamed a lack of coordination in the government for the free fall and said everybody understands that the problem is not with supply, but with confidence.
“Offloading state shares in a declining market was a wrong decision,” said Mafizuddin Sarker, managing director of LankaBangla Finance.
Finance Minister AMA Muhith on Thursday announced a roadmap for offloading shares of 21 SoEs starting this month, and ruled out any negative impact of the decision.
“I am clueless why the government chose such a bad time to offload shares. Even a naïve understands that it will affect the market badly,” said a top banker requesting anonymity.
“The minister did it without fixing prices for SoE shares, so investors went into desperate sales fearing a downfall in prices,” said the banker.
The finance ministry throughout 2010 had tried to offload shares of 26 SoEs against the backdrop of a severe supply crunch in the stockmarket. The minister also mentioned the initiative in his budget speech in June last year.
The ministry set several deadlines for share release. The first deadline was set for June 2010 and the second was October 2010.
As a consequence, over 30 lakh investors were running after fewer than 250 stocks that made the market severely overpriced. A section of large investors — individuals and institutions — took the chance and made hefty profits.
However, now that the finance ministry has been able to convince the SoEs to offload shares, the market has lost its capacity to consume new supplies.
Yawer Sayeed, a financial analyst, said different quarters had been urging to increase the supply to reduce the prices of stocks at an overheated market.
“The government will be deprived of getting due prices of its shares. Ultimately, it will be a national loss,” said Sayeed. “It should have been done at least six months before.”
He also observed a serious lack of coordination among the government high-ups, including the ministers, chairmen of parliamentary standing committees, lawmakers and the regulators.
“This lack of coordination is dampening investor confidence,” he added.
Source: The Daily Star, 15 Feb, 2011