Junk company share price hikes affect small investors

Share prices in junk companies have been rising abnormally despite the absence of price sensitive information and growth in earnings, posing a threat to stability in the capital market.

Manipulators usually target small cap stocks as their prices can be easily manipulated and the demand for their shares can be artificially inflated.

Such misconduct in the capital market frequently leads to general investors losing money as they gamble in junk shares, despite warnings from regulators and financial experts to not pour funds into the capital market without proper knowledge and information.

Dhaka Tribune analysis reveals that during the last month, share prices of Stylecraft Limited went up from Tk730.9 to Tk891.2, Monno Ceramics increased from Tk256 to Tk363, Monno Jute Stafflers Limited increased from Tk1421.2 to Tk2,128.6, and Dulamia Cotton Spinning Mills increased from Tk30.6 to Tk37.01.

Following the abnormal rise in share prices of 30 non-performing companies, the Dhaka Stock Exchange (DSE) sought permission from the Bangladesh Securities and Exchange Commission (BSEC) to inspect them.

The firms include: Key & Que, Meghna Pet Industries, Dulamia Cotton, Samata Leather, Shyampur Sugar Mills, Zeal Bangla Sugar Mills, Imam Button, Meghna Condensed Milk, Bangladesh Welding Electrodes, Jute Spinners, Savar Refractories, Beximco Synthetics, Shurwid Industries, Bangladesh Autocars, Emerald Oil, Bangladesh Services, Beach Hatchery, The Dacca Dyeing, Hakkani Pulp, Khulna Printing, Mithun Knitting, Sonargaon Textile, Standard Ceramic, Tallu Spinning, United Airways, Legacy Footwear, C&A Textiles, Monno Ceramic, Monno Jute Stafflers, and Tung Hai Knitting and Dyeing Limited.

Earlier this month, BSEC slapped fines of about Tk5 crore on 18 individuals, including three stockbrokers and three firms, for manipulating the share prices of eight listed companies.

Market analysts said that recently the interest of a group of investors in small cap companies—listed companies with paid-up capital below Tk10 crore—has gone up at the DSE, where there are currently 33 such companies.  When questioned by the DSE, all the companies denied there being any undisclosed information for which their share prices are rising.

Speaking to the Dhaka Tribune, former finance adviser to the caretaker government, AB Mirza Azizul Islam, said this is "not a good sign" for the capital market. "Those who buy the shares of  such companies should be examined.”

Islam explained that it is easy to manipulate the shares of small capital companies and that it is possible to create an artificial crisis by buying these shares.

Policy Research Institute (PRI) Executive Director Ahsan H Mansur warned that people should invest carefully, and urged them to stay away from investing in junk shares.

DSE Managing Director KAM Majedur Rahman said: “We are conducting our investigations on  junk companies to protect the interests of shareholders and the image of the market. Any company that failed to declare dividends in the past five years will be delisted.”

He also said that DSE's regulatory department is working with BSEC to find out if there is any market manipulation in play.

Capital market analyst Prof Abu Ahmed says the regulatory agency's surveillance system is capable of identifying any inconsistencies in the capital market, but they should take legal action against price manipulators.

Recently, the DSE delisted four companies—Meghna Pet Industries, Meghna Condensed Milk Industries, Imam Button, and Savar Refractories—and sent them to over-the-counter (OTC) market after approval from the BSEC.

Previously, on July 18 last year, the DSE also delisted Rahima Food Limited and Modern Dying and Screen Printing Limited, as the share prices of the companies had continued to surge abnormally, despite the companies having long been out of operation.

Furthermore, on August 16, BSEC ordered the stock exchanges of the country to suspend the trading of three companies—Monno Jute Stafflers Ltd, BD Auto Cars, and Legacy Footwear.

The commission decided on the punitive measures after detecting anomalies in the trading of the companies’ shares. Additionally, BSEC also decided that five other companies—Monno Ceramics, Key & Que, Aziz Pipes, Stylecraft, and Dragon Sweater—will be traded on the spot market for an indefinite period, due to irrational price hikes of their shares.

The stock market regulator also decided to form an inquiry committee to investigate the abnormal price hikes of BD Autocars and Legacy Footwear shares.
Source: https://www.dhakatribune.com

Tags :

Share this news on:

Previous Story

Archive