DSEX erases 100-point gain as margin gazette triggers ‘sell-on-news’ reaction

The broad index of the Dhaka Stock Exchange (DSE) witnessed a dramatic reversal today (18 August), as early-session euphoria over the finalisation of new margin lending rules quickly faded, giving way to a massive wave of profit-taking. 

The benchmark DSEX, which had risen more than 50 points in the first half of the day, plunged 100 points from its intraday peak to close at 5,773, down 40 points from the previous session.

This volatile performance extended the market's losing streak to a fifth consecutive session, with the DSEX shedding a cumulative 130 points over the period. The blue-chip DS30 index also mirrored the downturn, slipping 11 points to settle at 2,164. 

The broad-based sell-off resulted in an erosion of Tk5,800 crore from the bourse's market capitalisation in a single day, although trading activity remained relatively strong, with turnover reaching Tk998 crore. 

The bearish trend was mirrored at the Chittagong Stock Exchange (CSE), where the broad CASPI index plummeted by 110 points to finish at 15,513. Turnover at the port city bourse also saw a 30% decline, settling at Tk73 crore.

'Sell on news'

Market insiders attributed the afternoon crash to a classic "sell on news" reaction.

For weeks, the market had been buoyed by anticipation that the Bangladesh Securities and Exchange Commission would relax margin lending rules. When the gazette notification was finally published today, confirming the expected easing, investors who had gained from the recent rally moved aggressively to liquidate their positions.

Ashequr Rahman, managing director of Midway Securities, told The Business Standard that the publication of the gazette has effectively removed the prevailing uncertainty. 

"There was a cloud of doubt regarding when the margin rules would be official. Now that it is out, the uncertainty has cleared. However, the market had already moved in anticipation of this news over the past few months. Since the changes were exactly as expected, there was no fresh trigger to push the index higher," he explained.

Ashequr further noted that the DSEX had gained nearly 800 points over the past year, particularly following the national elections. 

"The market remained resilient despite severe pressures such as energy shortages, inflationary spikes, and geopolitical tensions in the Middle East. 

"What we are seeing now is a natural correction as investors book profits on stocks that saw significant price appreciation during that period. Once this pressure subsides, the market is likely to find a new floor," he added.

Intraday volatility, panic selling

Sheltech Brokerage Limited, in its daily market review, said persistent selling pressure dictated the day's performance, with early buying interest quickly giving way to broad-based selling.

While the index touched an intraday high of 5,872.41 points in the morning, the momentum shifted around mid-session as cautious sentiment turned into active selling.

EBL Securities echoed these views, stating that the "ailing momentum" of the capital bourse failed to reverse despite the morning optimism. 

The firm noted that rumors regarding potential additional stringent measures – despite the gazette's easing – induced further caution, triggering a wave of panic selling in the latter half of the day.

Sectoral and stock performance

Market breadth was overwhelmingly bearish, with 266 issues declining compared to only 77 that advanced, while 47 remained unchanged. 

The textile sector led the turnover chart, accounting for 20.9% of the day's volume, followed by general insurance at 13.9% and engineering at 12.1%.

Sectoral returns were almost entirely negative. General insurance recorded the steepest correction, falling 3.4%, followed by cement and paper. 

The services sector was a rare exception, gaining 0.8%.

Heavyweight and large-cap stocks including BRAC Bank, Sharp Industries, Islami Bank, British American Tobacco (BAT) Bangladesh and Grameenphone were among the major drags on the index.

On the gainers' list, Tung Hai Knitting and Envoy Textile managed to hit the upper circuit, while Sharp Industries, Peoples Leasing, and Premier Leasing featured among the top losers.

Despite the sharp intraday drop, analysts pointed to the healthy turnover as a silver lining. 

"The fact that turnover remains near the Tk1,000 crore mark even during a decline suggests that investors are not exiting the market entirely; they are simply reshuffling their portfolios, which is a sign of underlying market liquidity," a senior analyst remarked.