He said surge and decline in share prices are normal market phenomena and that it is only natural that investors will make money on bullish market and lose when the slide begins.

"Investors should take extra caution in the present market. In a normal market, price of securities will move in both north and south as a normal course. But one must not forget that prices will not remain high or low for long time," DSE CEO said in an interview with The Daily Star yesterday.

He, however, said that the good part of the present trend is that investment is directed towards securities with good fundamentals. "But even good securities have limitation in terms of price movement."

"So, some sort of price correction will be there in due course of time which may be reversed through opposite price movement in future," the CEO said.

He said smart investors cash in profits by taking the right decision while market followers will sustain some loss. "Eventually, it will be observed that return of overall investors in macro sense will be normal return with some losses and some gains, which is a common stock market phenomenon."

What government can do?
What government can do right now is to take the opportunity of raising significant volume of fund from the market by offloading shares where government is holding good number of high performing companies.

The CEO said now the government is holding 76.03 lakh shares with the face value of Tk 34.16 crore which presently stands at Tk335 crore.

In a private sector led economy, government needs to offload its shares in private sector and it is also not consistent with the market economy policy of the government.

Now the government can gain by selling these huge numbers of shares and the market itself will be benefited through supply of a large number of scrips.

These companies are already enlisted with bourses having good market reputation and therefore can be sold soon.

Globally, it is observed that government mechanism intervenes in price stablisation process in every segment of the economy. "We see pumping in dollars by central banks to keep prices of currency stable and opening of OMS (open market sale) centres to keep prices of essentials stable.”

"So, why doesn't the government come forward to offload shares to enable the market to achieve a sustainable condition," he questioned.

Long term policy required for market stability
While selling off of these government securities will have short time impact, an essential policy direction will also be required for long term market stability.

There can be provision like introduction of government bonds on the secondary market, imposing mandatory conditions of share floatation in the utility sector, ensure private sector companies undertaking consortium loans from banking sectors to eventually offset the loans through issuance of shares on the market, the CEO said.

He said that the already welcomed asset backed securitised bonds should be brought into the market and not through private placement. "Alternative features like futures and derivatives markets should be introduced, conditions should be tagged to all large foreign investment to float shares and part of revenue generating development projects should be funded through issuance of government guaranteed securities like long term bonds or development bonds."

Present market scenario
The CEO said that the stock markets in Bangladesh have started showing uptrend since April 20, 2004 although there was some high volume trading between in 2000 and 2002 but there is some qualitative difference in trading at that time and now.

In early 2000, there was netting settlement system where effective trade was in the neighbourhood of Tk 6 to Tk 8 crore while the present trade pattern is indicating effective trade volume which require full settlement, he said.

"Beside, in early 2000 market was quite low nearly at 500 to 600 points whereas presently the index is hovering at around 1900 indicating a significant rise," the CEO said. "Our observation is that there is a huge influx of investors caused by a number of factors."

The government has axed many alternative investment opportunities through various measures like curbing the interest rate downwards against the saving instruments, restrictions on fund transfer through tight Money Laundering Act.

Incentives have been given to investors willing to channel undisclosed fund in the stock market. Provisions have been made under which tax authorities will not raise question for investment of such funds made anytime until June 2005.

Another major factor, Khan said is the introduction of central depository system.

He said that presently more than 60 percent of the market capitalisation is under the CDS contributing to 80 percent of the total trade in terms of value in a daily average. "Also the memory of the 1996 crash is fading away attracting more investors."

The Securities and Exchange Commission (SEC) and the DSE have strengthened their surveillance on the market, which has gained confidence of the investors.

Provisions in the Exim Bank IPO allowing greater access of retail investors has created some 60,000 new investors.

"So, all these factors have had a multiplier effect in regaining lost confidence of investors who are showing increased interest in stock trading," Khan said.