DSE: Market cap swells to all-time high

Market capitalisation crosses Tk 300,000cr on DSE

Total market capitalisation on the premier bourse yesterday crossed the Tk 300,000 crore mark to hit an all-time-high.

Thanks to the current bullish trend, the market capitalisation to GDP ratio also reached the highest level at 43.65 percent. GDP (gross domestic product) at current price has been estimated at Tk 6,90,000 crore at the end of fiscal 2009-10.

At the end of yesterday's trading session on the Dhaka Stock Exchange, market capitalisation stood at Tk 301,439 crore, up by more than 50 percent since January.

Market capitalisation represents the aggregate value of companies or stocks. It is obtained by multiplying the number of shares outstanding by their current price per share.

The market capitalisation to GDP ratio shows the depth a stockmarket relatively to the economy. But the ratio can also used to determine whether an overall market is undervalued or overvalued.

The market capitalisation to GDP ratio of the Bombay Stock Exchange, India, was 111.36 percent at the end of July. The ratio was 32.05 percent on the Colombo Stock Exchange in Sri Lanka.

Analysts said market capitalisation of the Dhaka bourse is increasing, as stocks prices are on the rise.

The Dhaka market rose yesterday for a third consecutive session. With the gaining momentum, the benchmark index -- DSE General Index -- also reached its highest level at 6,743 points.

The analysts said market capitalisation is rising only because share prices are soaring. Growth in capitalisation based on share prices is neither a good sign for the market, nor sustainable.

Growth should be based on the entry of new securities. When the market absorbs a new issue, capitalisation goes up.

While thousands of new investors entered the market with crores of taka in cash since January, the Dhaka market listed only four new securities, except for some mutual funds and a convertible zero coupon bond.

The investors, including the newcomers, are now chasing a limited number of shares, and pushing share prices up.

"The record market capitalisation and its ratio to the GDP theoretically show that our market is becoming bigger," said Arif Khan, deputy managing director of IDLC Finance.

"But it is a matter of worry that the growth is based on share prices, instead of new securities."

Without higher company earnings, the only possible way to maintain sustainable market growth is by bringing in more securities, he said.

Source: The Daily Star, August 20, 2010