An abnormal surge in the stock price of newly listed companies is still a common scenario in the local market, where these overvalued shares ultimately leave an impact on the investors.
Crystal Insurance, which debuted yesterday, is no exception as the company’s stocks saw four times higher demand than its free float shares.
On the first day of trading, the insurer saw a purchasing demand of 5.48 crore shares even though its free float was 1.6 crore shares.
Besides, only one trade was executed yesterday, when a single initial public offering (IPO) winner sold 500 shares at Tk 15 each, according to DSE data.
This was due to a lack of sellers amid a high turnout of buyers, which led the company’s trade being halted for the day.
Some of the IPO lottery winners are trying to buy the shares as they hope the stock value will see a significant rise soon, a stock broker said.
The issue of overvaluation was previously criticised by market analysts and so the Bangladesh Securities and Exchange Commission (BSEC) implemented a new system where the value of newly listed stocks cannot rise more than 50 per cent in the first few days.
But still, a number of debutant companies saw their share values to be tripled even though their prices eventually drop a few months after listing.
For instance, Coppertech Industries’ stock price rose to Tk 42 in the first few days following a face value of Tk 10. After just three months though, its value dropped to Tk 18.
People are rushing for newly listed companies without realising their track record and tendency to provide dividends, the broker said, adding that investors need to be more careful.
Actually, the investors hope that Crystal Insurance also will see the same rise that was seen for Express Insurance, according to Abdur Rashid, a stock investor.
Express Insurance was prevented from rising over 50 per cent in the first few days of listing but after that, it rose continuously to hit Tk 35 within a few months.
“Until the tendency stops, newly listed companies will be overvalued and stock investors will continue to be impacted,” Rashid added.
Gamblers help create fake demand and create a craze among investors, said a top official of a merchant bank.
“As they saw there were no sellers, they influenced the demand on the trading board at the Dhaka Stock Exchange and the IPO winners became more hopeful seeing the higher demands,” he said.
If the BSEC takes action after seeing proof of this through its surveillance system, then the real manipulator will be caught and the issue will be reduced, he added.
“We have already initiated a circuit breaker so that debutant stocks cannot rise abnormally in the first two days,” said BSEC Spokesperson Rezaul Karim.
Earlier, there was no circuit breaker for share values in the first days of listing but now, a debutant company’s stock price is limited to a 50 per cent rise for the first two days.
After that, it is bound to follow the normal circuit breaker of 10 per cent deviation.
“If the investors don’t realise this, then how can it be controlled,” he said, adding the tendency of abnormal price hikes slightly reduced after the circuit breaker was implemented.
When issue size will be higher, then people’s expectation will be reduced and the process will be eased, Karim said.
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