Billion-dollar club: A bigger size could help make market less volatile

In September 2021, Beximco's market capitalisation was around $1.39 billion. Its share traded at Tk 136.30 each and the exchange rate was Tk 83 per dollar.

At the time, the company could showcase its membership in the billion-dollar club.

Not anymore.

In the last more than a year, Beximco's share price slid 15.18 per cent to get static at the floor price of Tk 115.60 each until Thursday. During the period, the taka lost value against the dollar significantly on the back of the Russia-Ukraine war that caused supply-chain disruptions across the world.

As a result, Beximco's market cap fell below $1 billion, $0.96 billion to be exact.

Like Beximco, the state-run Investment Corporation of Bangladesh (ICB), Beximco Pharmaceuticals, LafargeHolcim Bangladesh, and Berger Paints Bangladesh have also fallen out of the club of billion-dollar companies.

The club has now shrunk to almost half of its size at the end of 2021. The members that lost the tag may get back in as the market regains its momentum and starts moving upwards.

But why are they important? Or how do they help shape a market?

Experts say the stock market in Bangladesh has remained stunted because of the thin presence of large companies with strong fundamentals. They insist that if more large companies get listed on the bourses, the market will be less volatile.

Md. Moniruzzaman, managing director of IDLC Investments, said large-cap companies have good corporate governance and human resources and usually conform to global practices.

On the other hand, many small-cap companies are centred on one person, devoid of good governance. Such companies create market volatility while large-cap companies help stabilise the market, said Moniruzzaman.

Investors also get good returns from established companies that make good profits. They show higher interest in putting their money in those firms also because they create well-known brands, often becoming household names.

But it is not possible to specify a number as to how many such companies can boost the strength of an emerging market like Bangladesh.

One of the peers, Vietnam's main bourse Ho Chi Minh Stock Exchange (HoSE) had 39 members having market cap above $1 billion in October 2022, according to vnexpress.net.

CEO of BRAC EPL Stock Brokerage Ahsanur Rahman said the Vietnam market is stronger than Bangladesh and that companies listed there have to be compliant with strict regulations and adopt well-accepted corporate governance practices.

The presence of large-cap companies lift the global image of the stock market too, said Mohammad Rezaul Karim, spokesperson of the Bangladesh Securities and Exchange Commission.

"Foreign investors prefer investing in large-cap companies maintaining good corporate governance. The regulator has continued its efforts to increase the number of big companies although it's not our job," Mr. Karim added.

The regulator asked issue managers to ensure listing of influential companies in the respective sectors that has not become public yet.

The broad index of the Dhaka Stock Exchange (DSE) closed at 7205 points on September 20, 2021. It declined over the time to 6215 points on Thursday. During the period, a majority of the stocks on the DSEX witnessed price correction.

The total market equity of large-cap stocks, including Grameenphone, British American Tobacco Bangladesh (BATBC), and Square Pharmaceuticals lost 6-38 per cent in value. The three, however, could retain their status.

Beximco Pharmaceuticals saw the highest price correction of 38 per cent since September 2021, while Berger Paints Bangladesh saw the lowest, 6 per cent until Thursday (January 12, 2023).

There is another factor to ponder.

Many of the large-cap companies listed on the Dhaka exchange have floated limited shares for the public.

Ahsanur Rahman, from BRAC EPL, said such companies would not play a significant role in the market if shares comprising good enough stakes of the firms were not publicly traded.

For example, Pakistan has only three billion-dollar market cap companies including Oil Gas Development.

"But the amounts of the companies' free float shares are higher than the companies of Bangladesh," Mr Rahman added.

Free float shares of large-cap companies listed in the country's stock market are very insignificant compared to their paid-up capitals. Walton Hi-Tech Industries has the lowest amount of shares owned by the public, comprising only 1 percent of its business.

Berger Paints has 5 per cent free float shares while Grameenphone, Robi, United Power Generation and Distribution Company have 10 per cent each.

Among the other companies, BATBC has 27.09 per cent free float shares, LafargeHolcim Bangladesh 35.85 per cent, Square Pharmaceuticals 65.33 per cent, Renata 48.71 per cent, Beximco 66.06 per cent, ICB 30.51 per cent, and Beximco Pharmaceuticals 69.86 per cent.

Some merchant bankers said good companies were not happy with the existing valuation system under the book building method before the floating of an initial public offering.

As per the system, a company's share price will not exceed the average of the latest net asset value (NAV) plus 10 times the annual average earnings per share (EPS) over the previous five years.

Requesting anonymity, a top official of the securities regulator said the listing of a company will be facilitated by bypassing the provision if the business has a strong legacy and future prospects.

On the issue around free float shares, the official said some companies sought time to increase the public stakes gradually.