Junk stocks lead weekly gains
A surge in
low-performing and junk-category stocks dominated the Dhaka Stock Exchange
(DSE) last week, raising concerns among market analysts about the
sustainability of such rallies and the risks for retail investors.
According to the DSE weekly report, eight
of the top ten gainers belonged to the "B" or "Z"
categories – companies with poor track records, no dividends, or even closed
operations.
The top performer, Information Service
Network (B category), soared 47.26% to Tk72.60, despite having no calculable
price-to-earnings (P/E) ratio as the company incurred loss in the first nine
months of FY25.
Other notable gainers included Meghna
Cement (28.33%), Bangladesh Autocars (26.43%) – which is trading at an
abnormally high P/E of 926 times – and junk scrips like Shyampur Sugar (24.53%)
and Zeal Bangla Sugar (22.59%).
Analysts caution that these rallies are speculative and not backed by
fundamentals.
"When junk or weak-category stocks
dominate the gainers' list, it usually signals excessive speculation in the
market. Many of these companies have no earnings, no dividends, or even
suspended operations. Such rallies often end up hurting retail investors who
chase quick gains," said a senior market analyst at a leading brokerage
firm.
"A P/E ratio of 926, like we see in
Bangladesh Autocars, is a red flag. It suggests prices are completely detached
from company earnings. Retail investors must be cautious, as these moves are
not sustainable," added another equity strategist.
To address these risks, the Bangladesh
Securities and Exchange Commission (BSEC) has proposed barring B- and
Z-category stocks from margin loans in its draft rules, published on 19 August
for public feedback.
Despite the risky nature of the top
gainers, the broader market showed improvement.
The benchmark DSEX index rose 24.7 points
or 0.5% to close at 5,375, while average daily turnover surged 31.6% to Tk907
crore, hitting Tk1,000 crore in a single session.
Market breadth remained positive, with 241
issues advancing against 129 that declined, while 24 scrips remained unchanged
out of the 394 securities traded in the last week.
Investor activity was most prominent in
the pharmaceuticals sector (17.7%), followed by textiles (11.6%) and banks
(11.5%). Sector-wise, the paper sector (9.5%) led gains, while mutual funds
(2.5%) lagged.
Investor activity was particularly
concentrated in a few leading stocks. Bangladesh Shipping Corporation, Beximco
Pharmaceuticals, Orion Infusion, City Bank and Beach hatchery topped the
turnover chart, indicating continued institutional and retail interest in these
counters.
On the other hand, troubled banks and
non-bank financial institutions suffered the steepest fall, where Exim Bank
emerged as the worst weekly performer, followed by First Security Islami Bank,
Social Islami Bank, Premier Leasing, Phoenix Finance and GSP Finance.
In its weekly review, EBL Securities noted
that the benchmark index regained momentum after a brief correction, supported
by renewed investor interest in selective large-cap stocks.
However, it cautioned that profit-taking
in banking scrips and concerns over draft amendments to margin rules injected
volatility into the market, it added.
Market insiders warned that while the
overall sentiment has improved, rallies in fundamentally weak companies could
distort investor behaviour.
"Sustained market growth depends on
large-cap and fundamentally strong stocks. Junk rallies might look exciting,
but history shows they don't last long. Retail investors should focus on
companies with solid earnings and dividend histories," said a former DSE
director.
With elections approaching in early 2026
and macroeconomic conditions stabilising, experts believe the DSE could see
stronger fundamentals-driven growth. But for now, the dominance of junk stocks
in weekly gains highlights speculative trading risks that small investors
should not ignore.