Should investors be wary of big jump in index?

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There has been a big jump in the stock market and the index has already crossed 7,000 for the first time. While all other indicators of the economy are in a somewhat challenging state, the opposite is happening in the stock market, a bullish trend. Experts point out that the capital market is a risky place and the higher the index rises here, the higher the risk level, so investors have to be very careful. Experts say that such a jump in the capital market is risky, but they do not think it is unusual. Analysts also fear that market manipulators could take another big chance.

The rise and fall of the stock market is a normal phenomenon. There is always more or less risk in investing in the stock market. By investing in the stock market, some have become rich and many have become destitute. There is no chance of making a profit if anyone invests in the stock market without a good idea. A stock market is a market where private limited companies buy and sell their shares through stock exchange. If the company progresses, the share price increases and the shareholders receive dividends from there. But if the company does not progress, the shareholders have to face extreme collapse.

An anarchic and volatile situation happened in the stock market of Bangladesh during the period from 2009 to 2011. The central bank took a number of steps at that time to prevent stock market scandals. The central bank then measures the entire stock market and applies some strict policies to alleviate the market downturn and boost the market situation. At that time, the investors who became destitute took to the streets and carried out blockades. The scandal and restless situation in the stock market of Bangladesh is nothing new. According to a newspaper report on July 24, 2019, taka 27,000 crore disappeared from the stock market in just 15 days. Ordinary investors, especially indebted investors suffer due to the unbridled fall of the index. Debtors are forced to sell their share to recover their debts.

Experts say that when there is a big downturn in the market, ordinary investors panic and sell their shares quickly and some unscrupulous traders take this opportunity. Money plunder age is nothing new in the stock market. There is always a trap in the stock market for small investors and at any moment they can fall into this trap. Therefore, small investors need to be extremely careful when investing in the stock market. When investing in the secondary market, an investor should have an idea of the company from which he will be investing and no rumours should be heard. The character of the stock market in our country is such that when the index rises here, investors jump to buy shares and when price falls, they rush to sell stocks and as a result, the market can never be stable. In the midst of this turmoil some unscrupulous people start conspiring and impoverish the small investors. There is no shortage of instances in the stock market where the share of 500 taka had come down to 20 taka only. After buying shares, a small investor expects to sell the shares if the price rises a little. But when price decreases little by little everyday, at one point the investor loses his confidence and sells the shares in his hand, thus, suffering extreme losses. Some companies’ treatment with investors is also unsatisfactory, a mentality of cheating the investors can be noticed among them. At the end of the year, if a company declares no dividend, the price of that companies’ share starts to plummet. Again, if a company declares a stock dividend or bonus shares, the number of the shares increases a lot and it becomes very difficult to raise the price of that share. That’s why small investors expect cash dividends. But there is reluctance and manipulation among some companies to pay cash dividends.

A deadly trend for small investors is to invest after the market index rises, which leads to their downfall. Those who are in a hurry to invest in the stock market have to pay the ultimate price. Some unscrupulous circles use this volatile tendency of small investors as a tool. A kind of panic is created in the market to snatch the shares from small investors. When the price rises in the stock market without any reason, it must be understood that there are dishonest motives and tricks. Those who have a lot of shares, wait year after year, but it is not possible for small investors to do that, and that is why they get caught.

Stock market has been booming lately, so the investors need to be very careful. Investors need to do a lot of research before investing. Investing in the stock market with the hope of extreme profit or greed is more likely to lead to its collapse. Investors are often misled by fake news in the stock market. So, they should not invest depending on anybody’s words or persuasion.  Small investors in the stock market have to adopt a variety of strategies to sustain their capital. For small investors, experts always offer some tips which they should follow.

1. An investor should not invest based on the rise and fall of the index and must not listen to rumours.

2. No investor should come here without a clear idea about the capital market.

3. Investors need to focus on long-term investments and avoid day-to-day profiteering.

4. An investor must look at the company’s previous records, dividends, reputation, production and capabilities.

5. An investor needs to know which people are involved with the company and their position in society.

6. An investor has to realise the fundamental and technical analysis of the index. Fundamental analysis gives a clear idea of the company and technical analysis gives idea of the stock movement.

7. An investor needs to keep an eye on the number of shares of the company and the number of transactions per day.

8. An investor must look at Net Asset Value (NAV) before investing.

9. Before investment a person must know earnings per share (EPS). How much the company is earning against each share is very important.

10. It is very important for an investor to understand the share price and earning ratio (P/E). It is better if the P/E is less than 20.

11. Investors need to have the mentality to invest in companies that declares cash dividends at the end of the year.

12. Investors should have a clear idea about the book value and growth rate of the company.

13. Before investing a person needs to know the company’s current income, annual income, future production target, type of production and supply capacity.

14. It is very urgent to know the percentage of institutional investors in the company. Institutional investment remains higher in good companies.

15. An investor needs to know the difference between authorised capital and paid-up capital.

16. The investors have to look at the news published on DSE’s site and keep an eye on the newspapers.

17. An investor should never rush to sell stocks as soon as the index falls.

The stock market has been revived in the new year by coping with the impact of the corona epidemic. Experts say BSEC, the capital market regulator, has recently taken some steps to boost the market. New money is coming to the stock market every day. On an average, new investments of five to 20 crore taka are coming in the market regularly. It is also heard that huge investments are coming from traders and industrial owners in recent times. But no matter how strong the market is, investors need to be careful. There has been a surge in the stock market before, and investors have been caught then. Since the stock market is a risky place, not all capital of an investor should be invested here. The capital market plays an important role in a country’s economy. Therefore, the interests of small investors should be given highest priority in the capital market. If the stock market can be turned into a safe place for small investors, the market will do well.

Majhar Mannan, Assistant Professor, B A F Shaheen College Kurmitola, Dhaka Cantonment