Finance Minister AHM Mustafa Kamal has made a candid admission that he fails to understand the reasons for the country's stock market behaving differently in an otherwise buoyant economy.
The economy posted a robust 8.15 growth in the immediate past fiscal. The government policymakers expect it to grow at a decent rate also this fiscal. The previous years were also no exception as the GDP had recorded growth at a rate over 7.0 per cent.
The finance minister, while talking to the reporters at the end of a meeting of the cabinet committee on government purchase last Wednesday, deplored that the country's economic achievements during recent years were not reflected in the stock market.
Mr. Kamal is not the only finance minister to blame for not being able to understand the causes behind the present moribund state of the stock market. His immediate predecessor, too, failed to locate the problems of the market. But he did not admit it publicly.
There could be two plausible reasons for the stock market remaining subdued and non-reactive to what the government policymakers tend to describe as massive economic developments that have been taking place in recent years.
Firstly, the damage that the 2010 crash had caused is too deep and the market is yet to overcome it. And the factors needed to make a turnaround are still not in place.
Secondly, the ongoing impressive growth of the country, it seems, has been mainly due to substantial public investment in a number of cost-intensive mega projects. In contrast, the private sector investment has remained stagnant in recent years. Unless and until private sector investment gets a boost, the economy will continue to miss the feel-good factor with stock market behaving erratically.
It could be that none of the factors mentioned has anything to do with the stock market behaviour. The market has not been picking up maybe for some other reasons.
The stock market has been failing to attract enough funds for the last one decade or so. There should be no reason for the market to pick up without infusion of a substantial volume of funds.
The market bubble created in 1996 was different from that of 2010. The former was built up over a short period using all the crude methods by the behind-the-scene manipulators. Banks and financial institutions virtually had no role in that.
But the 2010 bubble was built over a long period. It started in the year 2007. As the market was picking up slow but steadily, banks and financial institutions had made their entry one by one and started making handsome profits. Together banks and non-banking financial institutions pumped a substantial volume of money into the stock market. The inflow of huge funds coupled with a number of manipulative activities carried out with tacit support from the relevant regulatory body had created the bubble that eventually burst in the late 2010.
Following the market crash, most banks pulled out of the market or maintained a negligible presence. Since then most of them stayed away from the market. The truth is that they are now not in a position to make any notable investment in stock market.
The main reason for an unending lull in the market is thought to be the scarcity of both funds and quality stocks. Barring a few, most of the new issues listed on the bourses in the recent years have little to offer to the investors. It is hard to expect any rise in the flow of fresh funds into the market in the near future despite the fact that the prices of a good number of quality stocks have come down to levels that most enlightened investors would love to invest.
The market now desperately needs inflow of a substantial volume of institutional funds and entry of new and quality stocks in sufficient numbers to make the much-desired turnaround.