An Assignment on

Capital Market in Bangladesh

Prepared By:
Md.Enamul Haque MBA (2 Years), Batch: 28th, Roll: 27 & Tushar Lal Saha MBA (2 Years), Batch: 28th, Roll: 26

Prepared for:
Associate Prof.Md.Rofiqul Islam Chairman

Faculty of Business Studies Dhaka International University

LETTER OF TRANSMITTAL
09th October 2010 Associate Prof.Md.Rofiqul Islam Chairman Faculty of Business Studies Dhaka International University Subject: Submission of report on Capital Market in Bangladesh. Dear Mr Rofiqul Islam, We are pleased to submit this assignment on Capital Market in Bangladesh for particular fulfillment of Assignment. We honestly believe that this report will fulfill the requirements of the assignment program for MBA, which will help us a lot to gain sufficient knowledge about the Capital Market in Bangladesh We appreciate having this assignment. Sincerely, Md.Enamul Haque enamulctg@yahoo.com, ContactNo.01673609620 Program: MBA (2 Years), Batch: 28th, Roll: 27, Dhaka International University

ACKNOWLEDGEMENT
Education involves not only reading books and doing exercises but also acquiring knowledge through doing something practically. This report has designed only for considering that objective. In this period of time, we enjoyed the study of Capital Market in Bangladesh First of all, we are indebted to our guide teacher Associate Prof.Md.Rofiqul Islam, Chairman, Faculty of Business Studies, Dhaka International University. His views, suggestions save us from more difficulties.

TABLE OF CONTENTS
Heading No. LETTER OF TRANSMITTAL ACKNOWLEDGEMENT EXECUTIVE SUMMARY A. Objective of this study- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 05 B. Limitation of this study- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 05 C. Methodology of study- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 06 D. Background of Capital Market in Bangladesh - - - - - - - - - - - - - - - - - - - - - - - - - - - - 07 E. Capital Market in Bangladesh:- - - - - - - - - - - - - - - - - - - - - - - - - - - - - 08 Page

J. Conclusion - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 23 k. Recommendation- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 24 L. Bibliography- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 25

EXECUTIVE SUMMARY
This dissertation report highlights on our practical experience in different types and categories Capital Market in Bangladesh. During our short working period, we tried to gather information from News Paper, web sites. To complete this report, we have gained practical knowledge about Capital Market in Bangladesh.

OBJECTIVE OF THIS STUDY

We can gain knowledge about the Capital Market in Bangladesh by studying this topic. As following aspects of Capital Market in Bangladesh we can learn from this study: Develop a strong platform for entrepreneurs for raising capital; Provide an investment opportunity for small and large investors; Develop a transparent market ensuring investor's interest; Provide a fully automated trading system with most modern amenities to ensure: quick, easy, accuratetransactionsandeasilyaccessibletoall; Attract non-resident Bangladeshis to invest in Bangladesh stock market; Attract foreign institutional investors to invest in Bangladesh; Collect, preserve, disseminate data and information on stock exchange;

LIMITATION OF THIS STUDY

There are some limitations of this study. Therefore the assignment may lack some crucial data. 1. Necessary data and information an neither adequate nor well finished. 2. The duration that is for assignment program is not enough to learn about the Capital Market in Bangladesh. 3. This assignment does not analyze the critical analysis of different sectors in the Capital Market in Bangladesh in details. The assignment has encountered these limitations that may have hinder progress. But with constant effort, our goal was to minimize the negative efforts of these limitations.

METHODOLOGY OF THIS STUDY

Basically there are two types of methodology. One is Primary sources and another is secondary sources. Primary source: Primary source are those type of source that we collect information or survey directly from the organization. Secondary source: Secondary source are those type of source that we collect information from online or any reference books. To make this overall assignment we followed the secondary sources like, online, reference book, and journal. Capital market in Bangladesh Background of the Market Bangladesh capital market is one of the smallest in Asia but the third largest in the south Asia region. It has two full-fledged automated stock exchanges namely Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) and an over-the counter exchange operated by CSE. It also consists of a dedicated regulator, the Securities and Exchange Commission (SEC), since, it implements rules and regulations, monitors their implications to operate and develop the capital market. It consists of Central Depository Bangladesh Limited (CDBL), the only Central Depository in Bangladesh that provides facilities for the settlement of transactions of dematerialized securities in CSE and DSE. Capital market analyst Salahuddin Ahmed Khan said, "2009 was really a good year for Bangladesh's capital market. This year will be a milestone in the history of Bangladesh's capital market." Khan, also a former Chief Executive Officer of Bangladesh's main bourse Dhaka Stock Exchange (DSE), said the number of investors in 2009 increased by 500,000 and stood at nearly 2 million while the number of branches of broker houses throughout the country has reached 387 in the outgoing year from 272 in 2008. The DSE market capitalization surged to 27.54 billion U.S. dollars. The market capitalization increased to 30.95 percent of GDP in 2009 from 19.26 percent in 2008. The total amount of turnover in 2009 stood at over 1,475 billion taka with 120 percent rise from that in 2008.

DSE, the first stock exchange of the land was incorporated on April 28, 1954, while the second stock exchange CSE was established in 1995 After independence of Bangladesh, trading activities started in August 1976.

 From 1998 automated screen based trading was introduced by both the exchanges through LAN and WAN connectivity and HP non stop trading platform is providing basic architecture.

Corporate Structures of the Exchanges The Stock Exchanges are registered as Public Limited Companies under companies Act. Presently DSE has 234 outstanding shares (members) while CSE has 140 shares outstanding. The exchanges are Self Regulatory Organizations and their activities are regulated by Articles of Association Own set of Rules, Regulations and Bye-laws Securities and Exchange Ordinance 1969 Securities and Exchange Rules 1987 Other relevant laws. Basic Markets Public Market : For general trading Spot Market : For pre-book closer trading Block Market : For bulk volume trading Odd lot Market : For odd lot trading Trading Session Trading at DSE is performed through a non-stop platform in following sessions: Continuous Trading hours : 10.00 AM to 2.00 PM Trading day : Sunday to Thursday.

SETTLEMENT & CLEARANCE SYSTEM Primarily Settlement Period is T+1 and T+3 Days : All the trades are cleared and settled, as per Settlement of Stock Exchange Transactions Regulations 1998.

 From January 24, 2004 CDS system started functioning & transactions of all demated Securities are settled and registered through CDS A central clearing company is under process to ensure efficient financial settlement Market Standard and Requirements Disclosure Requirements by the Listed Companies Yearly Audited Financial Statement within four months of the year end. Half-yearly Un-audited financial statements within one month of the first half-year end. Price Sensitive disclosures It is mandatory to follow in preparation of the accounts International Accounting Standard (IAS) International Standards for Auditing (ISA) Corporate Governance All the listed companies are required to adopt the Corporate Governance Guidelines issued by SEC and required by Listing Regulation Featured by: Low Ratio of Market Capitalization to GDP Country Bangladesh ( DGEN) India (BSE) Pakistan (Karachi SE) Sri Lanka (CSE) M.Cap (US $ bn) 5.96 730.00 46.69 8.38 GDP (US $ bn) 63.73 854.48 128.99 26.18 M.Cap to GDP ratio 9.35% 85.43% 36.20% 32.01% M. Cap to Transaction 0.17% 0.61% 0.82% 0.22%

Source: IMF World Economic Outlook & Website of Stock Exchanges of Respective Countries. Basic Market Statistics Total Issued Capital of all listed Securities US $ 2.24 bn Market Capitalization of all listed Securities US $ 5.96 bn LISTED SECURITIES As on April, 2007

=> Companies : 258 ( A 142 , B - 29, G-1, N-7, Z - 86) => Mutual Funds : 14 => Debentures : 08 => Govt.T. Bond : 42 All Securities are Distributed in 16 Sectors : 1. Banks 2. Investment 3. Engineering 4. Food & Allied Products 5. Fuel & Power 6. Jute 7. Textile 8. Pharmaceuticals & Chemicals 9. Paper & Printing 10. Services & Real Estate 11. Cement 12. IT 13. Tannary Industries 14. Ceramic Industry 15. Insurance 16.. Miscellaneous COMPANIES UNDER CDS Multinational & Joint Venture Companies Listed Particulars Multinational Companies Joint Venture Companies No.of company 12 6 Market Cap. in % of total mn market cap. 80319.16 19.86 6101.46 2.25

5 YEARS MARKET PERFORMANCE (DSE only)

DSE pe rform ance from M ay 2002 to April 2007

Trn in mn DGEN

2003

1810 1610 2002 1410 1210 Trn in mn 1010 810

2006

2100 1900 1700

2005

1500 DGEN 1300 1100

410 210 10

2004

610

900 700 500 300

02/05/ 2002 03/06/ 2002 04/07/ 2002 04/08/ 2002 04/09/ 2002 03/10/ 2002 04/11/ 2002 09/12/ 2002 11/01/ 2003 09/02/ 2003 16/03/ 2003 16/04/ 2003 18/05/ 2003 16/06/ 2003 17/07/ 2003 17/08/ 2003 18/09/ 2003 21/10/ 2003 19/11/ 2003 28/12/ 2003 28/01/ 2004 09/03/ 2004 11/04/ 2004 18/05/ 2004 17/06/ 2004 20/07/ 2004 17/08/ 2004 26/09/ 2004 27/10/ 2004 04/12/ 2004 05/01/ 2005 17/02/ 2005 21/03/ 2005 23/04/ 2005 28/05/ 2005 26/06/ 2005 27/07/ 2005 28/08/ 2005 03/10/ 2005 16/11/ 2005 26/12/ 2005 05/02/ 2006 15/03/ 2006 25/04/ 2006 01/06/ 2006 11/07/ 2006 15/08/ 2006 25/09/ 2006 09/11/ 2006 18/12/ 2006 29/01/ 2007 07/03/ 2007 15/04/ 2007

Sectoral Market Capitalization as of April 2007

Sector Financial Sector Banks Insurance Investment Total Manufacturing Foods Pharmaceuticals Textile Engineering Ceramics Tannery Paper & Printing Jute Cement Total Service & Miscellaneous Fuel & Power Service & Real Estate IT Miscellaneous Total

Market % of total Capitalisation Tk Market Cap in mn(334,207) 177,636.36 9,572.79 5,363.74 192,572.89 6,765.85 28,545.39 9,997.11 8,661.55 609.07 2,959.84 286.89 140.81 30,395.84 88,362.35 38,725.99 1,488.75 2,028.78 11,027.82 53,271.34 53.15 2.86 1.60 57.61 2.02 8.54 2.99 2.59 0.18 0.89 0.09 0.04 9.09 26.43 11.59 0.45 0.61 3.30 15.95

Sectoral Market C - A ap pril 2007

Weighted Average Sectoral P/E during April, 2007

S ector s Bank Cement Ceramic Engineering Food & Allied Fuel & Power Insurance Investment IT Jute Miscellaneous Paper & Printing Pharmaceuticals Service & Real estate Tannery Textile Apr -0 7 14.65 19.96 16.83 20.44 17.83 23.10 9.73 12.89 12.05 5.76 16.57 5.44 12.07 12.04 9.41 13.79 M ar -0 7 15.69 21.30 16.73 21.26 19.42 21.72 10.12 9.84 12.13 5.96 17.71 5.44 12.45 12.35 9.12 14.18 Dec-0 6 15.49 18.53 14.88 17.34 18.69 18.87 10.24 6.13 11.12 6.74 11.05 6.62 11.76 12.62 8.00 12.01 Dec-0 5 17.90 16.13 17.06 14.14 9.13 22.32 20.87 6.55 10.46 12.55 7.83 4.69 10.84 8.16 10.28 10.08

Dividend of Listed Companies over the Years by Sector

Sector Bank Cement Engineering Food & allied Insurance Fuel & Power ' Insurance 'Investment IT Jute' Miscellaneous Pharmaceuticals Service & Real Estate Tannery Textile Paper and Printing

Dec 2003 23.69 6.21 25.94 19.38 24.21 54.44 18.16 30.26 8.92 2.61 20.57 19.58 6.00 16:66 5.08 0.31

Dec 2004 18.84 6.25 25.22 18.25 22.24 105.15 13.6 38.56 10.63 2.17 20.07 21.12 5.97 21.61 5.35 -

Dec 2005 34.98 5.99 25.31 20.81 21.53 32.71 19.28 50.39 22.57 7.50 18.96 22.62 10:79 23.65 4.76 1.38

Dec 2006 35.05 6.56 20.31 12.44 18.32 27.92 18.33 40.24 9.33 2.89 23.49 25.49 12.19 7.54 6.38 2.16

Market Developm ent Over the Years

2500

2000

A nnual T urno ver (T k. In millio n)

1500

Taka

1000

M . cap (T k. in billio n)

500

General Index
0

30.06.03

30.06.04

30.06.05

30.06.06

01 .05.07

End of Ye ar on June 30

Statistics of IPO Subscription

Name of the Issue Sonar Bangla Insurance Islamic Finance & Investment Premier Leasing Int.Ltd. Progressive Life Insurance Bergers Paints Bangladesh Ltd. Pragati Life Insurance Jamuna Bank Ltd. S. Alam Cold Rolled Steel Ltd Lankabangla Finance BIFC IPDC BRAC Bank Ltd. Prime Islami Life Ins. Com. Shahjalal Islami Bank ICB AMCL 1st NRB MF Public Offer Public Subs. Over Subscription Taka in mn Taka in mn in times 90.00 360.56 4.01 100.00 1,597.14 15.97 100.50 1,059.90 10.55 45.00 1,643.58 36.52 11.60 1,227.96 105.90 45.00 1,734.95 38.55 386.1 3896.51 10.09 108 442.07 4.09 90.00 1483.24 16.48 110.95 1569.64 14.15 139.00 2261.88 15.27 500.00 4171.54 7.34 45.00 1417.04 30.49 935.85 4025.65 4.3 100 944.56 9.45

Total

2,807.00 27,836.20 US$41mn US$403mn

9.96

DIRECT LISTING Provisions Issuer Dhaka electric Supply Co. Ltd. (DESCO) Power Grid Co. of BD. Ltd.(POWERGRID) Total Off loading Paid up Capital Tk.in mn Tk.in mn 1,271 317 3,643 910 For General Public/Ins Tk.in mn 286 865

Future Prospects The capital market in Bangladesh yet far from its real potentials. From present stage, the major future events that will change the market are highlighted as:

 Within 3 to 6 months 8 large profitable government enterprises are going to be listed under Direct Listing Method adding value worth another 1 billion Dollar. The Telecom Giants in Bangladesh are finalizing their offers for IPO in the market. Power and energy sectors demand for capital is 5 to 10 billion dollar within short time to meet the immediate needs of 5000 MW power demand. (Contd.) Future Prospects (contd.) A deep sea port requiring 1 billion dollar is going to start with a policy decision that it will also be listed. The Pharmaceutical sector and API enjoying WTO benefit is growing sharply. Textile sector as backward linkage to thriving export oriented garments industries is booming. Export oriented food processing industry needs huge capital and technical capacity to meet the growing standards in global market for marine food, fruits and poultry. IT sector with our talented developers, yet to demonstrate the massive potentials of software industry of the country.

Future Programs for Further Development 1. Active market of government, municipal and corporate bonds beside the corporate bonds to create alternative investment. 2. All securities to be brought under CDS within 2 years. 3. All major infrastructure companies, specially those in power, telecommunication and energy sector are to be listed ensure to broaden the market depth with at least US$ 15 billion market cap by 2009 having daily average turnover from current level of average of 10 to 15 million dollar to a level of 70 to 100 million dollar 2 years. 4. To strengthen merchant banks capacity to be more active. 5. Ensuring speedy disposal of decisions for market operation. 6. Ensuring greater degree of transparency in financial disclosure and management structure for better corporate governance.

CONCLUSION
Stocks prices are mainly determined by company fundamentals, while monetary policy can have only short term effect on stock prices. Even in the short run, the effect of interest rates on stock prices is less clear-cut, and in a less developed capital market like Bangladesh, stock prices do tend to respond, even over short term, to new reform measures and tax incentives as discussed above. Therefore, there remains a greater scope for capital market development independent of the monetary policy stance. Increasing public confidence in the stock market through strengthening the regulatory mechanism and ensuring transparency and accountability in financial disclosure of companies are crucial. Government support is much needed to bring in profitable SOE's and private sector enterprises in the capital market. A well developed capital market is also helpful to the central bank in the formulation of the monetary policy through which it can gain information about public perception (e.g. inflation expectations) and hence increase the efficacy of monetary policy using the stock market channel.

RECOMMENDATION
To create an efficient and transparent Market facilitating entrepreneurs to raise capital, so that it accelerates industrial Growth for overall benefit of the economy of the country. The following points should be applicable: o Regulating the market structure through proper rules and strict compliance by members. o Expansion of CSE trading network to cover 504 thanas. o Introduce Book Building system in Bangladesh capital market.

o o o o

Introducing derivative market Continuous promotion of stock investment throughout the country. Create opportunity to cross border trading with SAFE countries. Introduce Global Depository Receipts( GDR)

BIBLIOGRAPHY To complete this assignment successfully, we have to collect information from Various sources, such as newspapers, bulletin and web sites. So, as a reference website and reference books We can mentionAhmed, M. Kabir, M. Akhtaruzzaman, and S. Barua (2006), "Effects of Monetary Policy on Price Formation of Financial Assets: A Test for Bangladesh", Working Paper 0703, Policy Analysis Unit, Bangladesh Bank. Lastrapes, W., D. (1998), "International Evidence on Equity Prices, Interest Rates and Money", Journal of International Money and Finance, Vol. 17, Issue 3, pp. 377-406. Mishkin, F.S. (2004), The Economics of Money, Banking and Financial Markets, Seventh Edition, pp. I-XXXIV + 1-679. Neri, S. (2004), Monetary Policy and Stock Prices: Theory and Evidence, Bank of Italy, Economic Research Department, pp. 1-44. Rapach, D., E. (2001), Macro Shocks and Real Stock Prices, Journal of Economics and Business, Vol. 53, pp. 5-26. European Central Bank (2002): The Stock Market and Monetary Policy, Monthly Bulletin, Franfurt/Main, PP. 39-52. Dhaka Stock Exchange Ltd, Monthly Review (various issues), Dhaka, Bangladesh Bangladesh Bank (October 2005), Monetary Policy Review, Vol.1, No.1