TOPIC

Recent crisis in the stock market and effect on merchat bank-a study on EC securities
(A Full fledge Merchant Bank) :

Part 1 Introducing EC Securities Limited

1. Organization Overview:
1.1 Company Profile:
EC Securities Limited (ECSL) is a financial intermediary providing merchant banking, securities and investment management services. The substantial and diversified clients of the company are corporations, financial institutions and high net- worth individuals. ECSL seeks to provide quality driven merchant banking solutions, as well as new opportunities for individual and institutional investors. EC Securities Limited (ECSL), a financial intermediary, has been operating as the investment arm of East Coast Group (ECG) since 1997. East Coast Group (ECG) emerged as one of the fastest growing business conglomerates in Bangladesh. The group became active in different areas of business starting from trading in bulk commodities to investing in manufacturing, real estate, financial intermediaries, bank & insurance sector. Besides maintaining a potential portfolio of its own, the company is also engaged in underwriting of Initial Public Offerings, equity participation and corporate finance. ECSL is prudently trading in securities market and holds substantial shares of successful companies with continuous high earning and dividend payment records. The Company also holds shares of high-profile private and public limited companies as a long-term investment strategy. ECSL has been maintaining diversified portfolio of its own and has stake in renowned companies such as Union Capital Limited, Hill Plantation Limited, Greenland Pharmaceuticals Limited, MJL Bangladesh Ltd, Mobile Jamuna Fuels Ltd, Consolidated Tea & Plantation Ltd, Surma Summit Tanks Terminals Ltd Clean Fuel Filling Station Ltd, Shugandha Holdings Ltd, GEP Telecom Ltd, and GEP Holdings. ECSL, with its new dynamic merchant banking team and dedicated premise, has now expanded its range to provide portfolio management services to its clients.

1.2 Mission:
Providing quality- driven merchant banking solution.

1.3 Vision:
To integrate through all the areas of the capital market to provide an ideal solution for investors and with aim to grow organically to be able to maintain a sustainable business expansion and provision for the future. 3

1.4 Objectives:
One of the main objectives of ECSL is in-house Asset Management function. Besides maintaining a potential portfolio of its own, the company is also engaged in underwriting of Initial Public Offerings, issue management of initial and repeat public offers, equity participation and corporate finance. And also to create awareness and a brand image that will increase the clientele base, which would further lead to profit maximization for the company.

1.5 Human Resources:

There are 19 employees working altogether under EC Securities Limited in single working shift and in various departments. There are 15 officers.

1.6 Products and Services:

Investing heavily, in modern IT infrastructure and set-of-the-art trading floor, ECSL seeks to provide quality driven services to their clients. Services include: Portfolio Management Margin Loan Facilities Non-discretionary Investor accounts E-trading solution SMS-trading solution Tele-Trading Issue Management Underwriting Merger & Acquisition Counseling Project Feasibility Analysis Private Equity Participation

Part-2 Overview of the report

2.1 Introduction:
An Internship is a prerequisite for the completion of the Bachelor of Business Administration Program of American International University Bangladesh. Each student has to undergo this program. Internship program is a nice opportunity for the graduates to have a taste of the real business world and provides the way how the business world is related with the studies that has been completed theoretically. In other words it gives the tinge of the true practical experience. The primary goal of internship is to provide an on the job exposure to the student thus gaining valuable experience, as the student are exposed to the business environment and gain valuable references and network contacts. As a part of the program of Bachelor of Business Administration course requirement, I was assigned for doing my internship in EC Securities Limited (ECSL) for the period of 3 months starting from February22, 2011 to May 22; 2011.My organizational supervisor was Mr. Waiz Chowdhury an executive of ECSL. My faculty supervisor Mr. Md. Shofiqul Islam, Lecturer in Accounting, American International UniversityBangladesh also approved and authorized me to prepare this intern report.

2.2 Rationale of the Study:

There has been a severe crisis in the stock market during the period 2010-11. This crisis out weighted the crisis that occurred in 1996. Trading has been halted at Bangladeshs main stock exchange amid protests over the largest single day loss in the bourses 55-year history. The exchange halted as per orders from the Securities and Exchange Commission after the benchmark index plunged 9.25 per cent within the first hour of trading. Bangladesh's stock market is largely driven by individual retail investors; many investors have lost their savings. Merchant bank deals mostly with overall finance, long-term loans for company, issue management and underwriting it does not provide general banking services to the general public. The crisis made an impact in normal general operation of ECSL. As I have done major with accounting and Finance and I am very much interested to do work in the area of finance in future, thats why I am proposing this study and also. It will help to contribute more additional knowledge to the faculty of Business Administration and the business also.

2.3 Statement of the problem:

Most of the investors of capital market in Bangladesh are not well attentive about the market. Very often we can see they buy securities based on rumor purchasing the shares without knowing the strengths and weaknesses of the securities. Investors take loans from the financial institutions, it depends on the terms & condition thus the rumor causes to buy compelling the institution to go for force sell thus gives to a rise in the crisis. The merchant banks also have a huge impact for this as they provide loan and issue management. The suggestions given by them, to its client become lame for the rumor and market news. Accurate stock market analytical information is extremely important if investors want to be able to forecast which way the market is going to move otherwise this type of crisis will go recycling very rapidly.

2.4 Objectives of the report:

a. Broad objective: To investigate the reasons for the recent (2010-2011) crisis and the impact of it on ECSL. b. Specific objectives: To sort out the reasons for the crisis. To find out the investors knowledge about our capital market. To motivate the investors doing analysis rather than running after rumor. To find out the rumor or news strength in motivating investors. To make the investors more efficient in terms of margin loan decision. To find out the investors behavior after the crash. To find out the impact on the ECSL for the crash. To find out the effect of government intervention into the market.

2.5 Scope and Delimitation of the Study:

This research helps me very much to know the reasons for the crisis. I am working at department as an intern at EC Securities Limited so I have seen how this department works for general investors. Among the general investor it is not possible to accumulate all the investors, the time limitation is main of the factors moreover for this it is not also possible to go to home of the investors for the primary survey. This research helps me to know the terms and condition for the 7

merchant banking operations and what are situations of the merchant bank in Bangladesh at the time crisis. By doing this research I will be able to know the investors behavior in securities market and the effect on merchant bank and also the measures taken by merchant bank at the time of crisis. Moreover it will also help to know inch an out of the basic stock market related operations of merchant bank during the crisis. At last, I have to say that this internship program will help me to know about the job environment and responsibilities of office.

2.6 Methodology:
This report is based on both primary and secondary data. The primary sources are mainly need to develop questionnaire for the investors and need to take interview of them. There are 26 sample questionnaire collected for the primary survey. For the questionnaire I will do analysis by the Microsoft Excel and try to find out little important information about the crisis effect on ECSL. For secondary sources I will collect data from various sources. For collecting the required data, I will use different sources or methods like the following: a. Primary sources: Practical deskwork Face to face conversation with investors Face to face conversation with respective officer Take interview of the investors Provide and collect the questionnaire

b. Secondary Sources: Relevant file study as provided by the concerned officer. Publications obtained from library of ECSL and from Internet Different types of literature review Study of different types of journal related with finance and stock market. Relevant research papers. 8

Part-3 Analysis & Interpretation of Data

3.1 General reasons for stock market crash

Stock market crash occurs when there is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors often follow speculative bubbles. Stock market crashes are social phenomena where external economic events combine with crowd behavior and psychology in a positive feedback loop where selling by some market participants drives more market participants to sell. Crashes usually occur under the following conditions a prolonged period of rising stock prices and excessive economic optimism, a market where P/E ratios exceed long-term averages, and extensive use of margin debt and leverage by market participants. There is no numerically specific definition of a stock market crash but the term commonly applies to steep double-digit percentage losses in a stock market index over a period of several days. Crashes are often distinguished from bear markets by panic selling and abrupt, dramatic price declines. Bear markets are periods of declining stock market prices that are measured in months or years. While crashes are often associated with bear markets, they do not necessarily go hand in hand. For emerging markets stock crises, prices tend to fall rapidly and steeply, but take longer to recover, in about three years on average for an individual investor. For both developed and emerging markets, prices fall for at least three years subsequent to recovery from a crisis.

3.2 Market Condition before and after the Crash

Dhaka Stock Exchange Gen. Index (DGEN) soared to its highest levels from October to December last year, with the peak on Dec. 5, 2010 at 8,918 points. Dhakas index on Jan. 3, 2010 was at 4568.40 and went up at a staggering 4,350 points or 95.23% increase! But 2 weeks ago, Jan. 10, 2011, trading on the Dhaka Stock Exchange was halted after it fell by 660 points, or 9.25%, in less than an hour, the biggest one-day fall in its 55-year history. As a result the trading suffered a loss of about 6.7 %. Chittagong Stock Market also met a similar fate. Market capitalization dropped by 5.5 percent to Tk 3, 26,087 corers from Tk 3, 44,958 Cr, as all securities suffered a combined loss of Tk 18,871 Cr in value. This fall in market capitalization occurs because of the fall in prices. Fall in share prices was even greater than the market crash in 1996 when the stocks plunged by 6 percent on a single-day.

10

3.3 Causes and Effect of the crash

Market insiders blamed the recent fall on the central bank's measures to control the liquidity flow in the banking system. In an effort to contain inflation, the central bank recently increased the Cash Reserve Ratio (CRR) by 50 basis points to 6 %. It was also aimed at stopping credit-flow to non-productive sectors such as giving loans to buy apartment etc. Bank and non banking financial institutions investment limit fixed up depending on paid up capital. The central bank also issued another directive asking financial institutions to adjust their stock investment exposure by January. From January 2011, no institution will be allowed to invest more than 10 percent of its total liabilities in the stock market, and the exposure will be calculated based on market price, not cost price. Moreover government proposed gain tax on capital gain though this decision postponed but it affected the investors. Introducing OTC market made the junk share of around 25 companies to be traded there resulting in increase in demand of the remaining share. Companies asset revaluation opportunities are given. Companies raised their asset value thus in turn increasing the NAV per share of the company. It made the investor to invest in those share. Change of face value of the share and it was a great impact on booming market. If the face value is changed the existing share holder get the benefit when right or bonus is given. As a consequence of changing the face value it ultimately increases that share price. The International Monetary Fund's prescription to Bangladesh Bank for addressing the overexposure of commercial banks to the stock market also propelled the unprecedented fall. The SEC's excessive initiatives to cool the market in a short time are also blamed for the crash. The SEC increased the share credit ratio to 1:2 from 1:1.5 SEC increase the loan facilities from 1.5 % to 2% but after few months change again and it fixed 1.5% but it wasnt fixed for long time and again reduces loan facilities 1.5% to 1%. It means an investor will get a loan of Tk 2 against shares worth Tk 1later on it again return to fixed tk 1.5 against tk 1. This interested the investor to take loan at the time when the market was good, thus after the crash it takes away all the belongings of the investors. Beside this poor monitoring on big investors or speculators by DSE and SEC and also lack of coordination between stock exchange and SEC.

11

3.4 Investor Product available in stock market

There are four investing product for the investor to invest. These include the following: Ordinary Shares Debentures Mutual fund Bond Among those above debentures and bond are long term investments. Bangladeshi investors are always interested to invest in the short term products. The portfolio of the investors rarely consists of the long term product. Thus they take high risk for higher return but on the other hand also lose money in a huge amount when they get loss.

12

3.5 The Market Performance Before and after the Crisis: Total trade Chart

450000 400000 350000 300000 Trade Volume 250000 200000 150000 100000 50000 0 60350 10433 309696 389310

05/12/10

01/12/10

07/12/10

09/12/10

13/12/10

15/12/10

20/12/10

22/12/10

26/12/10

28/12/10

30/12/10

03/01/11

05/01/11

09/01/11

11/01/11

13/01/11

17/01/11

19/01/11

25/01/11

27/01/11

The total trade chart shows that the market trade was increasing from 309696 to 389310 at Dec 5 2010. After that the market falls sharply trade is increasing at a decreasing rate. When the market is at its highest trend the investors put money as they are gaining more. At this stage i.e. speculators are sold their holdings. There might be rumor on the investors mind that market However at 30 Dec it has gained some momentum but afterward it falls to the lowest at Jan 10 2011 to 60350. After that government implementation has increased the market to 238201 but again falls on 10433.

13

31/01/11

Total Value in Taka (mn)

35000 32495.756 30000 31796.934 25000

20000 16497.662 15000 10776.391 10000

5000

4003.136 680.842

13-12-10

05-01-11

01-12-10

05-12-10

07-12-10

09-12-10

15-12-10

20-12-10

22-12-10

26-12-10

28-12-10

30-12-10

03-01-11

09-01-11

11-01-11

13-01-11

17-01-11

19-01-11

25-01-11

27-01-11

At the start of the month December the total value in Tk 31796.934 (mn) after that the market reached at its highest peak to 32495.756 at December 5. After that from 5th December 2010 to 10 January 2011 the market turnover decreases by 87.7% and it is a great deviation from the peak. Positive market turnover tend to positive trend of the market but during very turmoil time of the market its turnover was very low which effect is existing on present market. General investors lose their money value by many folds. Gambler and speculators raise the market and give the general investors a tinge of profit but after wards when they go massive selling the market has crashes. However with the government intervention the i.e. implementing circuit breaker the market has improved. The government implementation turned out to worse situation as the speculators do not have the advantages. As a consequence of this the market again falls by 95.87% i.e. from 16497.662 to 680.842. 14

31-01-11

DSE General Index

8900 8600 8300 8000 7700 7400 7100 6800 6500 6200 5900 5600 5300 5000 01-12-10 6499.43591 6326.34483 7690.68991 8918.51346

08-12-10

15-12-10

22-12-10

29-12-10

05-01-11

12-01-11

19-01-11

26-01-11

At the start of December the DSE GEN index was raising which was very good signs. However at December 5th it has reached its peak 8918 which is a record for DSE. After wards it falls to 6326 losing 29% of its value accordingly the market fall. Meanwhile the market first falls to 6499 at 10 January 2011 after which it increases to 7690. This is due to the government bodies intervention after which it again fall to its record label history. Apart from it this fall also arises as the investor invested more to minimize the losses this fall is greater than the fall in 1996.

15

3.6 Effect of SLR & CRR on Stock Market

Bangladesh Bank (BB) implemented revised CRR (Cash Reserve Ratio) & SLR (Statutory Liquidity Ratio) before the crisis occurred. CRR: Also called the cash ratio refers to a portion of deposits (as cash) which banks have to keep/ maintain with the BB. This serves two purposes. It ensures that a portion of bank deposits is totally risk-free and secondly it enables that BB control liquidity in the system, and thereby, inflation by tying their hands in lending money. SLR: Besides the CRR, banks are required to invest a portion of their deposits in government securities as a part of their statutory liquidity ratio (SLR) requirements. SLR is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. What SLR does is again restrict the banks leverage in pumping more money into the economy. SLR rate is determined and maintained by the Bangladesh Bank in order to control the expansion of bank credit. Raising CRR and SLR worsen the situation of the Bangladesh stock market. Government imposes it to control inflation and to restrict credit giving capacity. Banks to maintain their liquidity position sold the share that they are holding of other institutions. As a result of it the supply of share was more in the stock market that outweighed demand thus making the share prices to fall immensely.

3.7 Circuit Breaker Implementation and the impact on Stock market

Circuit Breaker sets the maximum permissible deviation of the price (specified as percentage) of the incoming order from the Circuit Breaker Base Price for that instrument. Orders violating circuit breaker will result rejection of the order. Circuit breakers were put in order to keep any future market drops from transforming into panics. They were controversial at the time of their installation and have remained so. Implementing this in Bangladesh stock market causes the market to a worse situation i.e. instead of making share prices less volatile, they increased them instead. Before this crisis a stock price was allowed to increase 20% but now it has turned to increase 10% of that 20%. As a consequence of this the speculator cannot speculate with the stock spontaneously. Speculator did not have chance to gamble with the stock prices rather they withdrawn money as a result the general investors prices of the stock does not increase resulting in a loss rather it is followed by halted price.

16

3.8 The impact on ECSL for the crisis

Portfolio Management Service: The portfolio management department of ECSL maintains two portfolio one is organizations own portfolio, which is an omnibus BO account and investors portfolios, which are operated against each individuals account. For the crisis there are very much lack of new and fresh investors, as a consequences of this is little or not that much of accounts opening compared to last year. ECSL commences its operation on 2010 and have more than thousand clients. Thus the crisis halted the rate of growth of the companys client, which in turn affected their revenue. Margin Loan Facilities: ECSL also provides margin loan facilities based on clients equity to give the investors financial leverage to trade in stock market. The ratio has increased from1:1.5 to 1:2 loan facilities (subject to changes on SECs directives and related rules). The interest on loan 14.50% p. a. charged quarterly. For the crisis investors are not taking loans as they are very much uncertain about the future market. Thus the income that ECSL used to get declined immensely. Issue Management: It is a mandatory activity for ECSL as they operating in Bangladesh. The main work is managing new issues of equities, bonds and debenture. It deals with the pricing issue of Shares, getting approval from the appropriate authorities, arranging underwriters, bankers to the issue, stock exchanges, advertising agencies receiving share applications, arranging distribution of allotment letters and refund money send all other activities related to public issues. The crisis has restricted new entrant. Companies are not responding that much as they might not be able to raise funds as the market is not in a good condition. Underwriting: Underwriting is one of intermediary function whereby underwriters, agrees to take up the unsold position of an issue that is being offered by the company directly to the investor. In other words it is a guarantee of subscription of shares or debentures by the public against some specific commission. In our country as per the SEC rules every public company has to do 50 % of their new issues must have to underwrite. For the market crash ECSL does not take risk of underwriting, thus it also deprived them from making the profit from underwriting.

17

3.9 Regulation for Merchant Bank Falls on Investors

Apart from all above the Securities and Exchange Commission (SEC) suspended the computation based on net asset value (NAV) in providing share credit by lenders. According to the NAV-based calculation, a merchant banker or a stockbroker gives loan on the basis of the value of a stock by adding the market value to NAV and dividing the sum by two. The computation of this providing margin loan was difficult and software was eligible for effective margin loan. As a result of this it was suspended. The SEC increased the share credit ratio to 1:2 from 1:1.5. It means an investor will get a loan of Tk 2 against shares worth Tk 1. Later on SEC after few months change again and it fixed 1.5% but it wasnt fixed for long time and again reduces loan facilities 1.5% to 1%. This interested the investor to take loan at the time when the market was good, thus after the crash it takes away all the stock market belongings of the investors.

18

3.10 Analysis & Interpretation of the Questionnaire

From how long you are investing in capital market? Less than 1 year 1 to 2 year/s 2 to 3 years More than 3 years

12%

19%

less than 1 year 19% 50% 1-2 years 2-3 years more than 3 years

Interpretation
Among the respondents 50% of them have their investment in the capital market for about 2-3 years while 19% of the respondents have the investment for less than 1 year and the other 19% have their investment between 1 to 2 years.

19

How much is your total investment? Less than 100,000 100,000 500,000 500,000-1,000,000 More than 1,000,000
100 92 90 80 70 60 50 40 30 20 10 0 0 less than 1 lac 1 lac to 5 lac 5lac to 10 lac more than 10 lac 4 4

Interpretation
It is observed that 92% of the respondents have their investment more than 1,000,000. Among them no one of the investors have less than 100,000. Meanwhile the other respondents have the same 4% i.e. their investment100, 000 to 1,000,000. It indicates that investors have more than 1 lac for the investment i.e. there is no one less than 1lac.

20

What type of analysis do you prefer for investment? Fundamental analysis Technical Analysis Recent market news or rumor All of the above

45 40 35 30 25 20 15 15 10 5 0 fundamental analysis technical analysis recent market news or rumor all of the above 8 39 38

Interpretation
Most of the respondents do fundamental analysis before investing. Meanwhile 15% of them depend on recent market news or rumor. Apart from it there investors those who have the knowledge and does the analysis and they do also wait for market information. Combination of all those make their investment. The market rumors have a major impact on stock market.

21

What attracts you the most? Dividend Capital Gain

dividend

capital gain

46%

54%

Interpretation
Among the sample 54% of the respondents wait for capital gain which indicates that they wait for their share price to rise. Thus when stock price do not increase they lose immensely. Meanwhile the rest of the respondents wait for dividend i.e. cash or stock dividend

22

What sector you prefer for investment the most. Bank NBFI Textile Pharmacy Fuel & Power Others

45 40 35 30 25 20 15 10 5

42

19 12 8

19

0 0 bank NBFI textile pharmacy fuel and power others

Interpretation
42% of the respondents have their investment in bank as this more safe than the other sectors and it is preferred the most. The second preference is the NBFI which is 19%, while textile has got and fuel and power were low preferred. The other sectors includes the engineering, telecommunication etc. but the pharmacy preference is nil. These conclude that the investors will prone to invest more in bank rather than any other sectors. So if anything with this sector occurs it will have an immense effect.

23

What will be the future of capital market in Bangladesh as per you? Bullish Steady Bearish Not Predictable

bullish

steady

4%

46% 46%

4%

Interpretation
46% of the investors believe that the market will be steady and is not losing hope for the crash. On the other hand 46% of the investors cannot predict the future market condition it can be good or become worse. Apart from it the chances of the market to be bullish and bearish are very low according to the investors. All in all it can be said that the investors are not that much confident about the future phase of the stock market.

24

If you are given 10 lakh Taka today to invest in only one class of securities, you would Invest in National Savings Certificates. Invest in bank fixed deposits Invest in A grade corporate bonds Invest in the Stock Market

100 90 80 70 60 50 40 30 20 10 0 invest in national saving certificates invest in bank fixed deposits invest in A grade corporate bonds 0 4 4

92

invest in the stock market

Interpretation
The respondents are very much keen to invest in the stock market rather than elsewhere although there is a crash. This is because the investors will have to cover the losses the obtained during the crash. The stock prices are low for the crash as a consequence of this it will get averaged and will minimize the loss. Meanwhile there are some investors those are willing to have fixed earnings. But there are no investors who want to have their investment in national saving certificates the return might be very low from it.

25

If you are given 10 lakh Taka today, what would be your most appealing investment mix? 60% in low-risk investments 30% in medium-risk investments 10% in high-risk investments 30% in low-risk investments 40% in medium-risk investments 30% in high-risk investments 10% in low-risk investments 40% in medium-risk investments 50% in high-risk investments
60% in low, 30% in medium and 10% in high risk investment 30% in low, 40% in medium and 30% in high risk investment 10% in low, 40% in medium and 50% in high risk investment

4% 19%

77%

Interpretation
Investors are now more cautious with the investment there is 77% of the investors those want to take 10% of their money to risky investment. This is because the losses they obtained from the crash without the expectations. However there are 4% of the investors those want take the risk in order to gain more in a short period of time. Meanwhile there 19% of the investors those want to 30% in risky stock so that they can take advantages.

26

What kind returns expectations do you have in regards to your managed portfolio account? 10 - 15 % per annum 16 - 25 % per annum 26 - 35 % per annum 36 45 % per annum

10-15% p.a

16-25% p.a

26-35% p.a

36-45% p.a

4%

17% 33%

46%

Interpretation
After the crash the market return expectation is not to the extreme before investor want to have 100% return from the market. There are 46% of the investors those wants to minimum return of 35%. Investors expectation has minimized by many fold.

27

If the stock market index falls gradually falling over the last several months. You would do the following Pull your money out of stocks and into a savings / current account Pull your money out of stocks and into a bank FDR or A grade corporate bond Do nothing and wait it out. The market will come back up eventually Buy more stocks since prices are low.

80 73 70 60 50 40 30 23 20 10 0 saving money in savings saving money into a or current account bank FDR or A grade corporate bond Do nothing buy stock at low price

4 0

Interpretation
Majority of the respondents of about 73% will do nothing if the market falls again i.e. they will not withdraw money from the market till it fixes again. While 23% will invest more in the market this they will do to minimize losses by purchasing the stock which is at lower price for the crash. Only 4% of the investors want to put money in the saving money or current account. Nevertheless no one among the respondents is interested in FDR or A-graded corporate bond. If the crash occurs again there might be the scenario where there will be little or less transaction.

28

What percentage of your total equity is from loan? 0% (1-30)% (31-60)% More than 60%

0% 31-60%

1-30% more than 60%

12%

19%

58%

11%

Interpretation
There are 58% of the respondents those have margin loan more than 60%. The SEC rules allow providing loan at a ratio of 1:1 or 1:1.5 thus when the market was good investors took loan and got stuck as the market crashes. While 19% of the investors have loan of ranging 30-60% and 12% of the investors do not have any loan.

29

Part-4 Findings

30

4 Findings of Study: After analyzing all the descriptive part, I have following findings on
the report work: I. II. III. IV. Investors have minimum of 1 lac Tk investment. Rumor cause the analysis to become weak as most of the investor wait for it. Investors are more interested to have capital gain rather than dividend Banking sector is the most preferred among the investors so implementation of CRR and SLR affected much in the capital market. V. The measures taken by SEC are unexpected and unnecessary intervention of a donor agency took a big toll on the market. VI. SEC increase the margin loan facilities from 1.5 % to 2% but after few months change again and it fixed 1.5% but it wasnt fixed for long time and again reduces loan facilities 1.5% to 1%. VII. SEC fixed the in loan limit of the individual investors and it was not more than 10 cr in a single account. VIII. Govt. proposed gain tax on capital gain though this decision postponed but it affected the investors instantly. IX. Introducing OTC market made the junk share of around 25 companies to be traded there resulting in increase in demand of the remaining share. X. Investor loses confidence about the investment and also the risk taking mentality is also minimized. XI. Companies asset revaluation opportunity made the company to raise their asset value thus in turn increasing the NAV per share of the company and hence the demand. XII. XIII. Change of Face value and it was a great impact on booming market. Bank and non banking financial institutions investment limit fixed up depending on paid up capital. XIV. XV. Implementing circuit breaker made the market to crash more. If the crisis continues most of the investors will do nothing rather they will wait till the market fixes. XVI. Poor monitoring by DSE and CSE on the movement on the big investors or speculators.

31

XVII. XVIII.

Lack of coordination between stock exchange and SEC. When the stock market fall the investor invests more in order to minimize their losses.

XIX. XX. XXI.

The crash made ECSL underwriting function to minimize. The crisis declined the loan income of the ECSL as issue of margin loan minimized. The stock market crisis has restricted the new entrant in the capital market thus hampering the issue management.

32

Part-5 Recommendations & Conclusion

33

5.1 Recommendations:
I.

From above discussions and basic understandings about the

crisis the following recommendations can be formulated for the crisis. It is not the duty of the regulator to control the index their responsibility is to check irregularities or manipulative transactions furthermore the coordination between stock exchange should increase. II. DSE and SEC should have to monitor closely on big investors. SEC and DEC should cooperate with each other and closely monitor if any stock rises unexpectedly. III. DSE and SEC should evaluate deeply before implementing something such as the margin loan facilities this is because fluctuation with the margin loan ratio decision kept in a haste both the investors and merchant bank. IV. Government raises CRR & SLR should give some restriction or else controlling inflation by this affected others this is because bank are mostly preferred sector for the investor. V. Companys asset revaluation should be taken care of so that it gives true figure for NAV otherwise investor will invest in wrong stock. VI. The junk share in the OTC market should be taken care of for the price so that speculator cannot speculate with is much. VII. Circuit breaker should be implemented for a specific stock if needed i.e. to restrict its brisk raise. VIII. Government should withdraw the fixed limit for investment for the bank and financial institution this is because their paid up capital might be less but their performance might be good, as performance and paid up capital does not bear any strong correlation. IX. Investors are interested to invest in the stock market so when the market condition is good ECSL can give margin loan facilities. X. Raise in the price index should be taken care of by the government bodies and investors should invest wisely. XI. XII. ECSL should encourage its investor by doing analysis to make the investment fruitful. Investors running after the rumor or news should be minimized not all time the news will bring gain rather they should give concentration on those companies that are financially strong and gives good dividend.

34

5.2 Conclusions
The market is crashed broadly because of the speculative attack and for the banking sectors movements. Increase in CRR and SLR by the central bank causes the bank to go for massive selling stock that they are holding thus making an increase in excess supply of stock in the market resulting in a fall in the price of stock. The investors do the analysis still they wait for the market rumor or the news in order to get more capital gain thus increasing the strength of rumor thus all analysis is kept aside. Speculators take these advantages of investors perceptions. Regarding loan investor take loan when there is an increase in price or when they have to average their cost of the investment. The crash made changes in the investors perception now they reduce their investment in risky securities and also to have less expected return on their investment. Government intervenes in the stock market by circuit breaker but it made the situation more badly as market collapse after that. ECSL is affected immensely on the operations that includes portfolio management, issue management, underwriting and margin loan.

35

Part-6 Bibliography & Appendix

36

Bibliography
EC Securities Limited, (2011), Available: http://www.ecslbd.com. THE DAILY STAR, Available: http://www.thedailystar.net SEC, Bangladesh (2011)http://www.secbd.org/addressstockmarket.html. Chittagong Stock Exchange, (2011), Available: http://www.csebd.com/ Dhaka Stock Exchange, (2010-11), Available: http://www.dsebd.org/ Wikipedia http://en.wikipedia.org/wiki/, http://www.stockbreakthroughs.com PnoyTrader.com, http://www.pnoytrader.com Stock BD .com,http://www.stockbangladesh.com/ The Financial Express, http://www.thefinancialexpress-bd.com Stock changes..http://www.stockbreakthroughs.com Bangladesh Bank, (2011), Available: http:// www.bangladesh-bank.org / [25th April, 2011]

37

Appendix
Questionnaire
AGE Occupation: 1. Gender M / F Service Business Marital Status M / U / W / D / S Student Others.

From how long you are investing in capital market? a. b. Less than 1 year 1 to 2 year/s c. d. 2 to 3 years More than 3 years

2.

How much is your total investment? a. Less than 100,000 100,000 500,000 c. 500,000-1,000,000

b. 3.

d.

More than 1,000,000

What type of analysis do you prefer for investment? a. b. Fundamental analysis Technical Analysis c. rumor d. All of the above Recent market news or

4.

What attracts you the most? a. b. Dividend Capital Gain

5.

What sector you prefer for investment the most. a. b. c. Bank NBFI Textile d. e. f. Pharmacy Fuel & Power Others

6.

What will be the future of capital market in Bangladesh as per you? a. b. Bullish Steady c. d. Bearish Not Predictable

7.

If you are given 10 lakh Taka today to invest in only one class of securities, you

would a. b. c. d. Invest in National Savings Certificates. Invest in bank fixed deposits Invest in A grade corporate bonds Invest in the Stock Market

38

8.

If you are given 10 lakh Taka today, what would be your most appealing investment mix? a. 60% in low-risk investments 30% in medium-risk investments 10% in

high-risk investments b. 30% in low-risk investments 40% in medium-risk investments 30% in

high-risk investments c. 10% in low-risk investments 40% in medium-risk investments 50% in

high-risk investments 9. What kind returns expectations do you have in regards to your managed portfolio account? a. a. b. c. 10. 10 - 15 % per annum 16 - 25 % per annum 26 - 35 % per annum 36 45 % per annum

If the stock market index falls gradually falling over the last several months. You would do the following a. b. Pull your money out of stocks and into a savings / current account Pull your money out of stocks and into a bank FDR or A grade corporate bond c. d. Do nothing and wait it out. The market will come back up eventually Buy more stocks since prices are low.

11.

What percentage of your total equity is from loan? a. b. c. d. 0% (1-30)% (31-60)% More than 60%

Page | 39