Analysis of current scenario of stock markets in Bangladesh From investors™ perspective

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PROJECT REPORTON

“Analysis of current scenario of stock marketsin Bangladesh: From investors’ perspective”

SUPERVISED BY: SUBMITTED By:

USB DEPARTMENT

UNIVERSITY OF LIBERAL ARTS BANGLADESH

Date of Submission: 29 August 2012

UMME AKLIMA ALAM

Lecturer USB Department

University Of Liberal ArtsBangladesh

AMZADUR RAHAMAN

ID: 091011110

Course code: BUS 499

USB Department

University Of Liberal Arts Bangladesh

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Certificate of Supervisor

It is certified that Amadur Rahaman BBA final year “summer 2012”, here is ID Number091011110, he completed his project under my supervision.

I wish him success in his future.

Signature

Date:

Umme Aklima Alam

Lecture of USB Dept.

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Abstract

The history of share market in Bangladesh is very old. It started more than fifty years ago. After

many obstacles and problems Dhaka Stock Exchange has come to a position where it is now

.The market has almost 3 million investors as per as the BO account number. But it is a matter

of great surprise that there has never been a survey on the investors .Now for the first time DSE

has done it.

People are still not properly educated about the capital market and that’s why they listen to the

rumors and take many decision while invest .In this project we tried to come up with different

profiles of the investors to understand them better and to educate them in a more specialized

manner. One important thing that this survey shows that many young people is involved to this

market. DSE has to work for them and work with them.

This survey also gives us an overview of the problems that people are facing .This report also

focuses on the system of trading and current market condition. It also looks into DSE as an

organization and evaluation its performance.

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Letter of Transmittal

29 August 2012

Umme Aklima Alam

Lecturer of USB Department

University Of Liberal Arts Bangladesh.

4/A Dhanmondi ,Dhaka 1209.

Subject: Submission of Project Report

Ma’am,

It is my pleasure to submit my project report on the topic of “Analysis of current scenario of

stock markets in Bangladesh: From investors perspective” as a requirement of BBA. In this

report,I gave an overall idea about the history of Dhaka Stock Exchange, importance of Dhaka

Stock Exchange in the economy of Bangladesh, the recent trade of capital market and investors

attitude towards capital market. Finally I gave some recommendations based on my analysis.

I feel obliged to express my gratitude to you for your cordial cooperation and to giving me an

opportunity to study such an important topic. This academic endeavor helped me to blend

theoretical study with practical knowledge.

Thanking you

……………………….

Amzadur Rahaman

ID:091011110

USB Department.

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ACKNOWLEDGEMENT

First of all, I like to acknowledge my gratitude to Almighty Allah for His blessings

without which I could not complete this report. I would also like to express my deep

gratitude and thanks to my honorable Supervisor Umme Aklima Alam, Lecturer,

USB Department, University of Liberal Arts Bangladesh for assigning a practical and

interesting study and imparting her valuable time, knowledge and resources for

preparing the report. She always guided me to finish this task successfully. Without her

help it was quite impossible to finish this project properly in time. I am also grateful to

all of my teachers who helped me to acquire knowledge during our past courses.

I am thankful to Mr.Belayet Hossain, investor in capital market, Abdur Rouf, manager

of Global Securities, Khan Jahangir Hossain, Accounts Officer of Global Securities,

Md. Abdul Jolil, Trading Executive of Global Securities, Md. Maher Alahi,Manager

of Global Securities of Shyamoly Branch and Tanvir Ahamed, young investor in

capital,market for giving me valuable information regarding attitude of investors.

I would also like to thank my classmates and friends who encouraged me to finish this

assignment successfully and all others who helped me directly or indirectly to prepare this

report.

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The report is divided into seven chapters. These are:

Chapter-1 : Introduction

Chapter-2 : Historical Background of Stock Market

Chapter-3 : Over view of Investors

Chapter-4 : Risk Related Factors

Chapter-5 : Important factors for investment decision

Chapter6 : A practical survey on investors

Chapter-7 : Conclusion

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Table of contents

Chapter-1 : Introduction

1.2 Statement of the Problem................................................................................................8

1.3 Significance of the Study..................................................................................................8

1.4 Objective of the Study.....................................................................................................9

1.5 Methodologies used in the study.....................................................................................9

1.6 Research Design...............................................................................................................9

1.7 Limitations of the study ... ..................................................................................................10

Chapter-2 : Historical Background of Stock Market

2.1 Brief History of Stock Market in Bangladesh................................................................11

Chapter-3 : Over view of Investors

3.1 Definition of investors....................................................................................................14

3.2 Classification of investors..............................................................................................14

Chapter-4 : Risk Related Factors

4.1 Definition of 'Risk' ............................................................................................................16

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4.2 Types of Investment Risk ...............................................................................................16

4.3 Systematic Risk ...............................................................................................................16

4.4 Nonsystematic Risk ........................................................................................................18

4.5 Other Investment Risks.................................................................................................19

4.6 Assessing Risk................................................................................................................19

4.7 The Dimensions of Returns (Risk factors)..................................................................20

Chapter-5 : Important factors for investment decision

5.1 Fundamental analysis..................................................................................................23

5.2 Technical analysis.........................................................................................................27

Chapter-6 : A practical survey on investors

6.1 Company Information...............................................................................................................................30

6.2 Introduction of Global Securities.............................................................................................28

6.3 Findings and Analysis .................................................................................................33

6.4 Table of Findings .........................................................................................................35

6.5 Analysis of Data............................................................................................................35

6.6 Key findings....................................................................................................................................37

6.7 Recommendations..........................................................................................................................38

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Chapter-7 : Conclusion

7.1 References ......................................................................................................................4o

List of abbreviation

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Introduction

For the students of BBA major in finance, project is an academic requirement. For this project

my requirement is to work at “Analysis of current scenario of Stock Market in Bangladesh:

from Investors Perspective” to enhance the practical experiences. The project is managed and

supervised by a supervisor who is a teacher of the university. For my project, I went to many

brokerage houses to collect my essential information and gather practical knowledge by dealing

with the general investors under the supervision of Umme Aklima Alam, lecture, Department of

USB, University of Liberal Arts Bangladesh.

1.2 Statement of the Problem:

I am going to study with the Stock Market in Bangladesh from Investors Perspective, stock

market plays a vital role in the development of economy of Bangladesh. It also performs many

functions which can yield a value to the Economy of Bangladesh. In my study I want to derive

two things one is the functions played by the stock exchange and its role to the Economic

development. Another is the evaluation of investors in the participation and attitude in the

market.

1.3 Significance of the Study:

I think there are a number of significant role of my study. Since we are suffering from the lack of

assets so we have to ensure a safe investment of our scarce assets. But if we invest all money in

one type of stock in the capital market then if the price fall of that asset then we have to solely

loss our all money. In this regard if we invest our money in more than one stock then if the price

of one stock falls, the other may not fall. As a result the average loss will be minimized and it

will be possible to recover the loss. So we can say that the knowledge of portfolio is very much

needed to minimize our loss from investment.

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1.4 Objective of the Study:

The main objective of my study is to identify the behavior of the investors and merchants banker

of the stock market and their perception while taking investment decision and their risk analysis

techniques. The main purpose of my study to learn something and to find out some ways by

which general investors and merchant takes their investment decisions. Although many high

scholar person are engaged in stock market and they are very expert in analysis but as my study

purpose I have to find out some pitfall (which are very insignificant) to make a reasonable study.

I think this study will be beneficial to the newly entrance of investors to minimize the

unexpected loses.

In my study I made the analysis in two perspectives as

1. The study on the activities of general investors

2. The calculation of risk of the Portfolio of merchant bankers.

1.5 Methodologies used in the study:

1.6 Research Design:

In order to attain the aims of the study, both the qualitative and quantitative methods

where used. I gathered the necessary information regarding the issues. In purpose I

searched various sources of information like newspaper cutting, university library, a DSE

annual report and several websites as well as took interview of some executive of the

brokerage houses.

Sources of data collection:

Primary data: directly attend in the different brokerages houses and got guide lines from the

investors attended in the market.

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Secondary Data: The secondary data had been collected studying several articles, annual report,

and web site of DSE, general information's annual report of DSE and SEC Annual Report.

Statistical tools used: In my study I used mean, variance, standard deviation, covariance,

combination and Matrix analysis in the analysis.

Computer program: MS-WORD and MS-EXCEL are used in the data analysis.

1.7 Limitations of the study:

In preparing this report I have faced a little limitation.

1. Merchant Bankers do not eager to share information.

2. The source of information is not enough.

3. The perception of general investors differ from man to man so the information asymmetry had

been occurred.

4. Sample size is very insignificant.

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2.1 Brief History of Stock Market in Bangladesh:

Stock market is a very vital economic agent of every developing economy like Bangladesh. It

plays major role in the development of economy. In the last year the contribution of stock market

in the country’s GDP was significant. Besides many people became solvent by participating in

this market. In our country there are two major stock markets named Dhaka Stock Exchange

(DSE) and Chittagong Stock Exchange (CSE).

The stock market history of Bangladesh refers back to 28 April, 1954 when the East Pakistan

Stock Exchange Association Ltd. was established. Formal trading began on the bourse in 1956.

The trading was suspended during the liberation war of Bangladesh in 1971. Operation resumed

again in the 1976 with the change in government policy. During 1976, there were only 9 listed

companies with total paid up capital of Tk.0 .138 billion and market capitalization of Tk. 0 .147

billion which was 0.138 % of GDP (Khan, 1992). Since then the stock exchange continued its

journey of growth.

The major functions of DSE are:

Listing of Companies (As per Listing Regulations).

Providing the screen based automated trading of listed Securities.

Settlement of trading (As per Settlement of Transaction Regulations).

Gifting of share / granting approval to the transaction/transfer of share outside the

trading system of the exchange (As per Listing Regulations 42).

Market Administration & Control.

Market Surveillance.

Publication of Monthly Review.

Monitoring the activities of listed companies (As per Listing Regulations).

Investors grievance Cell (Disposal of complaint bye laws 1997).

Investors Protection Fund (As per investor protection fund Regulations 1999).

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Announcement of Price sensitive or other information about listed companies

through online.

Chittagong Stock Exchange is a stock exchange located in the port city of Chittagong in

southeastern Bangladesh. It was established in 1995 as the second stock exchange of the country.

The exchange is located in the Agrabad commercial area of the city. It's a very small exchange

which trade volume is less than many brokerage houses in Bangladesh.

In order to control operation of the stock exchanges and trading of stocks of listed companies,

the government of Bangladesh established the Securities and Exchange Commission of

Bangladesh on 8th June, 1993 under the Securities and Exchange Commission Act, 1993 .The

mission of the SEC is to protect the interests of securities investors, develop and maintain fair,

transparent and efficient securities markets, ensure proper issuance of securities and compliance

with securities laws.

In order to control operation of the stock exchanges and trading of stocks of listed companies,

the government of Bangladesh established the Securities and Exchange Commission of

Bangladesh on 8th June, 1993 under the Securities and Exchange Commission Act, 1993 The

mission of the SEC is to protect the interests of securities investors, develop and maintain fair,

transparent and efficient securities markets, ensure proper issuance of securities and compliance

with securities Law.

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The major functions of SEC are:

Regulating the business of the Stock Exchanges or any other securities market.

Registering and regulating the business of stock-brokers, sub-brokers, share transfer agents,

merchant bankers and managers of issues, trustee of trust deeds, registrar of an issue,

underwriters, portfolio managers, investment advisers and other intermediaries in the

securities market.

Registering, monitoring and regulating of collective investment scheme including all forms

of mutual funds.

Monitoring and regulating all authorized self regulatory organizations in the securities

market.

Prohibiting fraudulent and unfair trade practices relating to securities trading in any securities

market.

Promoting investors’ education and providing training for intermediaries of the securities

market.

Prohibiting insider trading in securities.

Regulating the substantial acquisition of shares and take-over of companies.

Undertaking investigation and inspection, inquiries and audit of any issuer or dealer of

securities, the Stock Exchanges and intermediaries and any self regulatory organization in the

securities market.

Conducting research and publishing information

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Over view of Investors

3.1 Definition of investors: The definition of investors can be varied in according to their

risk taking behavior and participation.

According to risk taking behavior the investors are classified as

Risk taker, who loves to take risk and they believe the higher risk the higher return.

Risk averse, who avoids risk, so the lower risk, the lower return.

3.2 Classification of investors: According to market participation the investors are

classified as active investors, passive investors and speculative.

Active investors (Enterprising Investors): Active investors are the types of investors who

spend a lot of time researching individual stocks. They read everything they can get their hands

on. They study the companies that they have purchased or are planning to purchase.

These types of investors know how to read the financial statements and SEC filings. They study

the holdings of other investment gurus like Warren Buffett and Charlie Munger. You can also

find them active in investment-related forums reading the consensus views of the investment

community over a particular stock.

There are different sub classifications with this type of stock market investors. They can be deep

value investors, growth value investors or a combination of both. They would also invest in other

securities and look at other investment vehicles like fixed income investments and real estates.

Passive investors (Defensive Investors): Passive investors are the types of stock market

investors who are keen on investing their money but do not want to spend a lot of time

researching individual stocks. They give their money to fund managers who invests it for them.

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Most of them invest in mutual or hedge funds of various styles and themes, as well as index

funds.

The passive investors create a plan to automate their investment allocation decisions. For

example, when the stock market falls below 20%, passive investors would increase their stock

holdings to 50% of total investment portfolio. Conversely, when the stock market increases to

20%, they would lessen their stock holdings to 30% of their total portfolio.

They read the newspapers about finance and economy, but they don’t really put so much time

looking at bargain stocks unlike active investors. They want lesser return in exchange for

freedom to pursue other interests.

Speculators: These types of investors are definitely not part of Ben Graham’s playbook. Ben

Graham believes that speculating is neither illegal nor immoral and could be financially

fattening. He cautions investors that speculation stocks should only be a small portion of their

portfolio. Speculators are people who are interested in making a quick buck based on rumors or

prospects. They don’t want to hold a stock for a long period of time and returns are largely based

on hope that someone will pay up the stock that he has bought.

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Risk Related Factors

4.1 Definition of 'Risk':

The chance that an investment's actual return will be different than expected. Risk includes the

possibility of losing some or all of the original investment. Different versions of risk are usually

measured by calculating the standard deviation of the historical returns or average returns of a

specific investment. High standard deviations indicate a high degree of risk. There are mainly

two types of risk as systematic and unsystematic risk

4.2 Types of Investment Risk

There are many different types of investment risk. The two general types of risk are:

Losing money, which he can identify as investment risk

Losing buying power, which is inflation risk

It probably comes as no surprise that there are several different ways an investor might lose

money on an investment. To manage this risk he needs to know what they are.

Most investment risk is described as either systematic or nonsystematic. While those terms seem

intimidating, what they refer to is actually straightforward.

4.3 Systematic Risk

Systematic risk is also known as market risk and relates to factors that affect the overall economy

or securities markets. Systematic risk affects all companies, regardless of the company's financial

condition, management, or capital structure, and, depending on the investment, can involve

international as well as domestic factors. Here are some of the most common systematic risks:

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Interest-rate risk describes the risk that the value of a security will go down because of

changes in interest rates. For example, when interest rates overall increase, bond issuers must

offer higher coupon rates on new bonds in order to attract investors. The consequence is that

the prices of existing bonds drop because investors prefer the newer bonds paying the higher

rate. On the other hand, there's also interest-rate risk when rates fall because maturing bonds

or bonds that are paid off before maturity must be reinvested at a lower yield.

Inflation risk describes the risk that increases in the prices of goods and services, and

therefore the cost of living, reduce his purchasing power. Let's say a can of coke increases

from tk30 to tk60. In the past, tk60 would have bought two cans of coke but now tk 60 can

buy only one can, resulting in a decline in the value of her money.

Inflation risk and interest rate risk are closely tied, as interest rates generally rise with

inflation. Because of this, inflation risk can also reduce the value of his investments. For

example, to keep pace with inflation and compensate for the loss of purchasing power,

lenders will demand increased interest rates. This can lead to existing bonds losing value

because, as mentioned above, newly issued bonds will offer higher interest rates.

Inflation can go in cycles, however. When interest rates are low, new bonds will likely

offer lower interest rates.

Currency risk occurs because many world currencies float against each other. If money

needs to be converted to a different currency to make an investment, any change in the

exchange rate between that currency and his can increase or reduce his investment return. He

is usually only impacted by currency risk if he invests in international securities or funds that

invest in international securities.

As with most risks, currency risk can be managed to a certain extent by allocating only a

limited portion of his portfolio to international investments and diversifying this portion

across various countries and regions.

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Liquidity risk is the risk that he might not be able to buy or sell investments quickly for a

price that is close to the true underlying value of the asset. Sometimes he may not be able to

sell the investment at all if there are no buyers for it. Liquidity risk is usually higher in over-

the-counter markets and small-capitalization stocks. Foreign investments can pose liquidity

risks as well. The size of foreign markets, the number of companies listed, and hours of

trading may limit his ability to buy or sell a foreign investment.

Sociopolitical risk is the possibility that instability or unrest in one or more regions of the

world will affect investment markets. Terrorist attacks, war, and pandemics are just examples

of events, whether actual or anticipated, that impact investor attitudes toward the market in

general and result in system-wide fluctuations in stock prices. Some events, such as the

September 11, 2001, attacks on the World Trade Center and the Pentagon, can lead to wide-

scale disruptions of financial markets, further exposing investments to risks. Similarly, if he

is investing overseas, problems there may undermine those markets, or a new government in

a particular country may restrict investment by non-citizens or nationalize businesses.

4.4 Nonsystematic Risk:

Nonsystematic risk, in contrast to systematic risk, affects a much smaller number of companies

or investments and is associated with investing in a particular product, company, or industry

sector.

Here are some examples of nonsystematic risk:

Management risk, also known as company risk, refers to the impact that bad

management decisions, other internal missteps, or even external situations can have on a

company's performance and, as a consequence, on the value of investments in that

company. Even if an investor researches a company carefully before investing and it

appears to have solid management, there is probably no way to know that a competitor is

about to bring a superior product to market. Nor is it easy to anticipate a financial or

personal scandal that undermines a company's image, its stock price, or the rating of its

bonds.

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Credit risk, also called default risk, is the possibility that a bond issuer won't pay interest

as scheduled or repay the principal at maturity. Credit risk may also be a problem with

insurance companies that sell annuity contracts, where his ability to collect the interest

and income he expects is dependent on the claims-paying ability of the issuer.

One way to manage nonsystematic risk is to spread the investment money around, diversifying

the portfolio holdings within each major asset class—stock, bonds, and cash—either by owning

individual securities or mutual funds that invest in those securities. While the investor is likely to

feel the impact of a company that crashes and burns, it should be much less traumatic if that

company's stock is just one among several he owns.

4.5 Other Investment Risks

The investment decisions an investor makes—and sometimes those he avoid making—can

expose him to certain risks that can impede his progress toward meeting his investment goals.

For example, buying and selling investments in his accounts too frequently, perhaps in an

attempt to take advantage of short-term gains or avoid short-term losses, can increase his trading

costs. The money he spends on trading reduces the balance in his account or eats into the amount

he has to invest. If he decides to invest in something that's receiving a lot of media attention, he

may be increasing the possibility that he is buying at the market peak, setting himself up for

future losses. Or, if he sells in a sudden market downturn, it can mean not only locking in his

losses but also missing out on future gains.

He can also increase his investment risk if he doesn’t monitor the performance of his portfolio

and make appropriate changes. For example, he should be aware of investments that have failed

to live up to his expectations, and shed them when he determines that they are unlikely to

improve, using the money from that sale for another investment.

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4.6 Assessing Risk

It's one thing to know that there are risks in investing. But how does an investor figure out ahead

of time what those risks might be, which ones he is willing to take, and which ones may never be

worth taking? There are three basic steps to assessing risk:

Understanding the risk posed by certain categories of investments

Determining the kind of risk you are comfortable taking

Evaluating specific investments

An investor can follow this path on his own or with the help of one or more investment

professionals, including stockbrokers, registered investment advisers, and financial planners with

expertise in these areas.

4.7 The Dimensions of Returns (Risk factors)

Market Risk Factor

Size Risk Factor

Value Risk Factor

Term Risk Factor

Default Risk Factor

Market Risk Factor

The first risk factor is the amount of exposure to the overall stock market or the market risk

factor. Exposure to this factor is determined by the amount of a portfolio that’s invested in or

exposed to stocks. The greater this exposure, the higher the return in comparison to Treasury

bills.

Size Risk Factor

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The second risk factor is the amount of exposure to small company stocks or the size risk factor.

Exposure to this factor is determined by the amount of a portfolio that is invested in small

company stocks. The greater this exposure, the higher the return in comparison to large company

stocks.

Small company stocks have small market capitalization. The market cap is determined by

multiplying the total number of shares times the price per share. These stocks are generally

perceived as riskier than large company stocks because small companies have fewer financial

resources and more uncertain earnings than large companies. Small companies are also less able

to survive prolonged periods of economic downturns. Even when small companies have good

track records, these track records aren’t very long, adding more uncertainty and greater risk to

their stocks. Because investing in small company stocks is riskier, investors demand a higher rate

of return.

It’s important to understand that the average historical returns of small-cap company stocks have

significantly outperformed large company stocks. However, in shorter time periods they don’t

always outperform large company stocks. In fact, the size risk factor fluctuates unpredictably.

This is consistent with the Random Walk Theory of changes in stock prices.

Value Risk Factor

The third risk factor is the amount of exposure to low priced stocks, which is measured by a

book-to-market (BtM) value ratio. The book value of a company is just an accounting term for

its net worth, its assets minus its liabilities. The market value of a company is its price per share

times the number of shares outstanding. This risk factor is known by several different

designations. It has been referred to as the value factor, BtM factor, style factor and price factor.

Note that charts referring to it may have any of these designations. The most current designation

is the price factor, referring to the low prices of these stocks compared to a company’s book

value or to other stocks.

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Exposure to the price factor is determined by the amount of a portfolio exposure to high BtM

stocks. In other words, when a stock’s market price is less than its book value, the BtM ratio is

greater than one. The greater the exposure to the price factor, the higher the historic and expected

return in comparison to low BtM stocks. High BtM companies usually have low earnings and

experience other signs of financial distress. Investors don’t like these stocks for these reasons. As

a result of their poor track records, the market drives down the prices of these stocks. This

naturally makes them riskier to investors.

Stocks with a low BtM ratio have low book values relative to their market prices and are termed

growth stocks. Investors favor growth stocks because they’re perceived to be great companies

and therefore are less risky. They represent successful companies with strong track records and

healthy earnings.

.

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Important factors for investment decision

Stock market is a risky place where there is a possibility of losing the entire capital if the

investment is not making in a proper way without acquiring proper knowledge.

There are articles, and books that deal with the categorization of risk for practical investment

purposes. However, many investors have never seen this literature, or, at the time of investment,

do not understand it. They just ask their friends, uncle or people who are engage in market or

hearing here and there to buy share. Consequently they buy the share without proper knowledge.

As a result they loss their capital and raise question about the potentiality about the share market.

So the most effective and primary knowledge regarding share market should be gathered before

starting this business. The most important idea regarding share market which is essential for all

investor is divided into two categories as fundamental tools and technical tools. Which is very

important for take investment decision. These are stated bellow:

5.1 Fundamental analysis:

A method of evaluating a security that entails attempting to measure its intrinsic value by

examining related economic, financial and others qualitative and quantitative factors. The end

goal of performing fundamental analysis is to produce a value that an investors can compare with

the security’s current price, with aim of figuring out what sort of position to take with that

security (under-price =buy and over-price=sale). Fundamental analysts attempt to study

everything that can affect the security's value, including macroeconomic factors (like the overall

economy and industry conditions) and company-specific factors (like financial condition and

management).

The essential tools of fundamental analysis are stated bellow as

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This method of security analysis is considered to be the opposite of technical analysis.

The essential tools of fundamental analysis are stated bellow as

1. Face value of a share:

We should know the face value of a share. That is the book value or par value of a share. In our

market all share have a unique price at Tk10 except BSC (Bangladesh Shipping Corporation and

Investment Corporation of Bangladesh (ICB) those having face value of Tk100 each.

2. Current price of a share:

The price at which the share can be either sale or buy from the market is called the current

market price of a share. It may be higher or lower then face value of a share.

3. Earning per share (EPS):

The earning per share is calculated as the net profits of a company are divided by the total

number of outstanding shares. It is an effective tool to analysis the future prospect of a company.

The higher EPS indicates that the company has more ability to declare good dividend for their

shareholders in the coming year.

EPS= Net profits / total number of shares outstanding

The higher EPS indicates that the company has the better probability to provide

Good dividend to their shareholders.

4. Price earning ratio (P/E):

It is another important tool to the fundamental analysis which gives guideline to the investor to

know that whether the shares are undervalued or overvalued. The price earning is calculated as

the current share price is divided by the EPS of that company as

P/E: current share price/ EPS

The higher P/E indicates that the company is risky then others.

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Suppose, the current share price of AB bank limited is Tk49 and its EPS is Tk3.80 then

P/E =49/3.80

=12.89

It indicates that an investor has to pay more then 12.89 times today against its EPS.

5. Dividend:

Dividend is the amount paid for the common shareholders for the fiscal year. The dividend may

be in two types as the stock dividend and cash dividend. The stock dividend is the bonus shares

are declared for the shareholders and it is calculated on the market lot of the shares. Suppose, the

market lot of the Titas Gas limited is 500. If the company is declared 10% stock dividend for the

year 2011-2012 the dividend will be paid to the investor who holds the one lot as 500 shares will

get only 50 shares as bonus.

6. dividend yield:

Dividend yield is the ratio between the expected dividend and the current market price of a share.

Dividend yield= expected dividend / current price of a share

7. Net Asset Value:

It is another important tool of fundamental analysis of a share. When NAV has a higher value

then the face value of a share it indicates that the investor will be compensated even though the

company fall in bankruptcy trap. That is there is no possibility of loosing the original invested

amount.

The higher NAV is the higher safe investment.

NAV= Value of Net Assets / Total number of shares outstanding

For example,

Company name face value EPS NAV

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ICB 100 80 350

AB bank 10 3.80 40.60

SQUAR PHARM 10 85.80 250

BEXIMCO LTD 10 22.50 49

So according to the NAV criteria we should choose – company because the company has the

highest NAV since it ensures a good backup for our investment.

8. Market index:

Index is an important element of fundamental analysis which explains the scenario of overall

market and tells us movement of market trend. There are mainly three types of indices in our

market as

1. DSI Index

2. DSE 20

3. DGEN Index

Index Calculation Algorithm (according to IOSCO Index Methodology):

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Yesterday's Closing Index X Current M. Cap

Current Index = --------------------------------------------------------------

Opening M. Cap

Yesterday's Closing Index X Closing M. Cap

Closing Index = --------------------------------------------------------------

Opening M. Cap

Current M .Cap = ∑ (LTP X Total no. of indexed shares)

Closing M. Cap = ∑ (CP X Total no. of indexed shares)

There are three indices in the DSE as follows:

Sl. No Index Name Base Index Remarks

1 DSI (all shares) 350 (as on 01-11-1993)

2DGEN

(A, B, G & N)817.63704 (as on 24-11-2001)

SEC directive regarding index

was on 17-11-2001

3 DS20 1000 (as on 01-01-2001)

We mainly talk about the General index which deals with the all shares except Z-category shares.

It indicates the market movement. At the time of 2010 our General index were 8918 points

which was the record of highest index in our market. But we also saw a great debacle in our

market when index fell in 2012 to 3500 points. So we should know about the trend of the index

when we want to make investment.

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5.2 Technical analysis:

A method of evaluating securities by analyzing statistics generated by market activity, such as past prices

and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use

charts and other tools to identify patterns that can suggest future activity.

Technical analysts believe that the historical performance of stocks and markets are indications

of future performance.

The field of technical analysis is based on three assumptions:

1. The market discounts everything.

2. Price moves in trends.

3. History tends to repeat itself.

1. The Market Discounts Everything

A major criticism of technical analysis is that it only considers price movement, ignoring the

fundamental factors of the company. However, technical analysis assumes that, at any given

time, a stock's price reflects everything that has or could affect the company - including

fundamental factors. Technical analysts believe that the company's fundamentals, along with

broader economic factors and market psychology, are all priced into the stock, removing the

need to actually consider these factors separately. This only leaves the analysis of price

movement, which technical theory views as a product of the supply and demand for a particular

stock in the market.

2. Price Moves in Trends

In technical analysis, price movements are believed to follow trends. This means that after a

trend has been established, the future price movement is more likely to be in the same direction

as the trend than to be against it. Most technical trading strategies are based on this assumption.

3. History Tends To Repeat Itself

Another important idea in technical analysis is that history tends to repeat itself, mainly in terms

of price movement. The repetitive nature of price movements is attributed to market psychology;

in other words, market participants tend to provide a consistent reaction to similar market stimuli

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over time. Technical analysis uses chart patterns to analyze market movements and understand

trends. Although many of these charts have been used for more than 100 years, they are still

believed to be relevant because they illustrate patterns in price movements that often repeat

themselves.

illustrated example of Technical analysis:

Indicators:

The red signal indicates the share holder should sell the share for short term profit

The blue signal indicates the investors to buy the shares because it is comparatively lowest price.

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A practical survey on investors

6.1 Company Information

6.2 Introduction of Global Securities

"Global Securities" is an authorized member of DSE. This broker house was established in

1961. It is represented by Mr. Azizur Rahman Status of Representative Managing

Director. Its SEC Registration is Reg.-3.1 /DSE-189 /2000/059. DSE Membership no. 189,

Member CodeDSEAZI CDBL A/C No CDBL-DP-18. It was initially established with only

one office. But at present it has 7 extension offices and 6 branch offices.

Offices of Global Securities

Head Office

Room No.-801,803,804 (7th floor)

Samabaya Bank Bhaban, 9/D,

Motijheel C/A Dhaka-1000

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Extension office

1. Room No.-170/A (17th floor)

Senakalyan Bhaban

195, Motijheel, Dhaka

2. Room No.-202( 1st floor)

10, Motijheel,Dhaka

3. North East Room (1st floor)

64, Dilkusha, Dhaka

4. Room No.-2 (7th floor)

Modern Mansion


5. Room No.-5 (4th floor)

Akter Chamber


6. Rahman Mansion (4th floor)


7. Eden Complex (2nd floor)

167, Circular Road,

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Motijheel, Dhaka

Branch Offices

1. Elephant Road Branch

Room No.-405, Sheltech Sierra (4th floor)

Elephant Road, Dhaka-1207

Manager: Mr. Md. Anisuzzaman

2. Farmgate Branch

Room No.-409, 430, 431, 432,

Farmview Super Market (3rd floor)

Farmgate, Dhaka-1215

Manager: Mr. Md. Abul Bashar

3. Paltan Branch

Room No.-704, Paltan Tower (7th floor)87, Purana Paltan Line, Dhaka-1000Manager: Mr. Md. Mazhar

4. Mirpur Branch

231, Central Plaza (5th floor , East side )

DCC Holding #231, Begum Rokeya Sarani

Mirpur-10, Dhaka- 1216

Manager: Mr. Md. Mamun Abu Junayed

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5. Shyamoly Branch

Layla Plaza, (2nd Floor)27/1 /A, Shyamoly, Mirpur RoadP.S; Mohammadpur,Dhaka - 1207.Manager: Mr. Md. Maher Alahi

6. Moulvi Bazar Branch

Momtaz Plaza (4th Floor)2/2, Mokim KataraMoulvi Bazar, Dhaka - 1100Manager: Mr. Md. Shafayetull

Study AreaThe study was conducted at the Shyamoly Branch of Global Securities. This branchfounded there office in "Laila Plaza", a multistoried building beside the mirpur road. Theystarted to work on 19 November 2009.AI preset they have 7 employees under the managerialeffort of Mr. Md. Maher Alahi. There are 2511 traders regularly trading at this broker house,Atpresent they trade shares of 2-5 crore Taka per day.

6.3 Findings and Analysis

Table of Findings

Table 1.Profile of different investors(2012)

Stock investors

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Sex

Male

Female

Age

18-19

20-29

30-39

40-49

50-59

60 or over

Education level

Primary

S.S.C

H.S.C

Graduate

Post Graduate

Occupation

Job holder

Other business

Student

Unemployed

92%

8%

3%

23%

26%

21%

19%

8%

2%

27%

36%

24%

11%

19%

32%

36%

13%

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6.4 Table of Findings

Character yes No

Do you have any preference to any industry 47 3

Do you have any investment in IPO 13 37

Do you use on-line trading system 2 48

Do you think investment in stock market is

always profitable or there are some risk is here

50(risky) --

Do you consider pre-ratio analysis 18 32

Do you think about market index 16 34

6.5 Analysis of Data

Factors affecting take purchasing decision:

Among 50 respondents most of them said market price is very important. When market price fall

they buy stock. 6 person said while they take purchasing decision they consider pre-ratio. That

means only 12% investors analysis pre-ratio and 88% investors do not aware about.8% investors

said company financial status is important.

Choice of Intermediary:

Of the 50 stock investors who participated in this survey, all of them traded through brokerages.

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Preference of Share:

Out of 50 respondents 6% investors said they invest only primary share because here risk is less

than secondary share. 82% people invest only secondary market because primary share is not

available in our country and they want to earn more money which is only possible from

secondary market.14% investors invest on both primary and secondary market because by it try

to minimized risk.

The process of minimizing risk:

70% investors told they have their own risk minimization strategy to minimize the risk of losing

money. some of them make portfolio in different industry to minimize the risk But many of them

also expressed that their strategy was not perfect for the present situation of capital market.30%

of the investors in stock market do not have any strategy to minimize risk.

Reason for unhealthy situation of Bangladesh stock market:

Most of the investors who participated in survey they said liquidity circuses and political unrest

is the main reason for unhealthy situation of Bangladesh stock market. Besides that some

investors told that over valuation of share price is another cause of this situation.

Suggestion to overcome this situation:

Most of the investors said if well liquidity balance and sound political environment can be

maintain this unhealthy situation will be overcome.

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6.6 Key findings

Maximum investors in the market are educated persons. The primary motive for investing in

the capital market is to make profit People who have businesses and who work in financial

institutions are the most active players in the market. Investors usually re-invest in the

capital market or anywhere else with the gain. There are two kinds of investors- full-time

and part-time. But the number of part-timers is more among young generation. Most of

the people are not aware about the market and its facts. Many investors said that they look

into the company fundamentals before investing. But it is true that they go for rumors

also. People usually discuss with their broker before making any investment

Decision. Banking and pharmaceuticals are the most popular sectors to the investors.

However banking has lost some of its reputation for recent bad Performance. People

think that "A category" shares are of great value. After A they prefer N category and

IPO.

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6.7 Recommendations

After analyzing the findings, which I got from the interview of young investors I

intend to give some suggestions ----------

• There are many potential young people who are doing or intend to do share

business. Government and DSE should encourage them.

• Financial institutes should provide adequate financial support to young

investors to make proper investment decision.

• Market information should be properly distributed.

• As many young investors do share business as a part-time business,

information and trading facilities should be available at their working place.

• Investors should be aware about the real market condition.

• Dhaka Stock Exchange should take steps to improve the overall condition of capital

market

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Conclusion:

To conclude the report I have to say one thing- this market has got huge potentials. If properly

monitored and there is a mutual understanding among the investors and the authorities then this

market can become one of the key player to improve the economic condition of our country.

People are still not properly educated and that's why they take many bad decisions while investing.

In this project we tried to come up with different profiles of the young investors to

understand them better and to educate them in a more specialized manner. This survey also

gives us an overview of the problems that people are facing and their satisfaction level. If the

market authority can reduce these problems then obviously the satisfaction level of the

investors will go up. Finally I want conclude the survey report by saying that it was a great

pleasure working with DSE and seeing the investors so closely. I just hope this market will improve

with a rapid growth rate and become more efficient.

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7.1 References:

1. Peter S. Rose, “Money and Capital Market” third edition,1996

2. Lawrence D. J. Gitman, “Principle of Managerial Finance” third edition, Harper & Row

publisher, new York pp. 181-213

3. Ross Westerfield Jaffe, “Corporate Finance”, Seventh edition, Tata McGraw publishing,

pp.257-277.

4. Annual Report of DSE(2009-2010)

5. Annual report of SEC

6. Some web addresses:

http://www.stockbangladesh.com/resources/coefficient

http://www.icb.gov.bd/zindex.php

http://www.icb.gov.bd/icml.php

http://www.icb.gov.bd/acml.php

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List of abbreviation used in the study:

In my study I used some abbreviations which are mentioned bellow elaborately

1. SEC: Security & Exchange Commission

2. DSE: Dhaka Stock Exchange.

3. CSE: Chittagong Stock Exchange.

4. P/E:Price Earning

5. EPS: Earning Per Share.

6. GDP: Gross Domestic Product.

7. BtM: Book-to-Market.

8. B/O: Beneficiary Account.

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Questionnaire

“Survey on Bangladesh stock market”

(From investors perspective)

Name………………………………….....Gender…………………………………

Age………………………………………...Education Level……………………………

Occupation…………………………………

1. When you take purchasing decision which factors are affecting your

decision?

2. Do you have any preference to any industry?

Yes

No

3. Which types of intermediary do you choose?

4. Which types of share do you prefer, primary or secondary? Why ?

5. Do you have any investment in IPO?

Yes

No

6. Do you use on-line trading system?

Yes

No

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7. Do you think investment in stock market is always profitable or there are

some risk is here?

Yes

No

8. In the process of minimizing risk what factors are important?

9. Do you consider pre-ratio analysis?

Yes

No

10.Do you think about market index?

Yes

No

11. How do you choose your portfolio?

12. From your perception what are the major reason for unhealthy situation

of Bangladesh stock market?

13. Do you have any opinion or suggestion to overcome this situation ?

Analysis of current scenario of stock markets in Bangladesh From investors™ perspective

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