The calendar year 2010 was a unique year in the history of Bangladesh stock markets for more than one than one reason. While the markets managed to attract billions of FII inflows into Bangladeshi stock markets for the high rate of returns as the benchmark indices advanced by over 82 per cent in course of within a single year, yet the volatility noticed in the Bangladeshi stock markets was almost at its peak, due to several regulatory changes and monetary changes, brought about by Securities & Exchanges Commission and Central Bank late in the year. The Dhaka Stock Exchange (DSE) passed through an eventful year amid records and ups and downs. However, the last few days of 2010 was quite reverse to its yearly trend when the DSE witnessed a shortfall of fund following two Bangladesh Bank directives.

The year also witnessed the approval of the largest Initial Public Offering (IPO) in the history of the premier bourse of the country in terms of money. The amount of turnover in the year was Tk 4,009 billion which is 171.8 per cent higher on the level of the previous year.

The benchmark DSE General Index (DGEN) advanced by as much as 3,722 points, or 82 per cent, to finish at 8,290 on Thursday, last trading day of the year. The All Share Price Index (DSI) also added 3,104 points, or 82.24 per cent, to 6,878.

The year was positive in terms of enlisting new companies with the market. A record 21 companies floated shares to the DSE worth Tk 29.74 billion were listed through Initial Public Offerings (IPOs). Last year a total of 18 IPOs worth Tk. 23.15 billion hit the market. The SEC also relaxed the IPO rules by reducing total paid up capital to Tk. 18 crore for listing with stock markets. It is estimated that in view of on overall bullish trend in stock markets in 2010, the market capitalization to GDP ratio may have also reached to the high level at 45 per cent.

The amount of total market capitalization also reached to a new high to Tk 3508 billion which is 83 per cent more than that of the previous year. The government collected a total of Tk 3.16 billion as tax as source from the DSE while the amount was a nominal Tk 624 million in the previous year.

The government also announced its decision to offload more shares of eight state owned companies listed with the bourses.

However, the entire rise of equity cult in the markets amidst the investors and saving community did not come without any risks or major tremors of volatility. The country’s main bourse suffered the worst ever single day fall of 552 points, or 6.72 per cent on December 19, reminding investors of a major collapse in 1996. Throughout the year, the market regulator’s frequent changes in regulations and imposing abrupt directives attracted strong debate and criticism. Finally all the measures appeared to have failed when they were repealed on the wake of the free falls of DSE indices at the end of the year. It was a roller-coaster ride in last few weeks of the year, with the indices hitting a record high on 5 December, having climbed 80% since the start of the year. But on 8 December it nosedived, prompting protests in Dhaka and towns elsewhere. This was followed a strong fall of over 6.7% on December 19, which prompted many protests on street from investors.

The major fall in index was triggered by a central bank interest-rate hike. The central bank raised the mandatory Cash Reserve Requirement (CRR) of the banks to six per cent, which contributed to reduce the turnover and raise the volatility in markets, prompting institutions to withdraw from stock markets.

The regulators also took some measures in December to restrict money supply into the share market after concerns that stocks were overvalued, leading to a free fall in the market following withdrawal of FII funds from stock markets that was termed as ‘hot money’ leading to strong bull run in the Dhaka stock market. The move forced big institutional investors to withdraw from the market, triggering panic among individual investors. Prompted by the high volatility in stock markets and strong protests by investors, regulators finally agreed to relax some of the conditions, hoping that will increase the money supply and stabilize the market in future.

The sudden spurt in the inter-bank call money rate to 175 per cent in December, which was earlier pegged at 60 per cent, due to ongoing liquidity crisis in the money market, also affected the stock market and led to a steep decline towards the middle of December. Though the regulator raised the margin loan ratio to 1:1, it failed to uplift the market, as the financial institutions themselves are suffering from low liquidity due to high call money rate. Apart from same, the Bangladesh Bank’s directive in December against diversion of industrial credit to the stock market was also partly responsible for the fall in markets witnessed in December.

Apart from same, Banks and other financial institutions, some of which had invested 75 percent of their deposits in the stock market against a cap of 10 percent in the past and made huge profit in 2010, held back on further investments recently, leading to a check from further rise in Bangladesh stock markets.

Prices of shares nearly doubled in 2010, encouraging a stream of new investors into the markets, but prices have crumbled since early last month after the market regulator and central bank took measures to cool the market, prompting frequent street protests. The country's dire economy had earlier made stocks an attractive investment option. The number of individual investors has risen to more than 3 million from fewer than 500,000 in 2006.