Meanwhile, the recent developments in the country’s financial sector do also suggest some laxity on the part of the relevant regulator to monitor properly the investment activities of a number of banks that deployed the depositors’ funds too imprudently in the stock market. Such banks were reported to have unreasonable exposures to the securities market, instead of directing properly the flow of credits to real sectors of the economy. This has, no doubt, contributed partly to over-heating of the stock market.
There were other factors, including attempts to influence the decisions of the regulators by a multiple of entities, which have led to the present volatile market situation. However, what is important now is to ensure a soft landing of the stock market. But this is easier said than done. Hence, all concerned will have to demonstrate their ‘extraordinary’ skill in facilitating this to happen. Our investment horizon started from February, 3, 2011 and ended at April, 6, 2011. During this period we have seen the market situation, analyzed different company stocks and selected our optimum portfolio using different theories.
We not only looked at the profitability but also at the reliability and stability of stocks. Our investment period was divided into three time phases and we had to select different portfolios at different phases. Our investment horizon is mainly based on “top down investment” approach. The investor using a top down investment approach looks at the big picture. Macro economic variables such as the global economy and individual country statistics such as national GDP, trade balances, currency movements, inflation, interest rates, commodity price trends are used to determine where to invest and in what types of assets.
The idea in a top down approach is to weigh broad macro variables and then shift investments accordingly i. e. to make money by shifting assets rather than by analyzing companies. Picking individual securities is usually the last step in this strategy. We have focused on company’s monetary condition as well as forecasting of future financial price movements and trends based on an assortment of market activity. At the first phase we had very little knowledge on theoretical stock selection process, still we selected the stocks based on the industry stability, low P/E ratio and previous company dividend payout trend of different stocks.
Square Pharmaceuticals Ltd. : We have selected it based on its performance and expected future growth. It’s not making profit but the reason behind it for selecting is its P/E ratio, which is somewhat lower among the pharmaceutical and chemical industries. ACI Limited: Their P/E was relatively stable and their earnings per share increased over the years for which I have selected this stock. Bangas and British American Tobacco Bangladesh Company (BATBC): Though their price to earnings ratio is low, they paid relatively higher dividends. Dividend yield is good over the years which made us take this share.
Its earnings per share (EPS) have increased compared to the last quarters. BATBC has been maintaining consistency on prices over the years. Its basic EPS has increased greatly over the years. Very appealing P/E ratio and its price is in the lower area right now hopefully will increase a huge within a few days. AMCL (Pran): Its current price is at the lower side of Price index and has a trend of moving upward, so it seems appealing also that EPS, dividend, and P/E ratio is in a satisfactory level. They ensure a higher dividend policy and their dividend percentage is really high.
And its trading graph shows they trade shares at a considerable amount every day. Bata Shoe: Their EPS was more or less high. Moreover their net profit after tax increased over the years. We also know that the demand for Bata shoe is good in our country which has caused its EPS and Net profit after share to increase. Samorita Hospital: We thought that we would diversify our investment among different industries for which we have taken one industry from services and real estate. The main reason for choosing it is their increasing Earnings per share (EPS) and lower P/E ratio over the years.
Green Delta Insurance: Its profit has been increased in the recent years and its EPS is also increasing throughout the year which is satisfactory. We have taken only one insurance company from the insurance sector to diversity our portfolio. And we also know that nowadays, insurance companies are having high price increase. Dutch-Bangla Bank LTD. : Banking sector is considered to be the safest sector for investment as their market risk is lower and we will get a return though the return may be low but their dividend growth rate is always satisfactory and their profitability growth is always visible and stable.
Mutual Trust Bank LTD. : For Mutual Trust bank, the market price has fallen shortly but we can say that it will be increased quickly in the market as per our analysis. Dutch-Bangla bank is a more risky stock but we are buying the stock because its basic EPS, based on continuing operations in the last quarters is also highly increasing. Dhaka Electric Supply Company and Titas Gas Transmission & Dist. Co. LTD. : Fuel and power sector is a very strong sector. It’s a necessary commodity in our country so we have chosen it for our portfolio.
Both of the companies EPS and Net profit after tax are relatively high and stable. Though market price of Titas gas throughout the recent days is not satisfactory but it has earned a good margin of profit in last year. Navana CNG LTD. : As per our market analysis the net profit after tax for the continuing operations and also the basic EPS over the quarters have increased. Grameenphone LTD. : As the prices of it have fallen in the recent days; in the coming days, it will go higher as per our market trend analysis. Moreover a higher EPS has caused us to select it.
IDLC Finance LTD. : Heavy EPS and dividend is on current 10% price. It is falling as a normal function and hopefully going to rise within a few days. Beximco: Their bonus issue is increasing year after year. Their earning per share (EPS) is increasing compared to the previous years. The P/E ratio is very low. The net profit after tax has also increased in the last two quarters. 2nd Phase Our loss from 1st investment is TK 136,590. To rectify this, in the 2nd phase, we sold off 10 of the stocks and bought up 6 new stocks after viewing favorable reasons.
We have chosen 11 stocks from 9 different industry sectors. Asset pairs with negative correlation always give excellent diversification benefit. This strategy helps to minimize risk while maximizing returns; so that, if one asset comes out as risky, then the other will be regarded as less risky than that. Or, if the price of a particular stock of a particular industry falls down on a day, then the price of the opposite type of stock of an industry will go up. Also we have used utility value to select stocks. Our risk aversion= 3, which means we are moderate risk taker. ACI Formulation (utility:-0.
0117), which shows that lower utility scores provides a higher volatility and decreases the risk for a moderate investors as we are. The Board of Directors of Asia Insurance (utility:-0. 02305) has recommended cash dividend @ 25% and stock dividend @ 25% for the year 2010. Moreover the company has further informed that the subscription period for rights issue will be from 31. 03. 2011 to 25. 04. 2011. Record date for entitlement of rights share: 06. 01. 2011. The purpose of issuance of rights shares is to enhance financial strength and expansion of business of the company.
We hoped that it will result in a tremendous scope as well as better performance, which has given us the reason to buy it. The Board of Directors of Bank Asia (utility: -0. 0043) has recommended stock dividend @ 40% for the year 2010. We bought the shares of this company to take advantage of this decision. Board of Directors of the Bextex (utility: -0. 00877) has purchased 35,00,000 shares of Tk. 100. 00 each for an aggregate amount of Tk. 35. 00 crore of Northern Power Solution Ltd. (NPSL) which represents 50% of the total shares of NPSL.
NPSL has been awarded a 50 MW rental power plant project in Katakhali, Rajshahi by the Government of Bangladesh. So we purchased the stock thinking of the prospects for the company is good which can give us a good return. As we know that bank sector is the most stable and reliable sector of all, so we decided to buy the stocks of UCBL bank (utility: -0. 05097) in our portfolio. The Bank has informed that the Board of Directors of the Bank has decided to form a subsidiary company to establish a Merchant Bank subject to approval of Regulatory Authorities.
So we purchased the stock thinking of the future prospects for the company. We sold off the Dutch Bangla bank’s share as it was not that much satisfactory according to our analysis calculation. The reason behind choosing EHL (utility: -0. 01996) : At the beginning of 2011 in January 9, The Dhaka Stock Exchange (DSE) suffered its steepest fall in its history as benchmark index of the Dhaka Stock Exchange, DSE General Index, slumped by 600 points. Though that day we buy the stocks in lower price but the conditions were worsen as the price was continuously decreasing.
In March there was change in different positions, after which we have seen that the market price of EHL was again increasing at a considerable amount. Thus we expect a higher return in future so we have held the stock. We sold off the BATBC’s stock because, according to a news release on ‘The Daily Star’ newspaper, we came to know that Anti-tobacco law is going to be toughened. The government is moving to amend the tobacco control act and introduce powerful pictorial warnings on cigarette packets and other tobacco items in a bid to reduce tobacco consumption drastically.
The fine for smoking in public place will also be increased to 300tk from 50tk. So there are possibilities that smokers will cut off the daily consumption of cigarette packets. And hence, there is a chance that BATBC’s stock will not go well as the act will affect its share market as well. We even sold out the shares of Squarepharma, ACI limited, Samorita, Bata shoe, Green Delta Insurance, GP, IDLC, DBBL and Beximco mainly because of the negative or very low utility value