A brief Study on the Share Market: Problems and Prospects for small investors

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A brief Study on the Share Market: Problems and Prospects for small investors

Acronyms and Abbreviations

BB Bangladesh Bank

B.O Beneficiary Owner

D.G Director General

EPS Earning per Share

FTC Foundation Training Course

FV Face Value

IT Information Technology

IPO Initial Public Offering

MV Market Value

NAEM National Academy for Educational Management

SEC Security and Exchange Commission

Chapter- One

1.1 Introduction :

Share market is used for the trading of share company stock. The share market of Bangladesh is now going through an unrest condition. Investors are not pleased to find that shares can go down as well as up. The rising value of the stocks in recent years has attracted millions of investors in Bangladesh. Shares have become a popular investment for ordinary people, often provided higher returns than banks deposits and savings.

1.2 Statement of the Problem:

At present the share market of Bangladesh is not in a normal mode. The index is falling regularly. The small investors are losing their savings. The streets are filled with the bankrupt small investors. They are in a continuous threat to investors in the share market. Sometimes the price of share rises in an abnormal way. Then the enrollment of the small investors increases very fast. They invest their capital to get a quick profit. So there are so many problems and prospects for the small investors in the share market of Bangladesh.

1.3 Objectives:

This study has been undertaken with the following objectives:

Ø To find out the problems of small investors in the share market of Bangladesh.

Ø To identify the prospects of small investors in the share market of Bangladesh.

1.4 Scope and Limitation of the study:

Today the two big stock exchanges indexes of Bangladesh suffered their steeps ever one day fall and thousands of small investors lost their savings. The small investors are now in a threat and frustrations.

The index is falling quickly faster and faster everyday. We are witnessing new records. Who are behind it? Whose fault is it? Whose short sightedness is it? Who is playing politics behind? The streets are filled with the bankrupt small investors. The government is not saying anything clearly. So, where is the solution?

However, the scope of the present paper is ranged within the small investors of share market in the Bangladesh.

Limitation of the study :

Ø Lack of adequate financing

Ø Accurate statistical method is not applied for deciding sample size in proportion to population of the study

Ø Insufficient facilities of reference books & journals.

1.5 Literature Review :

Related books, features published in daily newspaper have been followed before starting the research. Of course these are not directly related with this research paper. The following literature is reviewed.

i. Internet

ii. Newspaper, weekly magazine

1.6 Methodology :

Methodology for a study depends on various aspects like the type of research availability of time by the investigator, access to respondents and sources etc. Descriptive research contains qualitative data and as data collection tool e.g interviews, observation and questionnaire can be used. Empirical research may contain both qualitative and quantitative data and so may use any kind of research instrument.

Chapter- Two

2.1 Sources of Data:

Data can be collected from primary and secondary sources. For this study primary sources have been used, though for looking at the background of the study and rationalizing the study secondary sources have also been used. For accuracy and reliability, quantitative data and adequate sampling are needed. However for lack of adequate time and experience the researcher went for purposeful sampling.

2.2 Population of the Study:

In this study the population is small investors of the share market of Bangladesh from where necessary data of the study are collected.

2.3 Sample Size:

Sample size is very important in ensuring the effectiveness and fruitfulness of the research. In this study weighting a small investor sample is the most important and the next is the other people. The following table shows the sample size.

Table : 1 Sample size (respondents)

Types of respondents	Number	Percentage
Unemployed people	25	50%
Employed people	15	30%
Students	05	10%
Other	05	10%
Total	50	100%

There is significant number of small investors in the share market of Bangladesh. The researcher was not able to have a large sample from everywhere of the country. So, the study was limited to the surveying of one stock exchange.

2.4 Profile of the Sample Area:

We defined the population consists of unemployed people, employed people, students and other people of the same stock market. It is Dhaka Stock Exchange.

2.5 Data Collection Tools:

For collection of data, investigator first need to choose from a wide variety of data gathering tools like interview, observations questionnaire, questionnaire, checklist, rating scale, psychological test etc. The following tools are adopted in this research.

i) Questionnaire

For different units of population one questionnaire was used. The people filled in those questionnaire themselves. Some people also answered all the questions.

ii) Interview

No formal interview was done. However, the researcher took the opportunity of interviewing small in an informal open way to get more insight into the field of investigation.

2.6 Case Study:

i. An small investor named Bipul Mondal, Dhaka invested Tk. 50,000.00 in January 2010. After losing the share price his capital is Tk 37,000.00 in November, 2010.

ii. Another investor named Mizanur Rahman at Jatrabari invested Tk 1,50,000.00 in 2005 in the share market. His capital is Tk 2,10,000.00 in 2010.

Chapter- Three

3.1 Stock Market :

A stock market / share market is a public market (a loose network of economic transactions not a physical facility or discrete entity) for the trading of company stock and derivatives at an agreed price.

3.2 Initial Public Offering (IPO)

An initial public offering (IPO) referred to a simply as an “offering” or “flotation” is when a company issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand but can also be done by target privately owned companies looking to become publicly traded.

In an IPO the company (issuer) obtains the assistance of an underwriting firm which helps to determine what types of security to issue best offering price and time to bring it to market.

3.3 Face Value and Market Value :

Face value of a share is the value which is decided by the company issuing it, at the time of initial offering. Face value has nothing to do with market value of the share. It is mentioned on the face of share bond certificate or other financial instrument.

Face value is also known as the par value. By deciding a face value company promises not to issue any share below this face value or par value.

Market value of share is a current quoted price at which investors buy or sell a share of common stock or a bond at a given time. Capital is the factor that decides the face value of a share. Capital of any company is its total assets minus current liability.

Capital = Total asset – current liability

Suppose there is a company ABC Ltd. having assets of Tk 1400 crore and liability of Tk 400 crore. Capital of this company = 1400 – 400 = 1000 crore.

If the company decides Tk 10 as the face value of its share then there will be 100 crore shares of the company ABC in the market value of ABC’s shares may be lower than 10 or higher than Tk 10 depending upon the performance of company and several other factors.

If the company ABC wants to have five times number of shares than the current of shares then the company has to spilt its face value to Tk 20 by this company will have 500 crore shares in the market.

3.4 Earning Per Share (EPS) :

Earning per share (EPS) is calculated by taking the net earning and divide by the outstanding shares.

EPS = Net Earning / Outstanding Shares.

For example, companies A and B both earn Tk 100 but company A has 10 shares outstanding while B has 50 shares outstanding. Which company stock do you want to own? Earning per share makes sense to look at earning per share for use as a comparison tool.

Using our above formula company A had earnings of Tk 100 and 10 shares outstanding. Which equals an EPS of 10 (100 ¸ 10 = 10).

Company B had earnings of Tk 100 and 50 shares outstanding which equals an EPS of 2 (100¸50=2).

So you should go by company A with an EPS of 10 on the basis of its EPS. The EPS is helpful in comparisons one company to another assuming they are in the same industry but it does not tell you whether it’s good stock to buy or what the market thinks of it. For that information we need to look at some ratio like EPS.

3.5 Dividend :

A share of a company’s net profit distributed by the company to a class of its shareholders is called dividend.

3.6 Circuit Breaker :

After an index has fallen a certain percentage, the exchange might activate trading halts or restrictions on program trading. This situation is known as circuit breaker in the share market. For example if the national bank average falls by 10% the Dhaka Stock Exchange halt market trading for one hour. There are other circuit breaker for 20% and 30% falls.

3.7 Present status of small investors in Bangladesh

The two big stock exchanges index of Bangladesh suffered their steeps ever one day fall and thousands of small investors last their savings. The index is falling quickly faster and faster everyday. We are witnessing new records. Who are behind it? The streets are filled with the bankrupt small investors. The government is not saying anything clearly.

The share market is Bangladesh unusually went bullish in 2010 and the Bangladesh Bank (BB) and the security and exchange commission (SEC) intervened by toying with the margin loan requirements which triggered a free fall of the indexes in a number of occasions in the last few months. The raising of margin low ratio triggered liquidity shortage which hart the stock market.

The government let banks open new brokerage houses and they invested in the share market to harness wider margin of profit. So the share index sky rocketed. When Bangladesh Bank (BB) issued some directives they sold the shares and withdraw the money. On the other hand companies like Destiny etc lured small investors to withdraw money from share market and invest into their so called quick profit initiatives.

Most of the small investors ride on impulse (Noton logic) whose capital is greed, their dream is to get rich with minimum effort. If you take our head under gallous to secure too much greed, you have to face the consequence. So who is to be blamed?

Those who have invested analyzing the fundamental statistics of the company have to have patience. I think this fall in the share market is deliberate.

Chapter- Four

Data Presentation and Analysis

This study is regulated for finding out the problems and prospects for small investors in Bangladesh. First, data was patterned in tabular form according to the fulfillment of research objectives. During this time, the variables underlying the investigation were kept in mind. The tabular forms were consolidated into pieces of information regarding the objectives.

4.1 Opinion of Small Investors

Small investors were asked in a friendly atmosphere to speak the truth about problems and prospects of them in the share market of Bangladesh. There answer many types of response were collected; some problems are related to the unemployed people, some to the employed people, some to the students and some to the other people related to the factors. All small investors’ opinion have been collected in the following many sub-sections in many tables:

Table : 2

What is your educational qualification?	No. of respondents	Percentage
H.S.C or Below	17	85%
Graduate	02	10%
Post Graduate	01	05%

Comments : 85% respondents are H.S.C pass or below.

Table- 3

Affect	No. of respondents	Yes	No	Percentage
				Yes	No
Do you study any book about share market?	25	05	20	20%	80%

Comment: 80% people do not study any book about share market.

Table- 4

Affect	No. of respondents	Yes	No	Percentage
				Yes	No
Have you any fundamental knowledge about it?	25	10	15	40%	60%

Comment: 60% people do not have fundamental knowledge about it.

Table- 5

Affect	No. of respondents	Yes	No	Percentage
				Yes	No
Are you employed?	30	10	20	33%	67%

Comment: 67% peoples are not employed.

Table- 6

Affect	No. of respondents	Yes	No	Percentage
				Yes	No
Do you want to get more profit quickly from it?	25	14	11	56%	44%

Comment: 56% people want to get a quick profit.

Table- 7

How many B.O accounts do you have?	No. of respondents	Percentage
One	2	10%
Two	3	15%
Many	15	75%

Comment: 75% people have many accounts.

Table- 8

How many company’s shares have you bought?	No. of respondents	Percentage
One	3	15%
Two	7	35%
Many	10	50%

Comment: 50% people buy the shares many company.

Table- 9

How long is your involvement?	No. of respondents	Percentage
One year	5	25%
Two years	8	40%
Many years	7	35%

Comment: 40% people in involvement in the share market for two years.

Table- 10

Affect	No. of respondents	Yes	No	Percentage
				Yes	No
Do you use any information rearcher	20	6	14	30%	70%

Comment: 70% people do not use information technology.

Table- 11

Affect	No. of respondents	Yes	No	Percentage
				Yes	No
Will you want to use it in future	20	20	0	100%	0%

Comment: 100% people want to use it in future.

Table- 12

Affect	No. of respondents	Yes	No	Percentage
				Yes	No
Will you buy more share in future?	25	18	7	72%	28%

Comment: 72% people will buy more share in future.

Table- 13

Affect	No. of respondents	Yes	No	Percentage
				Yes	No
Do you want to involve friends and family in it?	25	16	9	64%	36%

Comment: 72% people want to involve friends and family in it.

Chapter- Five

Research Findings

The study was done keeping in mind to identify the problems and prospects of small investors in the share market in Bangladesh. The findings are as follows :

1. Most of the small investors do not have sufficient knowledge about share market.
2. Small investors want to get more profit quickly from the share market.
3. Some syndicates control the market value.
4. Lack of knowledge about information technology regarding share market.
5. People want to buy more share market in future.
6. They want to involve their friends and family in the share market.

Chapter- Six

Recommendations

Some pertinent recommendations are given according to the context of the problems:

Ø Motivation to the people about share market

Ø Raising fundamental knowledge and study regarding books among small investors about share market

Ø Small investors should consider the EPS when purchasing shares.

Ø Quick profit should not be the target.

Ø Small investors should be conscious about the syndicate in the market

Ø Government and SEC should form a continuous monitoring committee to keep the stability of share market.

Chapter- Seven

Conclusion

At present the share market of Bangladesh is an important issue to all. The small investors are passing their critical days through ups and downs. In this study we found that lack of fundamental knowledge about share market, seeking quick profit lack of IT knowledge syndicate in the share market are the main problems for the small investors. Some preventive measures are recommended in the study. It is also found that the number of small investors is increasing in the market gradually. We hope a stable share market for the small investors in future.

Bibliography

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