The Dhaka Stock Exchange (DSE) has expressed support for the proposed national budget for the fiscal year 2024-25, despite concerns that certain measures could further damage investor confidence in an already struggling market. The market has been in a bear run for the past four months, and some of the new budget proposals might exacerbate this trend.

One contentious point is the National Board of Revenue's (NBR) proposal to reintroduce a tax on large investors and reduce the corporate tax gap between listed and non-listed companies in some instances. On a positive note, the government has included a provision allowing undisclosed income to be used for purchasing stocks by paying a 15 percent tax. However, this measure is unlikely to significantly boost the market, as past experiences have shown that holders of black money tend to avoid investing in the stock market, preferring safer investments like bank deposits or real estate.

Despite these challenges, the DSE issued a press release on June 7 welcoming the budget, highlighting its potential to guide the economy towards enhanced development and productivity. However, the DSE did not address the government's decision to reinstate a capital gains tax of at least 15 percent on investors' income exceeding Tk 50 lakh, a move that has sparked concern among market analysts and participants.

Following the budget announcement, the DSE's benchmark index, DSEX, dropped by 1.25 percent to a 38-month low of 5,171 points on the first trading day. Other indices, such as the DSES (representing Shariah-compliant companies) and the DS30 (comprising blue-chip stocks), also saw significant declines.

A senior official from a stock brokerage firm noted that the capital gains tax would primarily impact large investors, who are already hesitant about maintaining their funds in a volatile market. Although small investors are not directly affected by the capital gains tax, the potential selling pressure from large investors could negatively influence the entire market.

Md Saiful Islam, president of the DSE Brokers Association of Bangladesh, argued that while he is not opposed to the capital gains tax in principle, now is not the right time to impose it due to the already negative market sentiment. Over the past three months, the DSEX has dropped by more than 17 percent, or 1,000 points, reflecting the market's ongoing struggles.

Islam suggested that if the tax is reinstated, the tax-free limit on capital gains should be at least Tk 1 crore. Additionally, the NBR should clarify whether previous capital losses can be adjusted against current capital gains when calculating the tax due. He also criticized the DSE for not adequately supporting the market and investors, accusing it of trying to please the government rather than advocating for investor interests.

Prof Hafiz Md Hasan Babu, chairman of the DSE, did not respond to requests for comment on the issue.

The market's turnover, an indicator of trading volume, plummeted by 34 percent to Tk 357 crore, indicating a lack of buyer interest. Out of the stocks traded, only 33 advanced while 340 declined, and 19 remained unchanged. Major stocks like Square Pharmaceuticals and Beximco Pharmaceuticals contributed significantly to the decline of the DSEX.

A senior DSE official, speaking anonymously, noted that the imposition of the capital gains tax is causing panic among general investors, fearing that large investors will withdraw their funds and move to safer investments like treasury bonds, which currently offer yields above 12 percent. This shift could further destabilize the stock market, which has already been under pressure from significant selling by foreign investors.

The official warned that if large investors follow suit, the stock market indices could face severe declines.