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Pakistan, Sri Lanka and India saw better 
productivity, as did the East African 
markets like Kenya and Tanzania. ILO 
data shows that the growth in Bangladesh’s 
labour productivity in the 5-years from 
2012 to 2016 was reasonable. This means 
its companies have other assets on their 
books dragging productivity. They need to 
reduce such non-core assets. 

There is a significant divergence between 
its listed economy and real economy. The 
ratio of the market cap of its Top-200 
companies to GDP was one of the lowest, 
along with Sri Lanka, Vietnam, Egypt, 
Tanzania and Turkey. It ranked amongst 
the lowest even in the revenue of its 
Top-200 companies to GDP. At the same 
time, the trading velocity in Bangladesh 
is reasonably high, in line with China and 
India. Both these countries have seen a 
high churn-rate from speculative investors 
driving volumes. If one combines 
Bangladesh’s low market cap/GDP with 
its high velocity, there seems to be a 
high proportion of churn-mentality there 
as well. This is counter-productive for 
deepening long-term interest in the equity 
markets, since umpteen studies have 
shown only long-term investors make 
money. Eventual losses from speculation 
lead to client attrition, putting opex 
pressure for new client-addition. Pushing 
more institutional investment, both 
domestic and foreign, is imperative. India 
has itself seen significant asset accretion 
to domestic mutual fund assets recently, 
apart from continued interest from foreign 
institutional investors. 

If one looks at profit concentration, the 
contribution of the 3 largest sectors to the 
profit-pool of Top-200 companies was 
68% in Bangladesh in 2016. Most Asian 
peers were less concentrated. It was below 
70% in Indonesia and below 60% in India 
and Thailand. A higher concentration 
possibly indicates the impact on the profit-
pie due to increased focus on few sectors 

of competitive advantage. Interestingly, 
while telecom is one of its largest sectors, 
only one stock dominates it. So there is 
a company-level concentration also in 
certain sectors. There is a need to grow the 
profits of other sectors so that any risk to 
its large sectors does not derail the overall 
market performance. This also means 
closing the gap between its real economy 
and listed economy. For instance, in the 
discretionary sector, the average size of 
profits of its textile companies, its area of 
competitive advantage, is smaller than its 
market’s average. Elsewhere, the average 
size of the area of competitive advantage is 
relatively higher to their market’s average. 
To list more large, profitable, yet unlisted, 
textile companies is an imperative. 
Bangladesh’s gross investment averaged 
30% for the 5-years till 2016, less than 
the average 35%-40% seen in rapidly 
industrializing countries. Pushing this 
further should drive domestic demand for 
its materials and industrial sectors. The 
BDT dropped more than the LKR, and 
almost similar to the PKR last year. This 

makes it competitive in export of common 
products like food and fisheries, apart from 
textile and materials like cement. Another 
area is to boost the services sector, a 
key employer of educated workforce. 
This sector was ~56% of its GDP vs. 
60%-70% seen in the larger emerging 
economies. Consumption remains a driver 
of economic growth. In comparison to 
countries with a similar per-capita, say 
Kenya, Cambodia, Ghana and Pakistan, 
Bangladesh’s share of consumption is far 
less. This offers headroom for growth.

Last, are Bangladesh’s large companies 
investing in size? It was amongst the 
smaller markets in our sample, as per the 
average profit of its Top-200 companies. 
The average Chinese company was 158X 
larger, India 25X, Thailand 11X, Colombia 
10X, Philippines 7X, Indonesia 9X, 
Pakistan 3X and Kenya 2X. Bangladesh’s 
average profit size was far less than Chile, 
Colombia, Pakistan or South Africa, 
though it had a similar GDP as them. Are 
its large companies investing to scale up? 
Their combined equity grew 12% CAGR 
for the 5-years till 2016, far higher than 
their profit growth. This indicates infusion 
of fresh equity. However, the leverage 
remained flat in this period which is 
acceptable as it is on the higher side. 
Nevertheless, its revenue growth was far 
higher than its profit growth since the 
last 5-years, possibly indicating a higher 
cost-base due to capex eroding near-term 
profitability. That is a positive.

At the end, creating more buoyancy 
in investor demand is an imperative, 
both from foreign and domestic 
institutions. Retail follows them. So while 
Bangladesh’s Dhaka Stock Exchange has 
seen successes, there are few challenges 
too. Addressing them would help sustain 
the long-term investor interest which a 
high-potential market like Bangladesh 

Last, are Bangladesh’s large 

companies investing in size? It 

was amongst the smaller mar-

kets in our sample, as per the 

average profit of its Top-200 

companies. The average Chi-

nese company was 158X larg-

er, India 25X, Thailand 11X, 

Colombia 10X, Philippines 

7X, Indonesia 9X, Pakistan 3X 

and Kenya 2X. Bangladesh’s 

average profit size was far less 

than Chile, Colombia, Pakistan 

or South Africa, though it had a 

similar GDP as them.

The author works with a leading capital markets company in India. Views expressed are entirely personal and do not represent those of any entity.

Disclaimer: Originally published in Financial Express -