Scenario of Capital Market of Bangladesh: A Critical Analysis of 2015 to Present Time

Abstract

The Bangladesh capital market, led by the Dhaka Stock Exchange (DSE), has experienced a decade of marked volatility between 2015 and 2025. This study critically analyzes the performance of the market across this period, with emphasis on the DSEX index, market capitalization, liquidity, sectoral dynamics, and regulatory frameworks. The research employs a mixed-method approach: quantitative time-series analysis of market indicators combined with qualitative assessment of regulatory measures, macroeconomic shocks, and behavioral trends. Comparative evaluation with regional peers such as Pakistan, Sri Lanka, India, and Vietnam provides an external benchmark for understanding Bangladesh’s relative position.The findings reveal four distinct phases in market behavior. The first, spanning 2015–2019, was characterized by steady though modest growth, supported by stable macroeconomic conditions and gradual investor participation. The second phase, in 2020, witnessed a severe disruption as the COVID-19 pandemic forced a two-month suspension of trading, triggering sharp declines in capitalization and liquidity. The third phase occurred in 2021, marked by a historic rally that pushed the DSEX to an all-time high of 7,329 points, driven largely by post-pandemic optimism, liquidity injections from the Capital Market Stabilization Fund, and surging retail participation. However, this optimism proved unsustainable, as the fourth phase (2022–2025) saw a prolonged correction. The DSEX fell to ~5,247 points by early 2025, with market capitalization contracting from BDT 7.70 trillion in 2023 to BDT 6.62 trillion in 2024, and daily turnover declining by over 60% from 2021 levels.Several factors underpin these fluctuations. Macroeconomic pressures—including inflation above 8%, persistent currency depreciation, and rising interest rates—undermined real returns and discouraged foreign investment. Regulatory interventions, particularly repeated imposition of price floors, further reduced liquidity by distorting price discovery and deterring institutional participation. Structural weaknesses were also identified: the market remains overwhelmingly retail-driven (over 80% of daily activity), making it vulnerable to herding behavior, rumor-driven speculation, and panic selling. Corporate governance shortcomings, such as weak disclosure practices and inconsistent dividend policies, further eroded investor confidence.

Sectoral analysis indicates uneven performance: pharmaceuticals and IT demonstrated resilience, benefiting from export demand and post-pandemic expansion, while banking and textiles underperformed due to high non-performing loans and global demand volatility. Comparative regional analysis highlights Bangladesh’s relative underperformance in 2024, when the DSEX dropped –16.49% while Pakistan (+72.49%) and Sri Lanka (+48.80%) experienced significant recoveries. This divergence suggests that Bangladesh’s challenges are rooted more in domestic structural and policy weaknesses than in global trends.

The study concludes that Bangladesh’s capital market remains highly sentiment-driven, structurally fragile, and hampered by governance and regulatory shortcomings. To unlock its potential, reforms are essential. Recommended measures include the gradual removal of artificial price floors, introduction of dynamic circuit breakers, enforcement of stricter disclosure and dividend standards, and broadening of the investor base through institutional participation and financial literacy programs. Additionally, the development of new financial instruments—such as exchange-traded funds, corporate bonds, sukuk, and derivatives—would diversify opportunities and deepen market resilience.

If pursued diligently, these reforms could significantly enhance liquidity, strengthen governance, and attract both domestic and foreign investment. In doing so, the Dhaka Stock Exchange could position itself as a competitive regional capital hub by 2030, contributing meaningfully to Bangladesh’s ambition of achieving upper-middle-income status.