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INVESTORS BEHAVIORS AFTER THE CRASH
Supervised By:
Syeda Shaharbanu Shahbazi
Senior Lecturer
BRAC Business School
BRAC University
Submitted By:
SHAFIQUL ISLAM
ID: 10104111
BRAC Business School
BRAC University
June26, 2014
Syeda Shaharbanu Shahbazi
Senior Lecturer,
BRAC Business School,
BRAC University,
66, Mohakhali, Dhaka-1212.
Subject: Submission of Internship Report.
Dear Madam,
This is my pleasure to present my internship report that I have completed as part of fulfilling the
requirement for the Internship (BUS 400) course from BRAC Business School. I have completed
my internship program from City Brokerage Limited at Head Office. And I have tried my best to
make an effective and credible Internship Report.
The report contains a comprehensive study on Market Crash 2010-2011 and its impact on
investors behavior after the crash. It was a great delight for me to have the opportunity to work
on the above-mentioned subject.
I believe that the knowledge and experience I gathered during the internship period will be
helpful in my future professional life. I will be grateful to you if you accept the report.
Thank you.
Sincerely yours,
Name: Shafiqul Islam --------------------------
ID No. : 10104111
ACKNOWLEDGEMENT
At the beginning of preparing this report, I would like to convey gratitude to the Almighty Allah
for his blessing in completing this report. This internship report is an accrual of many peoples
effort. For this, I am obliged to a number of people who helped me to organize this report and for
their kind opinion, suggestions, instructions and support and appropriate guidelines for this. I
have received endless support and guidance in preparation of this report from numerous sources.
I would like to take this opportunity to thank them all.
At first, I like to thank Carrere Service Office, BRAC University and City Brokerage Ltd
(wholly owned subsidiary of The City Bank Limited) for giving me the opportunity to undergo
the internship program. My placement of internship program was at Head Office of City
Brokerage Ltd. The successful completion of this Internship Report has made me grateful to a
number of persons, especially those who took time to share ideas and views to prepare an
effective report. For the successful completion of my report I would like to thank and convey my
sincere gratitude to my respected academic Supervisor, Syeda Shaharbanu Shahbazi, Senior
Lecturer, BRAC Business School, BRAC University, for giving valuable advice, suggestion and
inspiration to complete the report in an appropriate manner and I would also like to express my
sincere appreciation for his wholehearted support and guidance. At the same time I am also
grateful to my organizational Supervisor, Mohammad Ekram Ullah, Officer, Customer Service,
City Brokerage Ltd, Head Office, for his spontaneous support and supervision, suggestions and
providing me valuable information that was very much needed for the completion of this report
and I also thankful to all departments of City Brokerage Ltd, Head Office for their kind co-
operations. Finally, I would also like to take the opportunity to express my appreciation to my
family, friends, near and dear ones who helped me to make this report a comprehensive one.
EXECUTIVE SUMMARY
There is a phrase, that your customer is always right. This single line helps to understand the
value of customer and their satisfaction toward an organization. By inspiring with this, I have
made an internship program in customer service department of City Brokerage Limited. As the
organization is related to the capital market, I have selected my topic on capital market scenario
and investors behaviors after the 2010-2011 market crash. In this report, I mainly concentrate on
the understanding capital market trends and how and why a capital market is crashed and its
impact on investors investment decisions. To give an ample outlook the report, is segmented
into several chapters. It starts with the chapter one covering the company overview, vision,
mission, SWOAT analysis and other information related to City Brokerage Ltd. as well as main
functions of City Brokerage Limited where I pursue the internship period. Then the second
chapter describes the Job site experiences performed by me as an intern at Head Office. Next
part of the report contains the project part includes origin of the report, objective, scope and
methodology and limitation. Third chapter of this report titled as Theoretical Analysis which
includes some theoretical terms related to stock market. Moreover, chapter four and five contain
stock market crash 2010-2011 and after the crash what are the market scenario and the impacts
of the investors behaviors respectively. I also have done a survey of 12 people to get the insight
of the true investors behaviors. In the sampling questionnaires, there was taken information of
gender, age and occupation of customers.
Table of Content
Organization Overview
Vision:
The Financial Supermarket with a Winning Culture Offering Enjoyable Experiences
Mission:
Offer wide array of products and services that differentiate and excite all customer segments
Be the Employer of choice by offering an environment where people excel and leaders are created
Continuously challenge processes and platforms to enhance effectiveness and efficiency
Promote innovation and automation with a view to guaranteeing and enhancing excellence in service
Ensure respect for community, good governance and compliance in everything we do
Values:
Result Driven
Accountable & Transparent
Courageous & Respectful
Engaged & Inspired
Focused on Customer Delight
Website www.thecitybank.com
E-mail asadul.islam@thecitybank.com
Board of Directors
MD & CEO
Company
Internal Control & Audit Secretary
Business Operations
Sales & Trading Research & Investment Marketing & Branding Corp. Affairs &
Communication
Custodial Services:
City Brokerage Limited have an exclusive arrangement for clients to keep their shares in safe
custody in our vault
Safe Deepings of securities
Strength:
Skilled and knowledgeable employees of City Brokerage Limited.
Realize the reputation of City Bank as wholly owned subsidiary of City Bank.
Sophisticated tools and financial analysis.
Highly complained operating system.
Weakness:
Less number of branches.
Lacking of manpower.
Insufficient marketing effort.
Not availability of online trading facility.
Opportunity:
Increase the volume of trade by attracting foreign investor and remittance earners.
Having a scope to expanding the market share.
Investors are began to be sophisticated, now they are locking better service and take calculative
judgment about the service of broker house.
Provide the online trading service.
Threats:
Low turnover in the capital market of Bangladesh.
Political and social unrest in Bangladesh.
Existing and upcoming broker houses in the market with attracting facilities.
Frequent uncoordinated policy making by different regulatory bodies.
Now the next part will be discussed about my job site experience and the challenges which I faced during my internship
program.
Give information to the customer about necessary documents for open a B.O account:
As I was in Customer Department, I had to give necessary information to the customers for opening a
B.O. account. This is one of the regular jobs for me. Besides, I had to very polite and helpful to the
customers while giving information.
Give cheque requisition form, authorization form, tax requisition form to the customer:
Another day to day job of my department was to give cheque requisition form, authorization form, tax
requisition form to the customer. To withdraw money and collect cheque, customer must take those
forms and I had to give them proper direction to fill it properly.
RECOMMENDATIONS:
City Brokerage Limited should develop a well organized website to make them more accessible to their
existing and potential clients. In addition they should introduce online trading facilities for their clients.
City Brokerage Limited can introduce investor awareness program, should take the initiative to produce
wise and educated investor. In this way both the clients and house will be benefitted.
City Brokerage Limited should give more emphasize on the research and publications. And it should be
ensured that research and publications are available to the clients.
Branch offices should more closely monitored by the management of the City Brokerage and there can
be sudden visit to the branch office to have a look on the office.
There should be a way to get the feedback from the clients. They should take effective initiative to make
the all employees up to date about necessary rules and regulation about the capital market of
Bangladesh.
City Brokerage Limited can arrange seminar and workshop with the different stakeholder of this
organization about the investment of capital market.
After finishing my job part experience and recommendation, the next study is on my project part. Moreover, it also
includes objective of the project, methodology and limitation.
METHODOLOGY:
The task of data collection begins after the research problem has been defined and research design chalked out.
While deciding the method of data collection to be used for the study, the researcher should keep in mind two
types of data. They are given below:
1. Primary data and
2. Secondary data.
Primary: Survey
The number of customers of City Brokerage Ltd at Head Office is around 3800. Among them, I took 12
customers opinion as samples to conduct my survey. And my primary source of data is the customers opinion
of city Brokerage Limited.
Secondary: Reports, Internet, Textbooks, Journals, Articles etc.
The relevant information was obtained from the reports, internet and the textbook. For the secondary data, I had
to rely mainly on the different reports written by authorized writers, articles on share market scenarios, online
journals and different websites. Unfortunately, there were not enough sources to obtain secondary information
which was one of my limitations.
Theoretical Analysis
Fellowes (2008, p.29) described that stock market has same features like a normal market with buyers, sellers
and agreed price. Moreover, there will be a middleman who guides investor to deal offers of buying and selling
shares in the stock market. Simply it can be said that it is a place where shares are bought and sold, i.e. a stock
exchange. However, in this market shares of publicly held companies are issued and traded either through
exchanges or over-the-counter markets, also known as the equity market. At that market we usually get stock
exchange, regulatory organizations, investors, listed companies with securities, broker houses, merchant banks,
and other intermediary organizations in a stock market with collaboration of central bank and government of the
country.
Gifting of share / granting approval to the transaction/transfer of share outside the trading system of the
exchange (As per Listing Regulations 42).
Market Surveillance.
Investors Protection Fund (As per investor protection fund Regulations 1999).
Announcement of Price sensitive or other information about listed companies through online.
Primary Market:
A new share issuance of a company comes through primary market called Initial Public Offerings (IPOs).
Companies can issue new securities after getting permission from the market regulators. Moreover, a market
that issues new securities on an exchange is called Primary Market. However, Primary Markets are facilitated
by underwriting groups, which consist of financial institutions that will set a beginning price range for a given
security and after that oversee its sale directly to investors.
Secondary Market:
Secondary market deals with existing securities or previously issued securities. A market where investors
purchase securities or assets from other investors, rather than from issuing companies themselves. However,
securities can be sold or bought from this market from the investors. In a stock exchange most of the trading
figures comes from the secondary market. According to its different trading characteristics, market is divided
differently.
Public Market:
Instruments are traded on this market in normal volume which is called lot share.
Spot Market:
A commodities or securities market in which goods are sold for cash and delivered immediately. Contracts
bought and sold on these markets are immediately effective. Trading is done in normal volume under corporate
actions and must be settled in 24 hours.
Block Market:
An order or trade submitted for sale or purchase of a large quantity of securities. A block trade involves a
significantly large number of shares or bonds being traded at an arranged price between parties, outside of the
open markets, in order to lessen the impact of such a large trade hitting the tape. Moreover, in this market bulk
volume of instruments are trades through pick & fill basis.
Settlement
Trade in Public, Block & Odd-lot Market: Trade in Public, Block & Odd-lot market has two different
settlement periods for A, B, G, N & Z categories shares and Settlement is executed through stock exchange
clearing house. Here the settlement period is same for A, B, G & N. However, for Z category share settlement
period is different.
A, B, G & N Category: Settlement is done through DSE or CSE clearing house on T+1(pay in day) and T+2
(pay out day).
The below cycle is valid for A, B, G & N category instruments traded in Public, Block & Odd-lot market:
Securities
T+1 Cheque (In favor of DSE)
T+9
DSE Clearing house T+9
This cycle is valid only for Z group instruments traded in Public, Block & Odd-lot market.
Securities Cheque
T+0 T+1
T+1
DSE Clearing house
Cheque Securities
The above cycle is valid for A, B, G, N & Z category instruments traded in spot market
The above cycle is valid for A, B, G, N & Z category instruments of Foreign Trade.
(Source: www.dsebd.org)
(Source: www.secbd.org)
Now the next study will show the reasons and the scenario behind the stock market crash in 2010-2011.
History of the stock market crashes show that Bull Run before a stock market crash is kind of normal
phenomenon. There was no exception for the stock market crash of Bangladesh in 2010-11. Most important
factors that guided to the Bull Run are described here.
Root of bubble
Due to political conflict of Bangladesh state of emergency was declared and military took power of the country
in 2007. Moreover, during military-backed regime investment in real sectors as well as FDI decreased but the
inflow of foreign remittance increased. At that time, investors were looking for alternative investment sector to
invest their savings and found stock market as an attractive alternative.
According to Centre for Policy Dialogue (CPD) 2011, the total number of BO Account holders on 20th
December, 2010 reached to 3.21 million though the number was 1.25 million in December 2009. Most of these
new investors dont have enough knowledge about the stock market but invest their most or all savings in the
market. However, 238 brokerage houses opened 590 branches at 32 districts. As CPD (2011) found, there are
some factors which attracts investors such as internet-based trading operation, opening branches of brokerage
houses across the country, easy access to the market information, arranging a countrywide 'share mela (fair)'.
Unfortunately, to chase huge capital of too many investors, there were not enough supplies of new securities
through IPOs in the market. On the other hand, there was a lot of excess liquidity due to less business
opportunities in the recession period of 2009-10 in banks and other financial institutions of Bangladesh. Theses
financial institutions and its officials as well as other people captured the opportunity and took loan and invest
in the share market to minimize the cost of bearing excess liquidity. This made a huge entry of liquidity in the
share market. For that reason the daily transaction in the share market was on an average from Taka 20,000 to
30,000 million in 2010 and the figure was double comparing to 2009.
To produce Bangladesh`s economy by 7-8% per year Bangladesh Bank adopted accommodative monetary
policy during the high inflation periods to support investment. Bangladesh Bank has locked Taka against dollar
to support exports. As Taka has been undervalued it has made excess growth in money supply. Because of
Bangladesh Banks ex-change rate policy last couple of years broad money made excess. However, a big
portion of this excess liquidity had gone to the stock market but there were very few shares in the market. The
policy that was adopted by Bangladesh Bank to grow economy by increased exports and investment ultimately
misguided and ended up blowing the mother of all bubbles. Besides, the government again increased the bubble
after permitting whitening of black money through tax breaks and schemes.
January 2011
Share prices again started to fall from 3rd January, 2011 as investor had the information of ongoing liquidity
crisis of financial & non-financial institutions that preventive margin loan. The down slope of index is visible
from January 2nd to 10th. As Chairman of probe committee Mr. Ibrahim Khaled (2011) mentioned, Due to
trigger sale of shares from 2nd to 5th January, market experienced its biggest decline in share prices and market
crash from 6th to 10th January.
On 9th January DSE General (DGEN) Index declined by 600 points and all indices declined nearly 7.75
percent. Furthermore, on 10th January Dhaka Stock Exchange General (DGEN) Index lost by 660 points or 9
percent and Chittagong Stock Exchange Selective (CSE) Index declined by 914 points or 6.8 percent within 50
minutes of trading. Besides, CSE All Share Price Index (CASPI) stood at 19212.34 losing by 1,396.21point,
which is 6.77 percent. CSE Selective Categories Index (CSCX) lost 914 points or 6.87 percent and CSE -30
Index also lost 1490.83 or 8.28 percent. These falling indexes had broken all previous records. After that
Security and Exchange Commission called for an emergency meeting with Bangladesh Bank and stop trading at
both Dhaka & Chittagong Stock Exchanges. After that, investors came out in the street with processions and
demonstrated against free fall of Share index in both bourses as well as suspension of trading. Investors from
different parts of the country brought out processions and clashed with law enforces in some places as well.
By identifying the reasons and the actual scenario of stock market crash, now the next study will illustrate on market
scenario and investors behavior after the market crash.
2500000
2000000
1500000
1000000
500000
0
2009 2010 2011 2012 2013
Total Turnover in TK. mn 1475300.88 4009912.67 1560912.09 1001084.9 952742.08
Here, we can see the huge turn over in 2010 by Tk. 4009912.67 million and the percentage change of that time
is 171.8 which simply indicate that on that time huge liquidity was seen. Moreover, it indicates that trading is
vigorous and stocks are highly liquid. It is simple to find buyers and sellers, although the pricing may be highly
variable. And we all know that in 2010 the huge participation of investors made the market highly liquid.
20000
volume (mn)
15000
10000
5000
0
2009 2010 2011 2012 2013
Volume( mn) 7973.08 16974.52 16967.15 21688.68 22988.53
Market volume measures the commitment behind stock price movement. Moreover, it helps you to know how
many people are involved in that move. On the other hand, if a stock moves on low volume then it tells that
25000
Total volume in tk (mn)
20000
15000
10000
5000
0
2009 2010 2011 2012 2013
Buy 5816.32 10791.59 12168.35 13483.94 26525.05
Sale 8567.57 17557.44 11384.03 5558.02 7096.1
Market P/E
Ratio: 2009 2010 2011 2012 2013
P/E
16%
27%
13% 2009
2010
2011
14%
2012
30% 2013
A high P/E ratio depends on both the industry sector as well as the stock itself. Moreover, a high P/E ratio
indicates that people are willing to pay a higher price for the stock in anticipation of future company
performance. In 2010, the P/E ratio was higher than ever which was 29.16 or 30 percent compare to other years.
It signifies that on that year people were willing to pay a higher price for some stocks and retail investors at that
time had less knowledge about the market and they trade most of the time based on the rumor. For that reason,
in 2010 we saw a historical fall in stock market.
4000000
3500000
3000000
2500000
Opening Cap
2000000
Closing Cap
1500000 Highest Cap
1000000
500000
0
2009 2010 2011 2012 2013
From the bar chart, we can see that in 2010 the closing market cap is almost double compare to the opening
market cap in 2010. If we read the reasons behind the market crash 2010, huge liquidity in the market was one
of the reasons. Especially in financial institutions had huge liquid asset and at that time they invest it in capital
market as it was then a lucrative sectors for investors to invest.
After the month March, 2014 BO account numbers stood at 60 thousand and the total number of the BO
account holder increased at 29lakh 55 thousand and 731 which was before at 29lakh 4 thousand 832. Moreover,
in February the men BO account holders were 21lakh 43thousand and 917 and this number is increased by
21lakh 78thousand 305 that means after one month BO account of men increased at 34 thousand and 388.
Besides, women BO account holders are 7lakh 67thousand and 569 in March. On the other hand, in March the
company BO accounts is 9thousand and 857. Now a chart is giving below which shows the two months
comparison of BO accounts.
We can see from the chart is that BO account is increasing. But the true fact is, investors are now more relying
on IPO than secondary market because of the risk factor. Though IPO is held by lottery but there is no such
Reasons:
Investors are influenced by other investors decisions.
Individual investors invest most of their investment in the stock market without any research.
Investors most of the time take decisions based on the rumor.
They want to grab short term profit rather long term profit.
Most of the investors think, behind the market there are some people who manipulate the market.
Some people are giving false information so that they can take some advantages.
Regulator bodies are failing to control the false information.
Investors invest their money in the companys shares without collect enough information about those
companies. They just run after the profit and in the long run loss their money.
Economy watch, 2010. A Brief Introduction to the Dhaka Stock Exchange. [Internet], Available from:
<http://www.economywatch.com/stockexchanges/dhaka.html> [Accessed March 29 2014].
Hassan M. K., Islam A. M., & Basher S. A., 2000. Market Efficiency, Time-Varying Volatility and Equity Returns
in Bangladesh Stock Market.
Haque, M. S., (n.d.). Recent stock market crash in Bangladesh. [Internet], Available
from:<http://www.nub.ac.bd/recent-stock-market-crash-in-bangladesh-wrong-signals-from-responsible-quarters
since-the-ctg-caused-the-asset-price-bubble/> [Accessed April 2 2014]
Rahman J., 2011. Share Market Bubble the Big Picture. [Internet], Available from:
<http://dpwriters.wordpress.com/2011/02/04/share-market-bubble-the-big-picture/> [Accessed April 12 2014].
Raisa A., 2011. Behind the Scenes The Stock Market Saga. [Internet]
<http://www.thedailystar.net/magazine/2011/01/03/cover.htm> [Accessed April 16 2014].
Rashid M., 2008. The potential of the Bangladesh Capital Market. Volume 3 Issue 5, [Internet], Available from: <
http://www.thedailystar.net/forum/2008/may/potential.htm> [Accessed April 16 2014].
Websites
All the information you provide will be used only for academic purpose and your identity will be kept anonymous and
confidential. Thanks in advance for your co-operation.
3. Professionals 4. Housewife
1. Other investors' decisions of the stock volume have impact on your investment decisions.
2. Other investors decisions of buying and selling stocks have impact on your investment decisions.
3. You usually react quickly to the changes of other investors decisions and follow their reactions to the stock market.
10. You put the past trends of stocks under your consideration for your investment.
11. You believe that your skills and knowledge of stock market can help you to outperform the market.
12. You forecast the changes in stock prices in the future based on the recent stock prices.
13. You trade your share based on current stock sensitive news.
YES NO