Capital Markets: 2026-Q2 Sector Review

Growth Signals and the Valuation Backdrop

Listed-company earnings expectations rest on an official growth signal that is currently contested. The World Bank's World Development Indicators put Bangladesh's GDP growth at 4.14 percent for FY2023, while the Bangladesh Bureau of Statistics' provisional estimate for the same fiscal year stood at 6.0 percent. That gap between the two most-cited growth references is itself a market-relevant fact: analysts building earnings models, setting price-to-earnings benchmarks, or briefing foreign clients on the macro cycle are working from two materially different pictures of how fast the economy actually expanded. When the reference growth rate used to justify listed-sector valuations is this contested, risk premia embedded in equity pricing should widen to compensate for data uncertainty, not just for the well-known liquidity and disclosure discounts already attached to the market. Fund managers and research desks covering Bangladesh-listed names have an interest in stating plainly which growth series underlies their models, since the divergence carries direct consequences for how aggressively earnings can be extrapolated forward.

Inflation and the Cost of Capital

The inflation backdrop against which capital is priced remains elevated. The World Bank's 2024 annual average puts consumer price inflation at 10.47 percent, while the Bangladesh Bureau of Statistics recorded 9.7 percent in December 2024. These are different measures, one an annual average and one a single month's reading, and they should not be read as a single trend line, but both sit well above the low single digits associated with a settled disinflation path. For capital markets, persistent inflation in this range keeps real returns on taka-denominated fixed income compressed, raises the coupon governments and corporates must offer to attract savers into bonds, and discourages issuance of long-dated paper because investors are reluctant to lock in a fixed rate against an uncertain price trajectory. Equity investors face the parallel problem of discounting future cash flows at a higher required rate of return, which weighs on valuations across sectors regardless of individual company performance. Until the inflation readings from the two main data sources converge on a lower and more stable range, the cost of capital available to Bangladeshi issuers, listed and unlisted alike, is unlikely to ease meaningfully.

External Position, Currency and Import-Sensitive Sectors

The external accounts set the currency risk that capital markets must price into every foreign-currency-linked instrument and every import-dependent listed company. Bangladesh Bank reported foreign exchange reserves of USD 31.07 billion at end-December 2024, measured on the IMF's BPM6 basis, alongside a mid-rate of BDT 122.75 per US dollar at the same date. On the trade side, Bangladesh Bank's adjusted FY2023-24 figures show merchandise exports of USD 44.5 billion against merchandise imports of USD 63.7 billion (goods, c.i.f.), a configuration in which imports continue to exceed exports by a wide margin. Remittance inflows provided a partial offset, reaching USD 23.91 billion in FY2023-24, up 10.66 percent year on year according to Bangladesh Bank.

For capital markets, this combination matters on several fronts. Listed companies that depend on imported raw materials, intermediate goods, or capital equipment, a description that covers much of the pharmaceutical, textile, and engineering sectors on the Dhaka Stock Exchange, carry direct exposure to the BDT 122.75 rate and to any further currency adjustment. The reserve position at USD 31.07 billion under the BPM6 methodology is the buffer that underpins confidence that the exchange rate can be defended without abrupt devaluation, which in turn affects how foreign portfolio investors price currency risk when allocating to taka-denominated equities and bonds. The remittance growth of 10.66 percent year on year is a genuine source of external support, but it flows primarily into private consumption and household savings rather than directly into listed capital markets, so its stabilizing effect on the currency is more relevant to market sentiment than to trading volumes.

Fiscal Position and the Government Securities Market

Government borrowing needs compete directly with private issuers for the same pool of domestic savings, so the fiscal position is a first-order input into capital markets, particularly the government securities market that anchors the yield curve used to price corporate bonds. The Ministry of Finance's revised budget for FY2023-24 puts the fiscal deficit at 4.7 percent of GDP, and public debt stood at 40.1 percent of GDP according to World Bank and IMF figures for 2024. A deficit of this size means the government continues to be a large, recurring borrower in the domestic market through treasury bills and bonds, and the auction results for that paper set a reference rate that private corporate issuers must price above. Public debt at 40.1 percent of GDP is not, on its own, an unusually high figure by regional standards, but its trajectory alongside a fiscal deficit of 4.7 percent of GDP determines how much additional government paper the domestic market will need to absorb in coming quarters, and therefore how much room remains for corporate bond issuance to grow without crowding effects pushing up yields across the board.

Banking Sector Asset Quality and Its Read-Through to Listed Markets

The most consequential figure for capital markets this quarter is the non-performing loan ratio. Following Bangladesh Bank's Basel III reclassification in late 2025, the non-performing loan ratio stands at 35.73 percent. Banks make up a substantial share of the Dhaka Stock Exchange's listed universe and a large portion of outstanding corporate debt instruments, so a non-performing loan ratio at this level is not a banking-sector-only concern, it runs directly into equity valuations for listed banks, into the pricing of bank-issued bonds and subordinated debt, and into the broader index composition that many funds track. A reclassification exercise of this scale, moving the disclosed ratio to 35.73 percent, also signals that previously reported asset quality understated the scale of impairment, which should prompt investors holding bank equity or bank debt to revisit provisioning assumptions and capital adequacy buffers rather than treat the new figure as a one-off technical adjustment. Banks operating under this level of impaired assets have less capacity to extend margin financing to brokerage clients, to underwrite new corporate bond issues, or to expand lending books that support listed non-bank borrowers, so the effect compounds across the market rather than staying contained to bank share prices alone.

Risks

Taken together, the risks facing capital markets this quarter cluster around data reliability and balance sheet repair rather than around any single shock. The divergence between World Bank and BBS growth estimates, and separately between World Bank and BBS inflation readings, means investors are pricing risk against two different macro narratives depending on which source they trust, and a reconciliation in either direction could reprice expectations quickly. On the external side, an exchange rate of BDT 122.75 per dollar sitting alongside a persistent merchandise trade gap between USD 44.5 billion in exports and USD 63.7 billion in imports leaves currency stability dependent on reserves holding near the USD 31.07 billion level and on remittance growth continuing at a pace close to the 10.66 percent year on year recorded in FY2023-24. On the fiscal side, a 4.7 percent of GDP deficit sustained against 40.1 percent of GDP in public debt keeps government issuance as a persistent claim on savings that could otherwise flow to corporate paper. The banking sector's 35.73 percent non-performing loan ratio is the single largest overhang, since it constrains the balance sheets that anchor both bank equity valuations and the domestic bond market's capacity to intermediate new corporate financing.

Policy Levers

Several levers are available to policymakers seeking to support capital market development against this backdrop. Reconciling the growth and inflation estimates published by the World Bank and the Bangladesh Bureau of Statistics, or at minimum publishing a clear methodological bridge between the two, would remove one source of pricing uncertainty for equity and bond investors. Maintaining reserves at or above the USD 31.07 billion BPM6 level, and continuing to channel remittance growth through formal banking channels to sustain the 10.66 percent year on year pace recorded in FY2023-24, would reinforce confidence in the BDT 122.75 exchange rate that import-dependent listed companies rely on for cost planning. On the fiscal side, containing the deficit within the 4.7 percent of GDP envelope set in the revised FY2023-24 budget, and managing public debt around the 40.1 percent of GDP level, would limit the extent to which government securities issuance crowds out corporate bond financing. The most urgent lever, however, sits with the banking sector: following through on the Basel III reclassification that produced the 35.73 percent non-performing loan ratio with a credible recapitalization and provisioning program would do more than any other single measure to restore the balance sheet capacity that listed banks and the broader capital market need to function as intermediaries rather than as a source of systemic drag.