It is a positive sign for investors that directors of several well-known listed firms are purchasing their own shares, believing them to be undervalued amid a lack of buyers.

For instance, directors of Square Pharmaceuticals, ACI Ltd, BSRM Ltd and Apex Footwear have announced plans in recent months to buy shares worth crores of taka from general shareholders.

When directors purchase shares, it usually encourages general investors to follow suit, leading to a rise in stock prices.

However, despite these announcements, investor interest has remained muted, resulting in little to no price movement.

Several directors of these companies said their only option is to buy shares with their own money if they believe they are undervalued.

Under current regulations of the Bangladesh Securities and Exchange Commission (BSEC), companies cannot execute buybacks even if they have sufficient funds.

As a result, firms with substantial liquid assets -- often invested in fixed deposits or other shares -- cannot repurchase their own stocks despite seeing them as attractive investments.

A buyback is when a company repurchases its outstanding shares, reducing the number available in the open market. In developed markets, listed firms often buy back shares when they consider them undervalued, viewing it as a benefit for shareholders.

When companies repurchase shares, supply in the market decreases, which in turn raises the value of the remaining shares.

This leads to an increase in earnings per share (EPS) even if the company's profit remains unchanged. If a firm experiences profit growth, its EPS rises at an even higher rate, improving its ability to pay dividends.

However, Bangladesh's existing regulations do not allow share buybacks. Currently, listed firms must seek High Court approval to reduce paid-up capital, which is a complex process.

Market analysts believe if the BSEC introduces buyback rules, listed companies would be able to repurchase their shares, benefiting investors more than individual directors' purchases.

"Share buybacks are a common practice in many countries and should be incorporated in Bangladesh," said Shahidul Islam, CEO of VIPB Asset Management.

"If a company believes its stock is attractive and has sufficient cash, it should be allowed to buy back shares."

Some concerns have been raised from time to time that buybacks could be used for market manipulation.

However, Islam argued this should not be a reason for prohibition, as manipulation can occur in various ways. A globally accepted system should not be banned due to such fears, he said.

If permitted, buybacks would give companies greater flexibility in managing cash flow and raising funds by offloading shares when needed, he added. "I don't see any reason for not allowing share buybacks."

Since 2020, Square Pharmaceuticals directors have collectively purchased 1.36 crore shares worth around Tk 280 crore.

The company has paid a total cash dividend of 422 percent over the last five years. However, its share price has remained largely unchanged, fluctuating between Tk 215 and Tk 217 during this period, according to Dhaka Stock Exchange data.

Similarly, directors of Apex Footwear purchased around 1 lakh shares in the last two years, yet its share price has been on a downward trend.

A similar pattern was observed with BSRM Ltd following its purchase announcement.

In India, share buybacks are regulated under the Companies Act, 2013, and the SEBI (Buy-Back of Securities) Regulations, 2018. These laws outline maximum buyback limits, repurchase methods, and cooling-off periods before a company can initiate another buyback.

Prof Abu Ahmed, chairman of the Investment Corporation of Bangladesh, believes that allowing share buybacks would benefit the market.

"When a company has excess cash and no immediate expansion plans, it can buy back shares. This benefits general investors as EPS increases due to a reduced share count," he said.

However, buybacks should not be mandatory, he added.

"Many investors demand that companies with share prices below face value be required to buy back shares. But how would they do so without sufficient cash? The option should be available but not compulsory," said Ahmed.

Al-Amin, associate professor of Accounting and Information Systems at Dhaka University, also supports the introduction of buybacks.

"It is a common practice in developed markets. When a company realises that its growth has stalled and it has excess cash, it opts for a buyback," he said.

This provision should be introduced in Bangladesh as well, he added.