The stock market index NEPSE, which was at 3199.03 points on 2 August 2078, fell to 1937.74 points on 23 August 2079. Due to the decline in the index, there was a decline in the market capitalization of 16 trillion 89 billion 299 million rupees.
On 2 August 2078, when NEPSE reached 3199.03 points, the total market capitalization reached 44 trillion 68 billion 50 million 54 lakh rupees. On 23 August 2079, it has dropped to 27 billion 79 billion 485 million.
In the last financial year 2078/79, bonus shares worth 55.89 billion rupees, right shares worth 11.97 billion rupees and ordinary shares worth 23.28 billion rupees have been listed.
Even though more companies were listed in NEPSE last financial year, the market capitalization decreased by about 17 billion. In other words, during one year, stock investors lost about 17 billion rupees.
In Nepal, founder and ordinary securities are traded separately, but the market capitalization is calculated based on the transaction value of ordinary shares.
When the market’s ‘weary cycle’ was completed for one year, the turnover also fell even more. On 31st July 2078, the daily turnover in the market was 21 billion 64 crores, but now the daily turnover has started to drop below 1 billion.
The total transaction amount for the month of July 2078 is about 3 billion. In the 21 days of trading in July, 666.65 million 99 thousand shares were bought and sold and shares worth 2.91 billion 572.3 million rupees were traded.
But in the month of July 2079, when the market was operating for 26 days, the transaction amount was limited to 72 billion 61 million 61 million. Even after the beginning of August, the transaction amount is only limited to around 1 billion per day.
Enthusiasm after covid
According to NEPSE officials, the number of active investors who regularly traded in the secondary market before the Covid-19 epidemic was 12,000 to 15,000. From March 2076, the stock market was also closed along with the lockdown to control the Covid-19 epidemic. In June 2079, the market was operated for 2 days, saying that it would only be traded for 2 hours.
Due to covid-19, trading was closed on the first day of opening, but on the first day, NEPSE declined, but then there was a continuous increase in NEPSE from around 1,200 points. In November 2077, the market index rose, breaking the record of 1881 points 4 years ago.
Due to economic activity being stopped, employment being affected and the work from home arrangement, the general public’s attraction to the stock market increased rapidly during the period of the Covid-19 epidemic. As a result, the number of applicants for the initial share issue (IPO), which was only 3/4 lakh before Covid, reached 27/28 lakh.
Not only the primary market but also the secondary market attracted high interest of investors. Due to the lack of sufficient investable resources and other investment opportunities, banks also increased their investment through shares themselves and through share mortgage loans. Businessmen also mobilized their working capital as a source of income by investing in the stock market when business was slow. The number of housewives in share trading also increased.
As a result, NEPSE, which was close to 1200 in a period of 13 months, increased to close to 3200 on 2nd August 2078. During this period, not only the turnover and NEPSE increased, but the number of active investors also increased at the same rate. While the stock market was in a ‘bullish trend’, the NEPSE officials say that investors traded up to 135,000 in a single day.
Due to the online transaction system, a large number of investors can transact at once, but the securities brokers argued that NEPSE has been helped to grow.
NEPSE spokesperson Murahari Parajuli says that the number of people taking usernames and passwords for online transactions has also increased after Covid and has now exceeded 1.3 million. This number, which was in the few thousand before the Covid-19, played a positive role due to the digital trend that increased with the Covid-19.
Effects of liquidity and interest rate hikes
After August 2078, investors were discouraged due to the lack of investable resources in banks, increase in interest rates, limits imposed by the National Bank on margin loans, etc.
As a result, NEPSE also began to decline. Experts in the securities market say that due to lack of liquidity, increase in interest rates and contraction in economic activity, traders have invested in working capital loans in the stock market. But after the profit was taken in the stock market and economic activity started to increase in the market, they started withdrawing their hands from the stock investment. As a result, the stock market gradually decreased. In the case of withdrawal of existing investments and no new investments, the market will naturally be affected.
Looking at the market indices of the last few days, the stock investors have reached an even more distressing situation. Even this week, the NEPSE showed a general improvement of a single digit on Sunday and has decreased continuously for the following four days. The transaction amount fell below 1 billion on Monday and Wednesday, while on Sunday, Tuesday and Thursday, there was barely a transaction of 1 billion rupees.
Officials of NEPSE say that 30,000 to 35,000 investors are trading in NEPSE daily. A year ago, such a number was 135,000, but in 078 February/Chait, it was 60 to 70,000. The number of active investors is regularly decreasing from the market.
Not only in the secondary market but also in the primary market, the attraction of investors seems to have decreased. At one time, the number of investors who applied for the IPO reached 29 lakhs. However, the number of applicants for the IPO of two microfinance companies, Khaptad and Sirjansheel, which have been publicly issued recently, has been limited to 1.8 million.
Ambika Poudel, an experienced investor in the stock market, says that the effect of lack of liquidity and interest rate hike is visible in the stock market. He said that investors are discouraged because the government has repeatedly paid off investors as a matter of policy.
“There is a situation where the Nepal Rastra Bank has repeatedly pushed the capital market as a policy,” says Paudel, “It has increased the risk burden, and has also increased informal pressure on banks not to give share loans.” Adding a broker, bringing a new stock exchange, investors are in a state of confusion as to what will happen next.’
Recently, the National Bank has issued new guidelines for working capital loans. Another investor said that the stock market has also been affected by this policy, which allows businessmen to get working capital loans only up to 25 percent of their annual turnover.
Traders also used to invest in loan shares taken for working capital, but due to the strictness of the central bank, such amount has stopped coming to the stock market.
Investor Ambika Paudel says that investors are leaving the market because they do not feel safe. ‘After all-round attacks on investors who pursue the capital market as a profession and business, will those businessmen still have faith in the capital market?’ He questions.
Head of Economic Research Department of Nepal Rastra Bank Dr. Prakash Kumar Shrestha also argues that the capital market is not for everyone. A few days ago, at the event of Nepal Economic Journalists Association (Nafiz), he said that it will increase the problem if people in other professions and businesses leave their main profession and deal in the secondary market of securities.
‘It is not about leaving the profession and doing business in the secondary market. He said that the second market of securities is for those who can understand the ups and downs of the market.
Another experienced investor of the stock market comments that the policy maker made decisions about the stock market without discussing it with stakeholders and subject matter experts. “We have lobbying for licenses, who is lobbying for necessary improvements for market development, the license commission comes, but it does not come when the market is improved,” he said.
He said that the National Bank did not listen to the investors even though they asked not to tighten the margin nature of share mortgage loans until the margin trading starts.
Those investors say that it is unfortunate for the stock market that in the amendment of the Securities Act recently passed by the House of Representatives, the provision to investigate insider trading will be a criminal charge.
“The amendment of the Securities Act, which is subject to criminal charges, creates a natural psychological panic among investors,” he said, “It practically implements the fact that investors should not come to the capital market, do not invest, the capital market is not for Nepalis.”
Chairman of the Securities Board, Ramesh Kumar Hamal, says that the revised provisions of the Act will create an environment for investors to invest more confidently.
Chairman Hamal says that there is no reason for investors to panic because only those who are confirmed to have committed bullying will be prosecuted.