The Nepal Stock Exchange (NEPSE) this week dropped a massive 18.53 points to touch its five-year low of 358.04 points. The NEPSE index was at 363.56 points on Aug 6, 2006.
The capital market has been continuously dropping points since Sunday, the first trading day of the week. The market went down by 4.67 points, 7.31 points and 6.65 points, respectively, in the first three trading days of the week.
Positive political and policy-level developments such as appointment of a new prime minister, introduction of mutual fund regulations, moderation of margin lending provision and
introduction of Central Depository System (CDS) regulation have so far failed to revive the capital market.
In a bid to attract investors from across the country, the Securities Board of Nepal (SEBON), the stock market regulator, introduced CDS, which allows online trading and settlement of share transaction, but to no avail.
Investors say their confidence is shaking. “About 75 percent of investors are seeking to sell their shares. We can hardly find people who are willing to buy,” said Nanda Kishor Mundada, President of Nepal Stockbrokers’ Association.
Investors say economic factors are mainly responsible for the shaky investors’ confidence. “The capital market is the barometer of a country’s economy. Therefore, we cannot separate it from the current economic situation,” said Sunanda Bahadur Shrestha, general secretary of Investors’ Forum Nepal. “The gloomy economic scenario, including liquidity crunch in the banking system, power outages and sluggish
trading activities are responsible for the weakening investors’ confidence.”
Given the capital market heavily represented by the banking and financial institutions, liquidity crunch in the banking system will certainly affected it. Identifying the margin lending as a risky area, banks themselves are discouraging such lending. “Even if investors get loans, they will have to pay high interest rates beyond their expected return,” said Mundada. Recent episodes in the banking sector such as declaration of Gurkha Development Bank as crisis-ridden have also dented investor’s confidence, according to analysts.
The proposal of amendment to the proposed Bank and Financial Institution Act (BAFIA), which seeks to limit promoters’ shares in banks and financial institutions at 5 percent from the current 15 percent, also contributed to the downfall of the stock market. “Fear of oversupply of shares in the market dented investors’ confidence, bringing down the market index,” said Shrestha of Investors’ Forum.
Aditi Shrestha, research and operation chief of BEED Invest, said the participation of institutional investors such mutual fund companies, Citizen Investment Trust, Employees’ Provident Fund and insurance companies could boost the NEPSE. Shrestha, however, stressed that the government should offer tax incentives for capital-based financing to bring in such investors and non-resident Nepalis.