--By Bikram Chitrakar
The stock market of Nepal which was predicted to break the previous historic high level of 1175.38 points pulled back from 1083.55 and witnessed a nose dive sessions. During the review period of August 19 to September 18, 2014, the benchmark Nepse index fell 113.73 points or 11.22 per cent to rest at 899.89 points. The high value of Nepse for the review period was 1013.62 on August 19 and lowest was at 875.56 on September 07, 2014.
Experts have claimed that the cause of continuous selling pressures in the stock market was the central bank's circular that tried to regulate the investment of Banks and Financial Institutions' (BFIs) in secondary market. The circular made it mandatory for the BFIs to maintain their investment in stocks as 'Held for Trade' purpose within a limit of one per cent of their core capital. As the Nepse index started to create negative impact of the central bank's circular, Nepal Stock Exchange (Nepse) and Securities Board of Nepal (SEBON) came up with intervening statement to pullback the reddish movement. Nepse urged investors not to panic while SEBON assured investors that it would consult the central bank on any upcoming directives that could affect the market. Despite these assurances, the market continued its journey in red terrain.
Technically, Nepali's capital market completed one cycle during the last 6 years time span. Thus some experts even argued that the recent downfall was also guided by “Disaster Myopia” and was supported by historical trends, which recently matured by completing the market cycle. Since capital market moves in cycle, the recent downfall can be explained through this historical event as well. Besides this, the market had remained in bearish move as the winners, who had secured their gain, had started to create propaganda while losers were waiting with the hope that the market will regain its momentum.
Meanwhile, Nepse instructed all the listed companies to get registered with CDS and Clearing Company (CDSC) to dematerialize their shares. Similarly, it also redirected all the stakeholders including stockbrokers and merchant bankers to acquire license of Depository Participants (DP) by September 16, so as to comply with directives that restrict trading only of dematerialized shares by October 19, 2014.
Analyst also argued that the recent downfall of Nepse is guided by investor's sentiments rather than fundamentals of the listed companies. Along with that reoccurrence of the matured trend might have guided investors while securing positions. Meanwhile, festival season and the signal of increasing rifts between political parties on drafting the new constitution might also have dragged down the index.
Performance by Sector
During the review period, all sub-indices except trading witnessed fall. Hydropower sub-index was the biggest looser which erased its previous gain by 462.14 points or 16.78 per cent to rest at 2292.46. Insurance sub-index became the second after hydropower with 717.55 points or 16.64 per cent loss to settle down at 3595.62. Similarly, banking sub-index went downhill by 109.63 points to settle at 805.76. Development bank dropped 6.72 per cent and was followed by the finance sub-index, which lost 6.14 per cent during the period. Likewise hotel sub-index lost 4.98 per cent to close at 1828.31 and 'Other' sub-index descended by 4.69 per cent to rest at 716.6. While all other sectors took refuge in the red zone, the trading sub-index remained neutral.
Sensitive index that indicates the trading performance of ‘A Grade’ stocks under Nepse's listing skidded by 23.30 points or 10.76 per cent to rest at 193.32 while the float index descended to 8.37 points or 11.71 per cent to rest at 63.13. The market capitalization of Nepse for the period was recorded at Rs 915.16 billion. This was 11.57 per cent less than the previous period. Similarly, daily average turnover of Nepse went down by 21.53 per cent.
According to the sectorial distribution, with a whopping 61.65 per cent of the total turnover the commercial banks held the majority. Hydropower sector occupied 14.49 per cent followed by development banks with 9.18 per cent of the total turnover. Along with that, the insurance sector covered 9.33 per cent and remaining sectors covered the rest portion.
Chitrakar is a freelance Stock Analyst.