Eroded Capital, Elevated Prices: Where Is the Real Value Hiding in NEPSE?

An analysis of 278 listed companies, prices (average) as of 16–17 July 2026, and other indicators for the 3^rd Quarter of FY 2082-83

Walk into any tea shop in Nepal these days, and someone is talking about shares. Which hydropower IPO is opening, which stock doubled last month, which symbol to buy before Sunday. But the exchange's own data tells a quieter, more uncomfortable story: in one out of every five listed companies, the shareholders' original money has already been partly eaten, and the market is paying premium prices for it anyway.

Meanwhile, the most profitable, most regulated companies in the country sit ignored at throwaway valuations. This article walks through that paradox using nothing but publicly available numbers and two ideas simple enough to explain over tea.

Two ideas, explained over tea

Net worth per share (book value): Imagine a company sold everything it owns today, paid off every loan, and split the leftover cash among shareholders. Each share's portion is its net worth per share. Nepali shares carry a face value of Rs 100, so if net worth per share has slipped below Rs 100, the company has lost part of the money investors originally put in. In finance-speak, the capital has been eroded.

P/E ratio: How many years of the company's current profit are you paying for one share? A P/E of 15 means 15 years of earnings. Globally, 15–25 is normal. A P/E of 100 means you are paying for a century of today's profit, pure faith in a very different tomorrow.

Hold these two ideas. The entire market becomes readable.

Finding No. 1: 61 companies have eaten shareholders' money and still trade like winners

Of 269 companies reporting net worth, 61, more than one in five, have net worth per share below the Rs 100 face value. Two are negative: liabilities exceed everything they own.

Erosion alone is not a scandal. A young hydropower plant burns money before its turbines earn. The scandal is the price tag: 40 of the 61 eroded companies trade above Rs 300, and 15 trade above Rs 500. Their median price is about Rs 341, three and a half times the face value that is already partly gone. Where measurable, they trade at a median of 4.7 times book value.

Table 1: Weak on the inside, expensive on the outside

Read the first row twice. Menchhiyam's net worth per share is minus Rs 24 on paper; shareholder capital is more than fully wiped out, yet the share changes hands near Rs 285. Narayani Development Bank has lost two-thirds of its capital, is losing Rs 9.48 per share every year, and trades above Rs 825.

What are buyers paying for? Hope. Hope of full generation, of a rights issue, of a merger, of a greater fool next month. Hope is not always wrong, but it should be priced like hope, not like certainty.

Finding No. 2: The market's median price is 54 years of profit

Across 226 companies with a valid ratio, the median P/E is about 54, double or triple what the world calls normal. Sixty companies trade above 100 times earnings; the champion, Kalinchock Hydropower, trades above 3,300 times. The market's median price-to-book is 4.5. And 45 companies (17%) are currently loss-making, more than half of them in hydropower.

Now look at where the cheapness and the expensiveness actually live:

Table 2: What each sector really costs

Hotels & tourism has too few profitable companies for a meaningful median P/E; six of its eight companies are loss-making.

Chart 1: Median P/E by sector, commercial banks are the outlier

Why should a high P/E worry you? Because it quietly decides your returns before you even buy. Think of it this way: if you pay Rs 100 for a share of a company earning Rs 2 per share (a P/E of 50), the company is generating just 2% a year on your money, less than half of what a fixed deposit pays, with far more risk attached. For that trade to make sense, the company's profit must grow dramatically, year after year, without fail. If growth merely turns out to be ordinary, the price has only one direction to travel.

This is the trap of high-P/E markets: the danger is invisible on the way up, because rising prices feel like proof that everything is fine. But a stock bought at 54 times earnings does not need bad news to fall; it only needs the good news to stop. And when many investors have paid such prices with borrowed money, a small disappointment in one corner of the market can turn into selling pressure everywhere. High P/E, in short, is not a prediction of a crash; it is a measure of how little room the market has left itself for anything to go wrong.

Table 3: The ten most expensive shares on NEPSE — priced for a miracle

*Earnings yield: the company's current annual profit as a percentage of the price you pay. For comparison, a bank fixed deposit pays around 5–6%.

Look at the first row, because it is the honest one. Kalinchock Hydropower earns 29 paisa per share per year, yet trades at Rs 963; at that pace, the company's profit would need over three thousand years to return your investment. Crest and Guardian, both micro life insurers, sell above Rs 1,200 while earning barely Rs 2–3 per share.

Buyers of these shares are earning a 0.03–0.24% return on their money from the business itself, one-twentieth of a humble fixed deposit and betting everything on the price rising further or profits multiplying fifty-fold. To be fair, some of these are young companies whose annualised EPS understates a normal year, and a few may genuinely grow into their prices. But that defence has limits: when ten companies across five different sectors, hydro, insurance, finance, manufacturing, investment, all trade above 400 times earnings simultaneously, the explanation is no longer hidden potential in each company.

It is the mood of the market itself. These prices are not valuations; they are votes of faith, cast mostly with other people's example as evidence. And faith-based prices share one property: they hold perfectly right up until the moment everyone asks the same question at once. Notice, too, that Menchhiyam and Dolti appear both here and in Table 1: the same companies are simultaneously among the market's most expensive and its weakest.

Finding No. 3: The market is now worth 70 paisa of every rupee Nepal produces

On 17 July 2026, NEPSE's total market capitalization, every listed share at market price, stood at Rs 4,600,568.5 million: Rs 4.6 trillion.

Nepal's GDP for FY 2082/83 (2025/26), per the National Statistics Office's preliminary estimate, is roughly Rs 6,600 billion. Divide one by the other, and you get the ratio Warren Buffett famously called the best single measure of market valuation:

Rs 4,600.6 billion ÷ Rs 6,600 billion ≈ 70%

The stock market is now priced at seventy paisa for every rupee the entire country produces in a year, every sack of rice, every hotel bed, every remittance included.

Chart 2: NEPSE market cap against GDP, in the caution zone

Is 70% a lot? Mature markets like India or the USA run above 100%, but there, the market contains the economy: technology, energy, retail, agriculture giants, everything. Nepal's market does not.  Agriculture, about a quarter of GDP, has essentially no listing. Remittances, the engine of household income, are not listed. Trade, transport, construction: barely represented. NEPSE is essentially banks, insurance, microfinance and hydropower.

So, a market that mirrors only a slice of the economy is valued at 70% of the whole economy. Comparable frontier markets in South Asia typically sit at 10–25%. Nepal's own comfort zone before 2020 was 30–50%. The last time this ratio raced toward 100%, the 2021 bull run, a long, painful correction followed. Seventy percent is not that peak. But it is the neighbourhood where caution, not euphoria, should be the default mood.

Finding No. 4: The value is hiding in the most boring corner of the market

Here is the irony of NEPSE in 2026. The sector with the strongest profits, the tightest regulation by Nepal Rastra Bank, decades of dividends, and zero loss-making companies is also the cheapest sector on the entire exchange: commercial banks, median P/E 18.7, median price-to-book 1.4.

In fact, only three companies in the whole market trade below their own net worth per share, and two are commercial banks.

Table 4: The only three shares priced below their own wealth

Nepal Lube Oil is the market's strangest sight: it earns Rs 78 per share a year, its net worth is Rs 559 per share, and it sells for Rs 269. Less than half its book value, at 3.5 times earnings, in a market where loss-makers fetch four times book. (An anomaly this extreme also deserves homework; thin trading volume or governance issues can keep a cheap stock cheap.)

Widen the filter to “profitable and priced under 20 times earnings” and only 18 of 278 companies qualify, ten of them commercial banks:

Table 5: The cheapest profitable companies on NEPSE (P/E < 20)

Even Nepal Telecom, one of the country's steadiest profit machines, earning Rs 46 per share, sits quietly at 18 times earnings while tiny loss-making companies trade at ten times book.

The price-to-book ratio tells the same story from a different door, and it may be the scarier version. If P/E asks “how many years of profit am I paying for?”, P/B asks something even more basic: “how many rupees am I paying for each rupee the company actually has?” A P/B of 1 means you pay exactly what the company is worth on paper; anything above it is a premium you pay for its future.

On NEPSE today, that premium has lost all sense of proportion. Of 251 companies with a measurable ratio, 204, four out of every five, trade above three times their book value, 102 trade above five times, and 21 trade above ten times. Exactly one company in the whole market sells below its own worth. Most telling of all: 27 companies that are currently losing money still command more than three times book, investors paying triple for capital that is actively shrinking.

The champion is Dibyashwori Hydropower at nearly 61 times book value: its entire net worth is about Rs 5 per share, yet the market pays Rs 282 for it. Why does this matter? Because book value is the floor a shareholder stands on when things go wrong. When a company stumbles, its price does not fall to zero; it falls toward its book value. A market standing at 4.5 times book has, quite simply, built its house four and a half floors above the ground. High P/B does not tell you when the fall comes; it tells you how far down the ground is.

Table 6: The ten most expensive shares relative to their own wealth (highest P/B)

Read this table alongside the P/E table, and a pattern emerges: Hathway and SY Panel appear on both lists, expensive by every measure at once, while Bhujung and Sagar Distillery trade at 13–14 times book while actively losing money. Notice also who is absent: not a single commercial bank appears here. The premium is concentrated precisely where the earnings are thinnest.

Why the whole country should care, not just traders?

At Rs 4.6 trillion, NEPSE is no longer a casino sealed off from daily life. Its excesses now touch the economy through four doors.

Household savings: Millions of demat accounts from every district mean a large chunk of national savings is riding on 54-times-earnings hope. If valuations normalise, families far beyond Kathmandu's trading rooms feel poorer and poorer-feeling people spend less at shops, restaurants, and land offices.

Bank credit: Banks lend against shares as collateral. Rising prices make margin loans feel safe, pulling more money into the market, a loop. If prices fall hard, collateral shrinks, margin calls hit, and banks tighten lending to everyone, including genuine businesses. A stock problem quietly becomes a credit problem.

Capital allocation: To NEPSE's credit, IPOs have genuinely financed dozens of hydropower projects with ordinary Nepalis' savings; electricity is now one of the fastest-growing pieces of GDP. That is the market doing its job. But the secondary market mostly chases existing shares of weak companies: rupees spent bidding a loss-maker from Rs 300 to Rs 500 build no turbine and hire no worker.

The liquidity mirage: With inflation subdued, interest rates low, and remittances strong, surplus money in the banking system has few exciting homes, and it has found NEPSE. Today's market strength reflects liquidity searching for returns as much as company performance. An economy growing near 4% cannot forever justify a market priced at 54 years of median earnings. Either the economy speeds up dramatically, or the market eventually slows down.

What an ordinary investor should do with all this

Check three numbers before any buy: net worth per share (above Rs 100?), EPS (actually earning?), and P/E (how many years of profit?). Two minutes on the NEPSE website would have flagged every company in Table 1.

Treat capital erosion as a warning light, not a death sentence, but ask whether the price already assumes the best possible future that hasn't arrived yet.

Remember that cheap-and-boring has historically beaten exciting-and-expensive. Today's excitement is concentrated where the losses are; today's profits are concentrated where nobody is looking. That gap never stays open forever: either the weak get cheaper, or the ignored catch up.

Diversify, and stay humble. No single ratio tells everything; a cheap bank may hide bad loans; a loss-making hydro may become a giant. But a portfolio built on real earnings and intact capital starts the race several steps ahead.

The bottom lines

Nepal's share market is paying premium prices for eroded capital and discount prices for solid earnings, while ballooning to 70% of the nation's GDP on the back of a narrow slice of the real economy. The last visit to this neighbourhood ended in a multi-year correction. Markets reward patience and punish fashion, eventually. The numbers above suggest which side of that trade an ordinary Nepali investor, and the country itself, might want to be on.

Disclaimer

This article is for informational and educational purposes only and reflects the author's personal analysis of publicly available NEPSE data as of 16–17 July 2026. It is not investment advice or a recommendation to buy, sell, or hold any security. The author is not a licensed investment advisor and does not guarantee the accuracy or completeness of data, which may contain errors at source. Companies are named solely as factual illustrations, without intent to disparage or predict performance. Investing involves risk of loss; readers are solely responsible for their decisions and should consult a licensed advisor. The author accepts no liability for losses arising from this article.

By: CA. Tej Prakash Dixit