NEPSE Sheds 26 Points After New Budget Announcement, Here is Why

The share market faced a sharp downturn on the first trading day after the budget announcement, with the NEPSE index falling by more than 26 points today. Investors reacted to the fiscal policy package by selling off shares, erasing previous gains and pushing the market into the red. Analysts point out that while the budget introduced long term structural reforms, the immediate reaction on the trading floor was driven by disappointment over increased trading costs and general profit taking after weeks of market growth.

The primary trigger for the market drop was the government's decision to increase the profit tax on share transactions. According to the budget presented by Finance Minister Dr. Swarnim Wagle on Friday, the capital gain tax for short-term traders who buy and sell stocks within a single year has been raised to 10 percent, up from 7.5 percent. For long-term investors holding shares for over a year, the rate moved up to 7.5 percent from 5 percent. Even though the budget gave major relief by officially declaring this as a final tax, meaning investors will not face additional personal income tax audits on their share profits, the immediate increase in transaction costs dampened investor sentiment.

Beyond the tax adjustments, the budget outlined major structural changes aimed at modernizing the market, which also created short-term selling pressure. While these steps will expand the market in the future, the anticipation of a massive supply of new shares led investors to hold back cash, contributing to today's 26 point drop. However, the budget also opened legal doors for Non-Resident Nepalis (NRNs) to invest in the secondary market and pledged to introduce advanced features like same day trading, short selling and derivative instruments, which experts believe will stabilize the market in the long run but today market fails to react the positive statement of the budget announced on Friday.