10 Shares and a Dream: How Nepal Turned IPOs into a Market Lottery

By someone who thought capital markets were built on numbers, not numerology.

Applying for an IPO in Nepal has become less of a financial decision and more of a national habit. You submit your application online, refresh Meroshare obsessively, and wait for a message that feels less like investing and more like winning a lucky draw at a mela. And when that message finally flashes :

“You have been allotted 10 shares.”

the collective market psyche responds proudly:
“Behold! I am now a shareholder.”

But the uncomfortable question remains:
Is this investing, or just gambling with better branding?

To answer that, one must look beyond emotions and examine how Nepal’s IPO ecosystem actually operates and how it systematically converts enthusiasm into illiquidity, price distortion, and market stress.

IPOs as Participation Trophies

In Nepal, IPO allotments are decided predominantly through a lottery system, especially in the retail category where demand far exceeds supply. Even IPOs oversubscribed by 50 to 100 times result in lucky applicants receiving just 10 to 11 shares roughly Rs. 1,000 worth of equity.

This level of ownership does not create investors.

It creates numbers parked in Demat Accounts.

Most retail allottees rationally choose not to sell because Rs1000 investment doesn’t matter to them and they rarely buy more. The result is mass shareholding with negligible tradable supply.

The Goat, the Village, and the Algorithm

Imagine a village with one goat.

Instead of selling it to a farmer, the villagers distribute ownership to 10,000 people via lottery. Each person owns one hair. No one feeds the goat, no one sells it, yet everyone claims it is very valuable.

Now introduce a twist.

A few villagers own motorbikes, arrive early every morning, and quietly collect loose hair from anyone willing to give it away cheaply. Soon, these few control most of the goat while the village still believes ownership is widely distributed.

That motorbike is technology.
That goat is a newly listed stock.

Early-Day Hoarding and the Myth of Broad Demand

On listing week, while most retail shareholders remain passive, a small group of technologically advanced traders with faster systems, better access, superior execution begin accumulating shares aggressively.

Because:

• Retail supply is minimal
• Institutions are locked in
• Locals and employees cannot sell
• Promoters are immobilized

the entire tradable float becomes concentrated in very few hands.

This allows prices to hit upper circuits day after day often 10 to 15 consecutive positive circuits not because of improving fundamentals, but because there is no supply to resist price movement.

This is not momentum.
This is manufactured scarcity.

Positive Circuits Are Not Always Positive

Continuous positive circuits create an illusion of market strength. Retail investors watching from the sidelines interpret these movements as validation.

But structurally, something dangerous is happening:

• Liquidity is being vacuumed into a single stock
• Market-wide capital gets concentrated
• Trading becomes one-directional

When early accumulators finally exit often after 10 - 15 circuits, they don’t just book profits.

They extract liquidity.

The cash generated from these exits does not stay within the stock. It spills into:

• other speculative offers
• short-term trading
• or exits the market entirely

What follows after couple of week is expected:

• sudden reversals
• evaporating volumes
• broader market pressure
            

This recycling of liquidity from artificially inflated IPO listings has been significantly pressuring the overall stock market in recent periods.

The Lock-In Paradox: Everyone Is Locked, Except the Few Who Aren’t

Nepal’s IPO structure compounds this problem through layered lock-in periods:

• Promoters: locked in for ~3 years
• Employees: locked shares
• Local affected people: mandatory lock-ins
• Mutual funds: regulatory lock-ins
• Private equity & strategic investors: long-term lock-ins

Who isn’t locked?

Secondary-market traders with speed and systems.
So while the market appears fair and inclusive on paper, liquidity is effectively controlled by a technologically superior minority.

This is not market depth.
This is asymmetric advantage disguised as democracy.

Why India Looks Boring and Why That Works

Contrast this with India’s IPO framework:

• Retail quota fixed at minimum 35% (now proposed 25% for large IPOs)
• Allotment based on defined lot sizes
• Each successful applicant receives at least one meaningful lot
• Strong participation from institutional investors (QIBs)

India still uses lotteries but within structure.The regulator understands a simple truth:

Too much fragmentation kills liquidity.

Nepal, on the other hand, celebrates fragmentation as fairness.

A Market Worth Fighting For — But Fix First

Nepal’s capital market is not broken because people are greedy. It is broken because the structure fragments ownership beyond usefulness. To fix this, regulators must rethink:

• Lottery-based micro allotments
• Excessive and overlapping lock-in periods
• Listing-day liquidity design
• Technology-driven access asymmetry
• Capital recycling effects on market stability

Passion exists. Participation exists.
What is missing is design intelligence.

The Controversial Truth

Nepal doesn’t lack investors.
It lacks a market structure that protects investors from structural traps.

With 10 shares as the standard entry ticket, IPOs have become a vacuum pump  for liquidity extraction, not capital formation.

Until the system moves away from lottery logic and toward liquidity-aware, structure-first regulation, Nepal’s IPO market will remain a spectacle occasionally thrilling, frequently damaging, and ultimately unsustainable. Because giving everyone a piece doesn’t mean everyone gets a fair chance to play.

Article By: Ashish Ranabhat