A good year for the bourse

KATHMANDU, January 1: The year 2013 proved to be a good year for Nepal´s stock market. The Nepal Stock Exchange (Nepse) benchmark index gained 237 points over the year to close at 770. 9 on Wednesday- the last trading day of this year.

Akin to the vibrancy seen during the first Constituent Assembly (CA) polls in 2008, the stock market regained the bullish trend this year as well with the successful polls for second CA.

The index, which was moving at a snail´s pace due to political stagnation with the dissolution of the erstwhile Constituent Assembly, started climbing upward only in the last quarter of the year when the country headed toward the Constituent Assembly polls.

Though the market was expected to get a boost with the formation of Khila Raj Regmi-led government, the Nepse did not respond the change of the guard in a positive note. The timely announcement of budget also failed to energize the stock investors.

The index was hovering around 500 points when the new fiscal year (2013/14) began in mid-July. Though the political parties reached to an agreement to hold CA polls, the disruption threats from the 33-party alliance led by CPN-Maoist cast doubt over the election.

However, Nepse started to log gains after the election process began in October. Nepse bounced to 550 points after the process to nominate candidates for the election began. The index grew by 34 points on November 21 - the first trading day after the CA election - to close at 624.3 points. The surge highlights the impact of positive political development on the stock market.

This surge highlights the impact of the political improvement in the secondary market.

The victory of the proponent of the open market policy in the CA polls further boosted the confidence of the investors. The market rally continued until the benchmark index hit the five-year high of 806.82 points on December 18. Likewise, the daily turnover also reached record high of Rs 881 million on December 19.

If statistics of Nepse is anything to go by, the bullish trend in the market is mostly seen during elections. The growth was fuelled by the excess liquidity in the banking system. As the banks and financial institutions (BFIs) were sitting on the heavy cash deposit without any viable lending alternatives, the investors have an easy availability of loans against shares collateral.

 The directives of the Nepal Rastra Bank (NRB) for the banks to increase paid-up capital to Rs 2 billion also played a role of catalyst in boosting the market since the banks were required to issue bonus shares. The investors rush to buy stocks of the companies of the banking sub-group, which is considered heavyweight trading group in the Nepse, was the other reason behind Nepse´s march to the green zone.

The similar pattern of growth in the market was last seen during the first CA polls held in 2008 when the market had jumped to all time high of 1,175 points. The trend this year has shown that the pre-condition for growth of the capital market in Nepal is favorable political climate, according to the stock analysts.

Bikram Chitrakar, a stock analyst, told Republica that 2013 was a promising year for the security market due to many reasons. “If the market trend of this year is something to go by, it can be said that the upward trend will continue in the next year also,” he said, adding, “Mutual fund in the secondary market, positive political environment with the likelihood of government under parties advocating free market policy and the new constitution, investors´ sentiment, listing of new companies, and new technology including the full-fledged implementation of Central Depository System (CDS) system and online trading will obviously propel the benchmark index.”

Upbeat with the rise in the stock market this year, investors are expecting an impressive growth in the year to come. “As morning shows the day, the spectacular surge in the market in the last months of 2013 year indicates another breakthrough in the next year,” Nepal Investors´ Forum Acting President Raj Kumar Timilsina told Republica.

Narendra Raj Sijapati, President of Stock Brokers´ Association of Nepal, echoed Chitrakar. “The market is already on a bullish trend. There is not possibility of the market retreating,” Sijapati said, claiming that the benchmark index will reach all-time high in the next year (2014).”

As the new investors are interested to put their money on the secondary market, the concerned agencies like Nepse and the Securities Board of Nepal (Sebon) should come up with investment education program to minimize the risk associated with it, Sijapati underlined.

(Source: REPUBLICA)