Amid Stock Market Decline, Finance Minister Seek Suggestions To Reform Capital Markets And Boost Investors Morale

The capital market is the area where the true value of a company is determined by gathering the dispersed capital for the country's business development and expansion and raising insufficient capital for the government and the private sector, making the economy more viable and developing it as a new source of tax revenue for the government. The growth and expansion of the capital market are essential because it makes it simple to attract both domestic and foreign capital and handle the long-term management of the capital needed for the operation of small start-ups.

Higher tax rates for institutional investors, restrictions on the number of loans given to multi-crore investment companies, the establishment of a minimum investment period for encouraging institutional investors by regulatory agencies, etc., are acting as a counter-disincentive, as is the prohibition of applications for primary shares and high rates of advance tax and final tax.

On the other hand, the NEPSE index, which once peaked at around 3200 points, is presently below 1900 points due to the effect that the global recession has had on listed companies' earnings as a result of the decline in economic activity. The share prices of some listed firms have dropped by more than 75%, and the NEPSE index has decreased by more than 40%.

Investors are in a deep state of depression as a result of this, which has had a negative impact on the economy. The economy as a whole will function well if the stock market recovers because it will have a beneficial impact on other pillars and sectors of the economy.

For this reason, the committee led by Ambika Prasad Paudel, President of the Federation of Nepalese Chamber of Commerce and Industry, Capital Market Forum, had a consultation with the recently appointed Finance Minister Prakash Sharan Mahat on Monday.

The stock market representatives told Mahat about the issue that was currently occurring and counselled him to focus on finding a solution as soon as feasible. For enhancing the equity market, they have provided both short and long-term recommendations. The National Bank and the Ministry of Finance have both made the point that investors' spirits need to be lifted.

According to the recommendation for the capital market reform, it would seem that the following organizations should start taking the following actions right away in order to improve the stock market.

Ministry of Finance

• To give the pertinent organizations the go-ahead to put into practice the things outlined in the study reports created by the working groups and sub-committees established in the past regarding stock market reform.
• In the present situation, for the improvement of the stock market, a study task force should be formed including the stakeholders and the task force should act according to the suggestions given by the task force.

Nepal Rastra Bank

• Banks and other financial institutions will be able to lend up to 10% of their total loan portfolio in listed company shares by eliminating the restriction that states they can only lend up to 40% of the paid-up share capital.
• Lowering the equity loan's capital risk weight from 150% to 100% in accordance with the prior law's provisions.
• Bank financial institutions will be permitted to purchase shares without engaging in cross-holding in accordance with the provisions of the previous legislation.
• According to the provisions in the Act, the limit of up to Rs. 12 crores shall not be applicable for share mortgage loans - margin loans.

Securities Board

• To expand the network of stock brokers through branches and agents in all 77 districts.
• In coordination with Nepal Rastra Bank, SEBON should make arrangements that the shares purchased by the investors will remain as collateral, and banks and financial institutions will provide loans for share purchase and margin lending.

There are other numerous suggestions and advices which can be taken as a reference for the capital market reform. The PDF file of same has been attached.