Are we missing something bigger than online trading?

The major objective of investment is to maximize wealth for Nepalese investors. Maximization of wealth is a prolonged phenomenon that involves looking into financial statements, attending workshops on stock market, using technical or fundamental analysis, keeping up with rumors in the market, asking for advices from the investors. With all these efforts, it is given, that investors would want to maximize their wealth. But despite all of these, there are certain questions that bother us every single time, we make an investment decision.

With NEPSE going through a crucial stage, it is better to raise these questions rather than let them go unnoticed.

The missing cash flow sheet:

When we are investing in a company, it means we are investing in the future fortune of the company. The future of this company is decided by its investment, track of its spending and sources of revenue. The only certain source to understand these aspects are cash flow statements. However, banks and financial institutions are expected to publish the cash flow statement only once a year. On the contrary, our investment takes place throughout the year. While it is justified that investors get to see the quarterly balance sheet and quarterly profit and loss account, why are these investors restrained from getting to know the cash flow statements on a quarterly basis? Should our investment decision simply rely on net profit, balance sheet? Isn't cash flow statement equally important to understand the source and uses of cash in a company?

The misleading indicators:

With quarterly reports being published every single quarter, there are certain things that come into notice to everybody but are ignored on the daily basis. It is irony how an established public company is unable to calculate mere ratios such as EPS, P/E ratio and net worth. The problem does not simply lie in the misleading ratios. The problem lies in the fear-“if a company cannot calculate these mere ratios properly, what might be the chances that the amounts on balance sheet and P&L account are correct?” With such mistakes on an usual basis, how will investors be able to trust the assets, investments, net profits, liabilities and other figures in the published unaudited statements?

The mismatched headings:

When an investor brings financial statements of two different companies from hydropower sectors, chances are high that the headings of these two companies do not go along together. How can an investor throw away his/her money in a sector where companies do not even have a specified format? How can an investor compare between the ratios, indicators and particulars when the headings are not aligned in a similar manner? Hydropower is just a representative for all other unregulated sectors in NEPSE.

The missed indicators:

Investors have quite valid reasons to invest in microfinance companies: its flexibility and volatility. It might be a solid foundation for traders to maximize their profit. However, for investors seeking long term objective, which indicators are essential to understand the true worth of a microfinance company? They are portfolio at risk and outreach to clients. Usually, in microfinance sector, there is a major tradeoff between profit and outreach. This is because microfinances are obliged to serve the risky clients such as bankable poor. This might risk the sustenance of a microfinance sector if microfinanaces are not able to recover their loan from the risky sector. Thus, simply looking at P&l account or balance sheet of a microfinance is nowhere helpful to the clients or the shareholders. Microfinance is simply the resembalance of other sectors where investors are not provided with crucial indicators or particulars to look at.

The missed sectors:

Real estate sectors and private companies entering into the market will be beneficial for one and all. But, with almost three sectors (hydropower, manufacturing & production, hotels) unregulated, will the prospective newly listed companies be under proper regulation in stock market? How does simply adding a new sector justify the existing unregulated sectors within the stock market? What are the policies that have been drafted for the regulation of these sectors?

The missed awareness:

With the increased supply in stock market and stagnant demand due to the same number of investors has been a problem for the market. The same number of investors and increased supply of shares has further taken the local bourse in a declining trend. Although opening broker offices outside the capital city has been encouraged, how fair is it to expect the prospective rural investors to enter the market just because the local bourse can finally take an uptrend? In fact these prosepective rural investors hold little or no idea on stock market while majority of investors within Kathmandu have a vast knowledge. Undoubtedly, the stock market should be in access to each and every general public of the country. However, it does not mean that the risk associated to rural investors should exceed the risk associated with urban investors. The only way to solve the problem is an enormous amount of trainings; workshops limited within the capital city should be introduced even outside the city.

The missed AGMs:

Each and every point mentioned above is simply a blame game to other concerned authorities. But when it comes to an investor, it is of our responsibility to attend an AGM and understand what the company plans to do in future. However, as an investor, we are concerned about maximizing wealth investing in a company without even understanding its business strategies, future plans, projected revenue announced in AGM. Moreover, as a company, it is high time we understand whether the motive of our investors attending an AGM is simply the free lunch coupon or their real interest towards the company. As a company, if we have less number of shareholders participating in AGM, it is time to research how and why we have failed to bring them together.

Online trading is a milestone to Nepalese secondary market. It is indeed a step that will take the secondary market to new heights. However, there are much insignificant negligences that require corrective measures. Rather than simply being overwhelmed by a new online platform, we need to work on these shortcoming alongside. The above mentioned points might simply look like the elephant in the room. But, if the trend of ignorance, negligence and ineffectiveness continues these problems can bring serious hindrance. The role to correct these shortcomings does not lie in the hand of one party. It requires the collaborative effort of regulators, investors, brokers, banks, companies, medias, trainers, merchant bankers and many more.