Authorities’ decision to list new manufacturing companies in NEPSE: A fair play or a repeating mistake?

-Madhu Gaire

(Research analyst; Aakash Capital Limited)

At present, Nepal Stock Exchange (NEPSE) is highly dominated by Bank and Financial sectors. NEPSE is dominated by Bank and Financial Institutions by 80% approximately. In such a situation, the entrance of productive sector may give a new light to the development of Stock Exchange in Nepal as well as to the overall economy. While bringing up the budget of this year, Finance Minister Dr. Khatiwada had spoken about the provision where companies with more than 1 billion had made to be compulsorily listed in stock market and be transferred into a public company. But, is it really a good decision? Will government be able to bring in productive sectors into the stock market or are there other things that are lagged behind this issue? This study aims to clarify such issues regarding entry of Manufacturing Companies in the Nepalese Stock Market and the decisions over those companies as a wise investor.

The entry of many productive sectors in the stock market gives a strong backbone to the economic growth and prosperity. Manufacturing Companies are established with huge capital and by increasing their Paid-up-Capital through Initial Public Offerings (IPO), such companies can expand their business activities. Thus, entering in stock market provides financial benefits to the manufacturing companies. After going into public, these companies have obligation of financial transparency and the investors are able to invest and even generate income reviewing the financials of those companies. The plan of the government seems quite charming but there were also many manufacturing companies in the past that were listed in NEPSE.

In the past, the stock market by then was very small and there were not many investors like that of now. Those investors who bought the small unit shares of the companies listed under NEPSE are very rich by now. But, does it mean the investors buying shares of any Company are rich? Every company isn’t good to invest from point view of the company’s financials or the vested motive of the company’s management. Unlike others, there were a lot of companies listed in NEPSE which were later on delisted. Among the list of delisted Companies, most of them were Manufacturing, Processing and Trading Companies. These companies were delisted because they were unable to pay the listing fees and they didn’t communicate with the NEPSE.

The list of the Manufacturing Companies includes: Butwal Spinning Mills, Morang Sugar Mills Ltd, Birat Shoe Ltd, Nepal Vanaspati Ghee Udyog Ltd, Raghupati Jute Mills, Nepal Khadya Udyog Ltd, Biratnagar Jute Mills Ltd, Himal Cement Factory Ltd, Fleur Himalayan Ltd, Jyoti sinning mills limited, Gorkhali Rubber Udhyog Limited, Juddha Match Factory, Plastic Trading Co Ltd, etc.

From the list of delisted Manufacturing Companies some of them only exist virtually or doesn’t even exist at all. Now, our main focus is towards what happened to those investors buying the shares of these companies. Well, some of the investors buying shares of these companies are still holding the share certificates with a hope of selling the shares and some are already hopeless. Also, if listed, the stocks of these companies won’t be charming for buyers as well. The promoters of these companies are walking freely and still the regulatory body has done nothing to give justice to these shareholders. But, it doesn’t imply that all the promoters have cheated over those investors. There are other Manufacturing Companies that are listed in NEPSE and they are distributing proper returns to the shareholders along with fair market value. The listed Manufacturing Companies which have been giving proper returns to investors include; Uniliver Nepal Limited, Nepal Lube Oil, Himalayan Distillery, Bottlers Nepal (Terai) and Bottlers Nepal (Balaju). Besides, time can make a greater difference. Today’s companies are believed to have a larger exposure than the previously listed companies. So, if these companies are able to understand that social prestige of a company also comes into stake along with the profit potentiality, then, listing these companies in NEPSE can be a good decision.  

Increasing the number of Manufacturing Companies to the stock market is a good initiation but not realizing and not giving focus to the injustice done to those investors is a big carelessness done by the regulatory body and the government. Therefore, it is time to act as a wise investor and learn from our past. Overall analysis of company’s business strategy, character of board members and company’s financials need to be reviewed to make a proper investment decision in Manufacturing Companies. The authorities should also ensure proper regulatory frameworks before bringing in these companies into country’s only stock exchange. For instance, the proper format to present the financial reports, the obligation to conduct AGM within time, the penalty of refraining from listing commissions should be provided as guidelines to the manufacturing companies that are in the process of being listed.