NEPSE (Nepal Stock Exchange) is the only securities market in Nepal. The story of NEPSE began with the flotation of shares by Biratnagar Jute Mills Ltd. and Nepal Bank Ltd. in 1937. A lot has happened since then. NEPSE has seen immense improvements and growth. Recent unfoldings also show that a lot of sunny days are in line to come soon.
A lot has happened in the last few years
First, it started with the Applications Supported by Blocked Amount (C-ASBA) facility. After this, the meroshare platform was launched. People could now apply for IPOs from the comfort of their own homes. Investors who applied for IPOs in the past know the hassles one had to tolerate in order to apply for one. Some even have memories of waiting in line at midnight to apply for IPOs. Since applications could only be submitted via few collection centers, the line of people would block the streets near the banks on application day.
From that to applying for IPOs with a single click from a smartphone, the journey has been long but beautiful. The online system has also attracted a lot of students and youths since Meroshare has been downloaded alongside their favorite game or social media app.
Also, a portion of the credit goes to the IPO issues that were open in the last few years. The companies that issued IPOs are exceptionally well in the field while some are one of their kind in Nepal. Thus, investors who applied for these IPOs profited immensely. Consequently, they told their friends and relatives, ultimately boosting the volume of people grabbing for the almost-sure profits that everyone was talking about.
Furthermore, buying and selling shares is easy in the secondary market. While people either had to call their broker offices or visit them personally to place orders, investors can now monitor the market online and watch live price movements, thanks to TMS, NEPSE's online trading platform.
The lockdown imposed amidst the coronavirus pandemic affected every other sector except NEPSE. In fact, NEPSE saw an even increased participation of investors. Apart from the TMS that investors use to buy and sell their shares, payment can also be made online now.
All these have made the stock market a lucrative and convenient sector to enter. The cost of entering is also low since anyone with a thousand bucks can apply for IPOs, profit 500% or more, and reinvest the sum into the secondary market. There are few other sectors that have this ease of access.
The IPO craze is at its strongest
"If it were easy, everyone would be doing it."
Well, it seems that everyone actually is doing it. We previously discussed the ease of entering NEPSE, especially in the primary market. This has persuaded people from all professions to apply for IPOs.
If we look at the chart above, we see that the number of applicants in a single IPO issue is increasing at a fast pace, irrespective of the number of shares issued. For instance, Samaj Laghubitta had only issued 86,000 shares in its IPO. However, the issue was still oversubscribed more than 142 times.
General Insurance had just recently set the record for being the IPO with the highest number of applicants in NEPSE's history. Less than a month later, Sanima General Insurance broke the record and set a new high.
Buyers will have to sell one day
The primary market lures investors to the secondary market.
Although old investors seem to despise these new investors because they reduce the chance of getting allotted, the increase in the volume of participants in the primary market is actually a win-win for all.
Those who are new in the stock market and started with IPOs will have to sell their shares someday. This is because until the shares are sold, the profit is only virtual. Thus, all this record-high number of applicants will have to enter the secondary market one day or another.
At present, there are only 3,37,360 investors as active clients of the 50 broker companies. Not all of the investors trade in a single day, so the intraday volume is even lower. If the market gets the influx of new investors, NEPSE will become a more rational market. The law of supply and demand will be systematized and companies will get a true reflection of price.
Especially in the earlier days, NEPSE was prone to price cornering and manipulation. People with considerably heavy capital could influence stock prices. Although this risk will remain forever in a stock market, more volume of investors will make unethical moves like these highly unlikely.
This is a win-win situation
Brighter days are yet to come. If NEPSE can effectively ensure a healthy marketplace for new investors, they will be happy to make the securities market flourish. Currently, NEPSE is dominated by banks and financial institutions. This impedes diversity and growth. NEPSE is prone to unidirectional swings.
If NEPSE has to reflect the true picture of the Nepalese economy, companies from "real" sectors should be added to the stock market.
In foreign countries, going pubic is a huge achievement for companies. IPO issues are celebrated. However, the enthusiasm hasn't matched in our home country. This is because most companies fear they will be mispriced in an amateur securities market like ours.
This uncertainty will be partly solved by the book-building process about to be implemented soon. On top of it, the added volume of investors willing to price the market correctly will only strengthen their belief.
What NEPSE should do to stimulate this growth
These are some of the early preparations NEPSE should do so that the system does not get overloaded and become dysfunctional once the secondary market sees a boost in investor participation:
a) NEPSE has had instances where the Meroshare platform freezes during IPO issues. It is certain that the volume overload is only going to go up with time. Necessary technological updates should be made.
b) There are 50 licensed stockbrokers at the present. Even now, investors complain that brokers do not pick up their calls when the market is having a busy day. The capacity of the existing brokers should be improved. An alternative would be to look forward to diversifying the broker profile.
c) Real sectors of the economy should be encouraged to enter the stock market. A public company is under close inspection of its investors and the regulatory bodies. This challenges the management to perform at the best of their potential, which leads to improved productivity and national growth.
d) The general public from all walks of life should be educated about the stock market. Most of the capital in middle-class families are never utilized. The most that we as middle-class income earners have learned to do is to keep our hard-earned money in banks as savings. As such, the benefits of investing should be communicated to as many people as possible. However, since investing of any sort comes with the risks, the general public should be shown both sides of the coin during a consultation.