'Even in the present conditions, the share market is best place to invest in as it is less risky and more lucrative'

In an interview with ShareSansar, President of Stock Brokers’ Association Nepal and owner of Kalika Securities, Narendra Sijapati, speaks about the association’s current activities, opportunities and hurdles to bringing NRN investment into the secondary market and his secondary market forecast for next year.

What is the brokers’ association doing for the overall development of the stock market?

At present, among other things, we are busy formulating code of conduct for brokers to make the share market more trustworthy and clean. We are also holding programs aimed at spreading awareness about the secondary market among general public so that more people are attracted to invest in the market

From the point of view of policy, we have been pressing for amendment to the rule that requires brokers to deposit Rs 10 lakh in cash in order to become clearing member, which was unacceptable to us in view of current market situation and the capacity of brokers. In our meeting with SEBON officials, they had agreed to change that rule and the process is in the final stage.

Are there any rules that brokers look at as regulatory hurdles to investing in share market?

Under the existing rules, trading in shares is a tedious process. One is required to register every transaction following traditional methods. Under the rules, you cannot buy and sell shares through the use of technology like phone calls, emails or SMS. It is very difficult for investors outside the valley to trade their shares actively under the existing rules.

Likewise, at present, brokers have been allowed only to execute orders of their clients for buying and selling shares. But that is not enough for the expansion and development of secondary market. Share brokers must be given the permission at least for portfolio management, counseling and margin lending. A full-fledged broker does host of other things and we are urging the SEBON to allow brokers to carry out more of such activities depending on their capacity.

There are rumors that brokers and big investors are engaged in malpractices. Is it true?

I am not in a position to deny the fact that big investors and brokers collude to engage in irregularities in the share market. Since under the existing rules share can be traded only through brokers, if there is any irregularity, it must happen in full understanding of the brokers. We call on SEBON to monitor the market and punish anybody it finds guilty of engaging in illegal activities. It will promote common investors interests and increase their faith in the secondary market.

How do you gauge the awareness level of general investors about the share market?

General investors even inside the Valley do not have easy access to the share market. Very few among common investors know things like where to go to buy and sell shares, where to find brokers’ offices. As for investors outside the Valley, it is virtually impossible to trade shares. As the sole share trading hub of Nepal, failing to expand the market is one of the biggest weaknesses of NEPSE.

Brokers’ association wishes that through the use of technology not just Nepalis living across the country, but also investors from all over the world should themselves be able to trade in their shares. We are hopeful that it would be possible after the full implementation of CDS and after NEPSE installs new trading software. 

What are the opportunity and challenges of allowing NRNs to invest in Nepal’s stock market?

There are still many legal hassles to bringing NRN investment in Nepal. For example, Nepal Rastra Bank has not yet allowed investments in foreign currency. Also, NRNs, wherever they maybe based, should have easy access to the secondary market. Otherwise, it would be difficult for them to invest based on second hand information.

Despite all the talks, no concrete steps have been taken so toward bringing in NRN investments. The process is still in study phase.

Flow of investment into the capital market will naturally contribute in the economic development of a country. Nepal’s economy is lagging behind because of the failure to mobilize idle cash or gather needed cash. If we succeed in attracting that idle money into the secondary market, it will help in overall economic development of the country.

So what is the main hurdle in bringing NRN investment into Nepal’s share market?

Any investor would invest only after a thorough risk assessment and it is up to the government to create an environment of reduced risks to win the confidence of the investors. But the current government and political situation cannot attract investors to any sector. No investor can be fully assured of making long-term investments in the country in the current situation. Neither local nor foreign investors would be willing to invest at a time when it is not clear what direction the economy would take, which political ideology would guide the country and when the constitution would be written.

NRNs and foreign institutional investors do not generally invest for short-term. They are more likely to invest keeping long term prospects in mind.

What do you have to say about NEPSE’s current upward rally?

The stock market’s rally upward seen recently conforms to the seasonal growth pattern as at the start of each fiscal year companies provide return on investments to the investors, thus creating positive climate in the capital market. Another thing is that, compared to the previous year, companies have been able to earn considerable profits this year, thereby, pushing the stock indices up. The upward rally would continue for a few days.

What is your market forecast for next year?

I think NEPSE will hit a milestone in the year 2071 BS and set a record growth as we hope there would be political stability in the country within a year. Investors have been slowly investing in hydropower, manufacturing and service sectors, and going by the current trend, the country’s economy will likely see a double digit growth in a year or two.

Even in the present conditions, no other sector is suitable for investing except for the share market. If we look at the current situation, secondary market is less risky and more lucrative from the point of view of making investments.

Under this scenario, NEPSE’s upward rally will continue for a few days and there is a strong likelihood that the NEPSE will cross 600 mark within the next two weeks.