If constitution is drafted early‚ index will easily break previous record of 1175 points
Finally, the stock market has become bullish and investors are filled with excitement and vigour as the stock index crossed 700 points. Though stock prices had started to rise since April 2012, investors had rarely jumped into a buying spree like they have this time. The stock index has appreciated by 40 per cent in the last five months, while the average daily turnover has crossed Rs 300 million at Nepal Stock Exchange. Dikshya Singh caught up with President of Stock Brokers’ Association of Nepal Narendra Raj Sijapati to talk about the ongoing bullish stocks, prospects in the future, modernisation of the stock exchange, and other issues related to the capital market. Excerpts:
The stock market index has crossed 700 points and is now bullish. How do you see the stock movement in the recent future?
The stock index that had hit a bottom is still on a course to recovery. The current political developments — timely Constituent Assembly elections and the victory of liberal parties — has boosted investor confidence. Fundamentally also, the market has emerged from the crisis level and is recovering. The trend analysis also shows it will be at around 800 points soon and if the constitution is drafted early then it will easily break the previous record of 1175 points. A stable political situation assures investors that the economy will be somewhat problem-free.
What are the other factors besides politics supporting the current rally?
Investors are getting easy financing facilities due to surplus liquidity with the financial institutions. The availability of finance to invest in shares at around 10 to 11 per cent interest has boosted the investing capacity of investors. Likewise, the increased number of companies and shares at the stock market has also helped boost trading volume. Even Nepse has increased the trading limit of brokers from 20 times the security deposit which is helping transactions. Investors are earning high returns on their investment and most of them have recovered their losses of the last four years. Investors are building their portfolio, so there are more buyers in the market which is also supporting the current rally.
What type of shares are investors attracted to in the present scenario?
Insurance companies are quite popular at present because of their returns. To increase their paid up capital, insurance firms had offered good stock dividends and also rights shares, so investors have bid higher prices for the dividends. However, it seems insurance stocks have reached a peak as buying pressure of these stocks have come down. Investors are taking the profit earned from that sector and investing in banking stocks — share prices of banks have still not reached the point they had in April 2012. Likewise, shares of hydropower companies are also popular at the moment.
What kind of investors are there in the market at present?
At present, there are all kinds of investors engaged in trading from seasoned ones to absolutely new ones. Large investors are investing up to Rs 10 million per day — more than what a mutual fund does. But new ones are testing the market with smaller sums. Passive investors have also started trading shares as the market is upbeat.
What do rookie investors at present need to consider before deciding to buy shares?
They should not buy a share just because everyone is buying it or just because the market is going up. Every investor, especially those new to the market, needs to carefully consider the company’s history, prospects and its returns before deciding on anything. It is wrong to assume that investors will earn by buying and selling any share during the bull-run.
What about Nepse and its system automation, and operation of CDS and Clearing Ltd that could have helped the market get better?
Nepse’s trading upgradation is a must as it is difficult to place and execute orders and send for settlement and clearing from a single window when the transaction volume has jumped — that is why the software fails at times due to high traffic. Nepse is working on providing multiple windows for brokers and also for a market maker which are very necessary. CDSC is efficiently undertaking manual clearing and settlement of transactions within T+3 days. However, if it had started automated clearing and settlement, things would have been far better.
Why have brokers stopped taking clearing membership from CDSC then?
We have halted the process of acquiring membership because without brokers as Depository Participants (DP), investors will have to go through a lot of hassles for share trading once CDSC comes into operation. Regulation says that a shareholder needs to attest that he owns the shares that he is placing an order for with the broker. For that he has to go to a DP first then come to the broker. If the Securities Board of Nepal agrees to allow brokers increase their net worth to Rs 10 million in a time bound manner and at the same time work as a DP, then investors will be able to trade shares through a single window system. We hope the regulator will soon agree to our demand.
Source: THT
