Investors still wary of real sector shares

KATHMANDU, AUG 14:

Despite a general consensus regarding the need for the capital market to list more real sector companies, existing ones rarely see the trading floor except for a few regular ones.

In the last fiscal year, among the 32 listed real sector companies, shares of only 14 were traded. Despite the handsome dividend payouts, real sector stocks comprised of about only six per cent of total shares that were traded at the stock exchange last year. Likewise, their turnover amounted to 13 per cent of the total transaction held at Nepal Stock Exchange (Nepse), which is dominated by financial intermediaries.

Real sector comprises of manufacturing companies,

hydropower companies, hotels, trading companies and telecommunication companies. Of the hundreds of scrips that are traded every day, shares of only three hydropower companies and Nepal Telecom are traded regularly.

Among the 227 listed companies, 195 companies belong to financial intermediaries — commercial banks, development banks, finance companies, microfinance banks and insurance companies.

“Since there is a small number of active real companies, investors have limited stocks to choose from while there is enough option to choose from among financial sector stocks,” said president of Nepal Investors Forum Raj Kumar Timilsina. “It is natural for investors to show interest in shares that are frequently traded.”

Moreover, there is a matter of trust among the regulator-less real sector companies. “The earlier experience with real sector companies such as Necon

Air and Biratnagar Jute Mills, among others, work as a

deterrent for investors,” pointed out Timilsina.

Investors have been demanding for a regulator to regulate these companies.

Since the regulators of financial intermediaries — Nepal Rastra Bank and Insurance Board — have made public issuance mandatory, these companies have no choice but to float shares to the public. However, there is no such obligation for real sector companies. A few multinational franchises such as Unilever, Bottlers Nepal — both Balaju and Terai — have floated shares to the public to comply with their parent company’s policies.

“We are aware that the dominance of financial institutions at the stock market is not sound for the capital market,” said managing director of Nepse Sitaram Thapaliya. “If there is more diversity in the nature of listed companies, investors can better manage their portfolio which is very difficult in the present context,” he added.

However, for hydropower companies that require investments worth billions, raising capital through equities is the best possible measure. Likewise, the provision of issuing a portion of shares to locals of project-affected areas will further increase the number of hydropower companies at the stock exchange. Sanima Mai Hydropower and Upper Tamakoshi Hydropower will be listed at the stock exchange within less than a year.

“Nepse is working in coordination with line ministries and regulators to bring more companies to issue shares to the public,” informed Thapaliya.

The government had announced a tax exemption of 10 per cent for a year to real sector companies that issue shares to the public in the budget of fiscal year 2011-12 , but it failed to bring a desirable result.