NEPSE (Nepal Stock Exchange), after being closed for more than 3 months (cannot consider the 2 days of operation in between as open), opened its trading floor from the 15th of Asar as per its usual operating procedure (the time and provisions for circuit breakers). Another good thing was that the extra one hour which was introduced on a trial basis without any study was removed (at least for now). As the market was going to open investors were worried about the future direction of the stock market. Many people were thinking NEPSE might go down and touch the 3 digit figure before bouncing back. Earlier, I was almost sure that NEPSE will bounce back without breaking the previous low of 1102. Because the index lost around 50 points when it was set ‘opened’ for 2 days,, I thought the worst-case scenario might be it going down to 1050 before bouncing back but was still optimistic that it will not go down below 1102.
You can read my article that was published on the 30th of Baishak to know why I was optimistic that NEPSE will bounce back before breaking the previous low of 1102:
Nepal Stock Exchange opening its trading from today, In which direction will NEPSE index move now?
Since the closure of Nepse from 10th of Chaitra till today, we saw the ‘opening’ of NEPSE for 2 days, the fiscal budget which had nothing (new) for the stock market, the monetary policy which had something for the stock market but many good things regarding the liquidity and the most important of them all we saw how the market behaved since its regular opening from 15th of Asar to 8th of Shrawan. On the basis of this evidence, we can have a clear view of the road ahead. Thus, I am sure that the bullish journey of NEPSE has begun. The following points might help you in understanding my perspective about the journey ahead (I have repeated a few points from my previous article here as well which could not have been left out):
1. NEPSE has been in a bear cycle for a couple of years and looking at the history of NEPSE the bear cycle is about to complete its phase and a bull cycle is about to start.
2. During the time of crisis such as the earthquake and during the economic blockade, NEPSE had fared well and was on a positive side.
3. The investment opportunities for the existing businesses in Nepal will be limited and share market will be a lucrative place to invest as share market is a place where you can start investing in a single day (or two if you do not have a Demat and a trading account) and cash your investment in less than a week. There is almost no entry and exit barrier.
4. Banks have started introducing schemes of ‘loan against shares’ with an interest rate in single digit.
5. The Finance committee of the parliament has endorsed the report of the sub-committee with some amendments and gave the authority to the regulatory bodies to issue brokerage license to the subsidiaries of the commercial banks.
6. ‘Nagarik Stock Dealer’ is in the final stage of entering the market. Also, the Employees Provident Fund (EPF) will be establishing a stock dealer company in the future.
7. The policy of NEPSE regarding the Application Program Interface (API) is approved by SEBON. Now, the interested broker companies can provide their own Trading Management System (TMS) to the clients. We can hope that broker houses will soon start bringing world-class software and we can trade the stocks online smoothly.
8. The transaction limit of Rs 1 Million per day through connectIPS is lifted by Nepal Rastra Bank on the request of SEBON, which will ease in online trading.
9. The market has bounced back from the low of 1150 (which I think is a new low) after a free fall from 1632 to 1251 before the lockdown and around 50 points in the 2 days and around 50 points on an opening day (15th of Asar). The immediate and obvious bounce back and then a correction and then again a positive closing on Thursday. All these backed by strong turnovers surely give a hint of a bull run.
There are few other things that will help to maintain decent cash flow into the market which will create liquidity and also the capital for investment in the stock market:
1. The inflow of remittance has not decreased as it was thought or expected to decrease.
2. Although there is a situation of surplus liquidity, banks are still bringing loans from foreign institutions to make sure there won’t be any liquidity crunch in the future.
3. The ease in CCD ratio will create further liquidity in the money market which will help in reducing the interest rate of deposits as well as loans as there will be excess liquidity, but places to disburse that liquidity is limited.
4. As there is excess liquidity, the gentleman’s agreement on the interest rate of fixed deposit is also over and banks have reduced interests on FD schemes. This will reduce the cost of funds of banks.
5. The reduction in the deposit will compel people to think about investing in the stock market as the return from the stock market might be higher than the return from the deposit schemes. The reduction in the interest of loans will ease access to capital and reduce the risk of investing the borrowed money into the stock market
We can also stay hopeful to see other improvements in the technological and legal aspects in the near future which will help in making NEPSE strong, stable, and advance. NEPSE is studying to introduce new tools of investment like derivative products. Similarly, SEBON is trying to upgrade itself to ordinary members from an associate member of IOSCO (International Organization of Securities Commissions), is reducing the settlement cycle from T+3 to T+2 and has got other plans to improve the market as unveiled in its plans and policies for the fiscal year 2077/78. Digitization of NEPSE and CDSC as stated in the fiscal budget, ‘Book Building’ system effective from the 1st of Shrawan, are a few examples that the stock market will improve. Although the improvement might be gradual but the possibility and hope for improvement are always present.
On the basis of the past trends, recent activities, and hope of further improvements in the future, we can be quite optimistic that the NEPSE index will create a new high (all time) this time.
The future of NEPSE is very bright in the long run. So we should look at every correction as a buying opportunity. But before making the investment decision, one must thoroughly study and research, do the due diligence and be well aware of one’s ‘risk appetite’.
Disclaimer: This article is only my opinion and not investment advice, so DO NOT make your investment decisions on the basis of this article. Be cautious before investing money in the stock market as it is you who will have to bear the consequences (both profit and loss) of your investment.
Rojin Joshi - An avid and optimistic investor