Lower bank interest rates make stocks lucrative
KATHMANDU, NOV 5:
Stock investment has once again become lucrative for investors due to lower interest rates and less lucrative returns on alternative investments.
In the last few months, short-term interest rates have lowered significantly, even pulling down long-term deposit interest rates. On the other hand, the stock index is steadily looking up after going through a bearish period lasting more than a year.
Moreover, the less impressive returns on gold investment –– as its price is more or less stable –– has brought back life to the stock market which is enjoying a new high at 450 plus points.
“The returns on stock trading is as high as 15 per cent at present, while bank accounts are offering less than eight per cent interest, so have become profitable in comparison to other forms of investment,” said general secretary of Nepal Stock Investors’ Association Prakash Rajaure.
In the last six months, the value of shares with investors has appreciated by 30 per cent as the Nepse index has surged past 450 points from 300 points.
According to financial market rules, the lowered interest rate in the money market is supposed to push stock prices up. However, earlier, the declining short run interest rates were accompanied by lowering share prices.
The government issued short-term debt instruments such as treasury bills (TB), and the interbank lending rate that depicts direction of interest rate is not simmering near 0.3 points. Since November 2011, TBs are being traded at less than one per cent interest rate so is interbank lending rate, but the capital market continued to slide, braking only around mid-April 2012.
Two years ago, due to acute liquidity crunch in the banking system, banks had started to offer high interest rates to attract money while share prices were tumbling. As a result, investors liquidated shares and started depositing money in the banks further pulling share prices down. “Now the trend has reversed,” said Rajaure.
Moreover, in the last couple of months, the commodities market that had stood as a rival to the stock market, has become weak following a study conducted by Securities Board of Nepal (Sebon) that revealed various shortcomings in the unregulated market. The study exposed that commodities exchanges and their brokers have been earning at expense of general investors and the need for prompt regulation, and investors have deserted the commodities market.
“Investors have become cautious and have distanced themselves from commodity investment until it comes under a regulatory ambit and have returned to the stock market,” said an official at Securities Board of Nepal.
