Margin financing helps trading volume

KATHMANUD:

Transaction volume at Nepal Stock Exchange (Nepse) in the first month of the current fiscal year jumped by more than 80 per cent due to easy availability of margin financing.

Trading worth Rs 3.2 billion was undertaken at Nepse’s trading floor between mid-July to mid-August — first month of the current fiscal year. The trading volume is 82 per cent more than what it was during the same period a year ago when trading worth Rs 1.8 billion was conducted.

“Since beginning of the fiscal year, investors were offered easy loans against shares and margin type financing by financial institutions, that also contributed to the increase in trading volume,” said president of Stock Brokers Association of Nepal Narendra Raj Sijapati. Average daily turnover of Nepse in the first month of the current fiscal year stood at Rs 141 million. The average daily turnover of the last fiscal year stood at Rs 91 million.

“Financial institutions had stopped providing any margin type financing since the last two months of the last fiscal year due to the need to provision one per cent of the loan amount, but they all started giving loans at reduced rates from mid-July,” informed Sijapati, adding, “Banks have also slashed the rates at 12 per cent due to ample liquidity.”

Financial institutions are providing 60 per cent to 70 per cent of the amount required to buy shares while investors themselves furnish the remaining amount based on the broker’s guarantee that transaction has been made.

The first month’s increase in turnover is also attributed to trading of shares of NIC Asia Bank and Global IME Bank. NIC Bank and Bank of Asia’s shares that were halted for trading for almost a year due to their merger process restarted as NIC Asia Bank’s in the beginning of fiscal year.

Likewise, Global IME Bank — that was also not being traded at stock exchange due to its merger process with Social Development Bank and Gulmi Bikas Bank — started its trading in the first month of current fiscal. Both the banks comprised of more than 10 per cent of total trading.

In the first month, the stock market also remained bullish as the benchmark index went up by more than five per cent since mid-July. Market capitalisation also surged to Rs 534 billion in the period. Top five firms in terms of market capitalisation are Nepal Telecom, Nabil Bank, Standard Chartered Bank, Nepal Investment Bank and Everest Bank.

Source: THT