Nepal Telecom likely to bring market down

KATHMANDU, Mar 9: 

The dividend payment of Nepal Telecom (NT) that covers almost one-fourth of the total market capitalisation will bring down the share market due to the absence of a dividend adjustment mechanism at Nepse.

“The share price of Nepal Telecom can go up till the book closure but after its annual general meeting (AGM) and distribution of cash dividend, stock prices will go down by an amount equivalent to cash dividend, which will eventually bring Nepse down substantially due to greater weightage of NT,” pointed out chairman of Security Research Centre and Services Rabindra Bhattarai.

Nepal Telecom has announced that its book closure will start from March 23 till the company’s fourth AGM to be held on April 4. It has already announced a dividend of Rs 45 per unit share that will be endorsed by the AGM.

NT’s market capitalisation is almost equal to one-fourth of the total market capitalisation of the total stock market. At the latest closing price of Rs 447 per unit of NT share, its market capitalisation stood at Rs 67.05 billion which is 22.69 per cent of the total market capitalisation of Rs 295.4 billion.

Even a slight movement in the stock prices of NT determines the direction of the Nepse index due to the existence of 150 million unit shares of the company. A downward movement of Rs 45 in the share price can be expected to bring about a massive plunge in the benchmark index. 

“Though the actual market condition might remain stable the ex-dividend date effect of NT stocks will have a psychological impact on investors when the market is already down,” pointed out Bhattarai. This will send a wrong message to investors that shares of other companies are also not doing well as the benchmark index will head south.

Stock exchanges abroad adjust the dividend in the stock price so that the overall index is not affected by the dividend payout. The stock market being sensitive to even trivial movements, stock exchanges have that mechanism which is absent at Nepse. 

The standard methodology employed by Dow Jones, Standard & Poor’s, Reuters and Bloomberg always adjusts for special dividends plus all of the normal capital adjustments such as splits, reverse splits, rights issues, capital returns, demergers and spinoffs. 

“Since there are only a few such influential companies, the adjustment mechanism is not present in the current trading system,” said an official at Nepse, adding that Nepse is working on that.

Source: THT