NEPSE index hits 35 months low with commercial banks approaching their 52-weeks low price; In a BFIs dominated bourse, what does it implicate for investors?

The stock exchange of any economy is supposed to reflect its current conditions and the economy's growth rate. However, for developing economies like ours that doesn’t hold true  and that is for one BIG reason – lack of diversification. As of today, Nepal Stock Exchange (NEPSE) still is heavily dominated by banks and financial institutions (BFIs) accounting for around 80% of total market capitalization. These BFIs includes Commercial banks, Development banks, Finance companies, Microfinances and other institutions inlcuding insurance companies. BFIs is a very wide array of institutions, so rather we are going to focus on Commercial Banks – the heart and soul of financial system of or country.

There are 28 commercial banks in Nepal and 27 of them are publicly traded in secondary market (NEPSE). The total market capitalization of NEPSE as of Mangsir 13, 2075 stands at Rs. 1,369,856.63 million, out of which the total market capitalization of commercial bank is Rs 745,144.969,510.

The above background is necessary because the dominance of commercial bank in the overall market capitalization leads to that fact that a sizeable fall in this sector has a significant impact in the NEPSE index. On Mangsir 13, 2075 the NEPSE index hit the 35 months low mark falling down to 1148.36 points.

After the bull of 2016, the market has been bear for quite some time now and despite assurances from analysts and market gurus, the index has continued to fall further. Currently, most commercial banks have reached so very close to their 52 weeks low point. You can see this in the table below:

The Last Trading Price (LTP) is taken as on Mangsir 13, 2075 and if we compare it with the 52-weeks low, we can see that in many banks' cases they've come very close. However we also have to consider the fact that many banks have given bonuses and right shares from the profit of last fiscal year. So considering that fact, the LTP has been adjusted to any bonuses or right shares whose Book Closure has been done in between Mangsir 13, 2074 to Mangsir 13, 2075.

The last column shows the adjusted LTP of the banks and even after adjustment if we compare it with 52 weeks low, there isn't much discrepancy. Nabil Bank (NABIL) one of the blue chip company is now at 52-week low. Similarly, other banks like Nepal Bank, Machhapuchchhre Bank, Sunrise Bank, Nepal Bangladesh Bank and Citizen International Bank are also not much higher than their lowest points.

The market is bear and it is obvious that the prices will fall, but there's a reason this caught our attention. Commercial Banks are considered a relatively stable sector and even the rookie investors are suggested to start from commercial banks. So when a stable sector like commercial banks are hitting 52 weeks low, what about the volatile sectors like microfinance and insurance companies?

Similarly, in the table above we can see by what percentage the prices of scrips have fallen from their 52 weeks high point.Mega Bank's price has fallen by 53%, which might be because its shares weren't traded for 2 years due to their on-going merger with Tourism Development Bank (TDBL), because of which the 52 weeks high is higher leading to a higher percentage fall.

Nonetheless, for a stable sector like commercial bank even a two digit decrement is huge and that too in less than a year's span. This on one hand shows that the investors who poured their money at the bull of 2016 or even during the last fiscal year are in loss and on the other this shows huge opportunities for new investors looking to invest in secondary market, like they say, "Buy at low, sell at high".