Nepse leaps 50 pts on Monetary Policy

KATHMANDU, JUL 27

The Nepal Stock Exchange (Nepse) index leaped 50.57 points on Sunday to close at 1,053.95 points following Nepal Rastra Bank’s directive to banks and financial institutions (BFIs) to hike their paid-up capital fourfold in two years.

A scramble for shares of banks and financial institutions sent the Nepse into overdrive, forcing transactions to be halted twice.

As the Nepse surged more than 5 percent in one hour and 15 minutes after the market opened, trading was closed for the rest of the day.

On Sunday, the Nepse imposed circuit breakers twice at 12:16 pm and 12:39 pm before halting transactions for the rest of the day at 1:14 pm. As per Nepse regulations, transactions are halted for the day when the market fluctuates more than 5 percent.

The market has been on an upward spiral since the unveiling of the Monetary Policy 2015-16 on Thursday ordering BFIs to hike their paid-up capital. After the announcement of the policy, the Nepse jumped 40.11 points to cross the 1,000 mark.

As per the new provision, commercial banks will have to increase their paid-up capital to Rs8 billion from the existing Rs2 billion. Depending on their working areas, development banks will have to increase their capital to Rs500 million to Rs1.20 billion from Rs640 million. Likewise, finance companies will have to raise their capital to Rs400 million to Rs800 million from the existing Rs200 million.

Experts and stockbrokers expressed doubts about the present rise in the Nepse. They were sceptical about the long-term benefits that the financial institutions could provide to the investors.

Capital market analyst Rabindra Bhattarai said the wild growth in the Nepse was not sustainable. According to him, investors have rushed to buy shares in anticipation of getting bonus and right shares.

“As the financial position of the financial institutions that will be merged will be uncertain, the capital market may not follow a similar upward trend in the long run,” said Bhattarai, adding that the current financial position of most of the institutions, that witnessed a rise in share prices are not noteworthy enough to support such a massive rise. Pralhad Kumar Oli, managing director of Pragyan Securities, attributed the rise in the Nepse to the positive development in the drafting of the constitution and the impact of the monetary policy. “Coinciding with the political consensus for framing the constitution, the policy requiring BFIs to increase the paid-up capital has stoked the market,” he said.

Oli said that hopes of getting rights and bonus shares had contributed to the rise. “Based on the present trend, the Nepse looks like surpassing the record 1,075 points shortly,” he added.

Meanwhile, all the trading groups observed a rise in their sub-indices. The insurance group had the biggest growth of 200.34 points, followed by hydropower with 106.98 points, banking with 60.67 points and development banks with 29.82 points.

Despite the massive surge in the Nepse index, the volume of transactions stood at only Rs340.36 million. Similarly, market capitalisation reached Rs350.27 billion.

Source: The Kathmandu Post