Nepse Wrap up (Review period 18th to 21st  August, 2014) A week of roller-coaster ride

ShareSansar, August 22:

It was a week of turmoil for the only capital market of Nepal as the benchmark Nepse index plunged by 36.26 points or 3.51 percent to settle at 998.13 level.

Opening after a hiatus of three long public holidays dotted with upsetting financial results from two commercial banks, the only secondary share market lost whopping 21 points on the first day of trading this week.

The benchmark index of Nepal Stock Exchange Limited (Nepse), which closed last week at a bullish 1034 points on August 14, stood at 1013 on Monday, August 18.

If we zoom out a bit and look at a larger picture, it would be a folly to conclude that shocking fourth quarter reports of Grand Bank Nepal Limited (GRAND) and Agricultural Development Bank Limited (ADBL) alone weighed the market down this week.

First of all, the market has been sluggish ever since hitting a peak of 1083.55 around a month ago, on July 23 –notwithstanding the fact that most of the BFIs have come up with impressive fourth quarterly report in this period.  Secondly, the market turnover, especially this week (Rs 2.17 billion), has been pretty encouraging, which strongly hints that the investors are still very much engaged in the stock market.

Let’s recap the market this week: After losing whopping 21.14 points or 2.04 percent Monday, the benchmark index stabilized on Tuesday to closed at 1,013.62 levels, making a marginal gain of 0.37 points. The most encouraging aspect of Tuesday’s trading was the investors’ confidence that made the Nepse index gained points from the first hour. The banking and finance sub-indices, which covers for most of the total market cap, closed in the green territory. The turnover was equally inspiring. It stood at Rs 55.24 crore, much higher than Rs 47.805 crore on Monday.

We may, as well, note that Monday’s turnover was not that bad either; it was higher than Rs 39.591 crore in the last trading day of the last week, Thursday. Unlike Monday, when the BFI group had dragged the entire market down, only three out of the total seven sub-indices closed in green terrain by Tuesday.  Insurance group regained impressive 31.45 points followed by Hotels, which gained 6.48 points while the banking group itself posted a modest growth of 0.07 points and Finance added 0.91 points. Hydropower , Development Bank and Others sub-indices shed slight points. All in all, the market ended in a vibrant mood on Tuesday.

On Wednesday, however, the market suddenly dropped again, that too, by 17.91 points to close below 1,000 level since July 7-- for no clear reason. The market was basically brought down on Wednesday by the banking group, with the highest market cap, though all the seven sub-indices suffered, too. The selling pressure steadily increased ever since trading began. The turnover also dropped somewhat. The real reason, as it transpired, was rumors that Nepal Rastra Bank is coming up with a directive to tighten BFIs’ investment in the stock market.

But as the investors realized that the central bank’s directive was, in fact, positive for the BFIs and for the market, too, the market closed for the week on a positive note, gaining 2.42 points. Not only did the benchmark index of Nepal Stock Exchange Limited (Nepse) has climbed back to 998.13 level, the turnover was also very impressive at Rs 63.45 crore.

Apart from encouraging the BFIs to give more of bonus shares than cash dividend, the central bank directive also clarified that the investment cap of 1 percent was imposed only for the ‘held-for-trading’. ‘Held-for-trading’ refers to the debt and equity investments that are purchased with the intent of selling them within a short period of time (usually less than one year).  No wonder that the market rallied behind the BFI scrip on the last trading day of the week. The banking group, with the highest market capitalization, gained massive 18.81 points. The Finance sub-index also closed in the green zone with 2.87 point gain while the Development Bank group lost only negligible 0.02 points.

On the other hand, the Hydropower and Insurance groups lost staggering 139.2 and 111.15 points respectively. Though the central bank’s directive does not directly impact the insurance group, some observers believe that institutional investors from the banking sector resorting to ‘held-for-trading’ strategy might have started to liquidate insurance stock to contain its investment to 1 percent by the end of the current fiscal year – as directed by the central bank.

 Insofar as the slump in the hydropower group is concerned, Chilime’s management row apparently played the major role. Hotels group also lost 63.11 points, Others group shed 2.35 points while the Manufacturing group gained 2.18 points.