Opinion: Reforms, Crisis and their Consequences

About Author: Dinesh Singh Mahat is currently in the final semester of MBA Financial Management specializing in Capital Markets and Operations from Christ University, Bangalore. He can be reached at dinesh.mahat@hotmail.com . The opinions expressed, here in, are of the author. 

The economy of Nepal has been hit hard by the great earthquake accompanied by supply disruptions. One may argue that there might be reduction in budget deficit with lowering of highly consumed commodities for which we rely solely on imports. However, it has also affected the domestic production. As predicted by the central bank, lowering of Gross Domestic Production and rising of inflation is highly likely.

The developments as of present is obviously striking, but how will it affect the investors’ market is the question for now. One way quote system is certainly a factor to implicate which may show unforeseen trends. The primacy of the market makes it difficult for us to answer about the exact repetition of the events. Though the index has been showing strong support at the quad figure as of recent, will it continue in days to come, might be a vicious riddle for the number crunchers.

Though financial markets have rarely been explained accurately, short term trends can be identified which is the point from which short to medium term traders’ profit. The persistence of risk is obvious which signifies whether there will be moderate profit or extensive loss mostly being the ratio that occurs. Looking at the fundamentals, rise in inflation is bound to weaken the economy; however, if the banks, which are among largest configuration of NEPSE, sustain its profits then the price may stabilize. On the other hand, cost of funds is bound to decrease at least for a few months due to liquidity surplus. It is another factor that might support the index in days to come.

Though banking index may incline, a serious fall can be anticipated in manufacturing and hotels sector if the present scenario continues. With the depleting political scenario and worsening relations with most relied on neighbor, decreasing trend will be justified; however, any news of improvement shall certainly induce spikes in days to come. Normally, spikes have always been a scenario where investors are trapped. Although, it differs on particular scenario whether what is really going to happen this time as risk and returns will be proportionate.

With reference to the developing macro factors and geo political scenario, an optimistic build is indicated. Nonetheless, sustainability has always been a somber question which is bound to determine the road ahead for our arcade. Initiation of aspects like market making and dematerialization should propel the rise. Even though, the concern lies in the effective and efficient implementation of those programs. Volume has always been a crucial element, though it’s prone to speculation with the trends seen in the past.

In totality, we can conclude that the insulated exchange is going through numerous changes as of now which makes it prone to volatility with the macro and micro factors coming into play.Fundamentals can play significant role in determining the direction of the market which is considered to be an indicator of the economy in days to come.