Peace accord a ray of hope for stock investors
KATHMANDU, NOV 06 -
Given political instability often being blamed for the poor stock market performance for the last three years, the latest deal reached between the political parties to conclude the peace process has come as a ray of hope for the dejected investors.
The share market, which started to experience a downturn after the formation of the Maoist-led government in 2008, narrowly avoided a collapse last June when the market index plunged to as low as 292 points.
With the latest peace deal, the country has taken the first step towards stability, exciting investors to some extent. Sitaram Thapalia, president of Nepal Investment Forum, said the deal is a confidence booster for investors and that they would now take more interest in stock investment.
The stock market responded positively to the peace accord, posting an exceptional double-digit growth (16.61 points) on the very next day of the deal. However, it suffered a loss of 3.28 points a day after.
Thapaliya said not only the political stability is the solution to the stock market woes. “Investors are not interested in investing in stocks as returns from stock investments are lower compared to other alternatives such as bank deposits,” he said.
As the investors usually take loans to purchase shares, higher interest rates on bank loans have hit them hard. As a result of the liquidity crunch in the last two years, interest rates on both deposits and credits soared. Some financial institutions even landed in trouble due to severe liquidity shortage needing the central bank’s immediate rescue measures. “As the Nepali capital market is dominated by the financial sector, trouble surfaced in this sector also disappointed investors,” said Thapaliya.
Now, the liquidity situation in the banking system has improved significantly. According to Nepal Rastra Bank (NRB), commercial banks are currently having a surplus liquidity of over Rs 35 billion.
“Banks and financial institutions (BFIs) have now started to lower their interest rates with the improving liquidity situation,” said NMB Bank CEO Upendra Poudel. “From now on, there will be a shift of investment from the money market to the capital market.” said Poudel.
However, given the vulnerability of the stock market, banks are still not positive about margin lending (loans against shares). In order to boost the market, the central bank has already allowed BFIs to decide themselves how much margin
loans to be provided. Earlier, BFIs could lend only 60 percent of the average value of the shares put up as the collateral.
The government has also reduced the capital gain tax to 5 percent from 10 percent earlier and directed its entities like Employees Provident Fund, Rastriya Beema Sansthan, Citizens Investment Trust and Nepal Telecom to make investment in the secondary market. The Central Depository System is soon coming into operation and mutual funds are also soon to go into action. These developments are other positive indicators that could help boost investors’ confidence.
The peace deal is the latest, and perhaps the biggest, relief for stock investors. “Investors are now feeling more secured and confident,” said stockbroker Nanda Kishore Mundara, stressing on the need for additional investors to give the market a further boost. There are an estimated 1.5 million stock investors in both primary and secondary markets.
Source: Kantipur
