Reforms on Paper, Red on NEPSE: Why Is the Market Still Falling?

Nepal’s new government has introduced a series of measures aimed at strengthening the capital market, while the Securities Board of Nepal (SEBON) and Nepal Rastra Bank (NRB) have also moved forward with several regulatory changes.

However, the Nepal Stock Exchange (NEPSE) has not shown a sustained positive response.

Prime Minister Balendra Shah took office on March 27, 2026, with Dr. Swarnim Wagle as Finance Minister. At the time, the NEPSE index stood at around 2,950 points. By September 28, the index had fallen to 2,613.33 points, a decline of more than 330 points from the level around the formation of the new government.

The fall has continued despite a series of measures intended to make the market more active, improve trading infrastructure and bring more investors and financial resources into the market.

What has the new government done?

The government included capital market reform among its economic priorities from the beginning of its tenure.

The budget for fiscal year 2083/84 announced the restructuring of NEPSE and the gradual introduction of new trading facilities, including intraday trading, short selling and derivative instruments. It also called for stronger technology based trading systems and investor protection.

The government later introduced a more detailed 21 point Capital Market Strengthening and Revival Action Plan, 2083 in September.

The plan covers IPO related rules, the bond market, institutional investment, NEPSE restructuring, tax changes and wider participation in the capital market. It also includes plans to create a new benchmark index, restructure NEPSE and make legal changes to allow non-resident Nepalis to participate in the secondary market.

One of the major tax related proposals is to reduce the capital gains tax burden for investors holding shares for longer periods, with the stated objective of encouraging long-term investment. The CGT is keep changing after budget and recently 3.75% for short term and 5% for long term is announced by the government.

The government has also proposed legal arrangements for margin lending, intraday trading, securities lending and borrowing, and short selling. However, most of these measures are still at the policy, legal or implementation stage. They do not immediately put additional buying money into the market. Only 11 brokers are doing margin trading and remaining broker are still in the process of margin lending approval. Short Selling concept paper was introduced last week with the concept of BUY FIRST, SELL LATER in the same day.

SEBON has moved beyond announcing long-term plans and has started preparing the rules required for several new market facilities.

In July, the regulator published its Capital Market Development Roadmap and fiscal year 2083/84 capital market policy. It has also formed a committee to coordinate the implementation of margin lending, intraday trading, securities lending and borrowing, and short selling.

On the other hand the Nepal Rastra Bank recently reduced the minimum period for which banks and financial institutions must hold listed shares and debentures from six months to 45 days.

The change gives banks and financial institutions greater flexibility to manage their share investments. The revised rule also requires banks to have board approved policies and procedures to control the risks associated with such investments.

Yet the market has not responded with a sustained rise.

What has NEPSE done?

NEPSE has also been instructed to modernize its trading infrastructure and prepare for new products.

However, Trading was suspended on September 21 after a technical problem affected its data hub and SEBON notice states that ransomware attack in the data hub lead to the closure of the trading for a whole day. Trading resumed the following day.

The incident has added to the regulator’s focus on the reliability and modernization of NEPSE’s technology. SEBON forms 5 member committee to investigate this issue and develop the mechanism so that this type of technical issue never come next time.

So, why is the market still falling?

The key issue is that policy reform and share market demand are two different things.

The government and SEBON measures are designed to improve the market’s structure. They can create new products, improve trading systems, reduce restrictions and increase participation. But share prices ultimately depend on whether investors are willing to buy shares at higher prices.

Another issue is the amount of money actually moving into shares.

Even when interest rates and other financial conditions become more supportive, investors may not immediately move that money into the stock market if they are uncertain about future returns.

But that recovery did not continue.

By September 23, NEPSE had fallen to 2,618.03 points before recovering to 2,629.81 points on September 24. On September 28 yesterday, the index again dropped 16.47 points to close at 2,613.33 points, despite turnover reaching Rs. 5.38 billion.

This shows that investors have reacted positively to some announcements, but the buying has not been strong enough to establish a lasting upward trend.

Reforms take time, but investors want immediate results

The government and SEBON have introduced more changes in the capital market in recent months than simply announcing another policy package.

NEPSE restructuring, new trading facilities, easier institutional investment, tax changes, improved trading technology, a new benchmark index and wider participation by non-resident Nepalis are all being pursued. But several of these measures require new laws, regulations, technical systems or consultation before they can become fully operational. Therefore, the gap between announcing a reform and seeing its effect on share prices remains significant.

The market is therefore sending a different message

The recent performance of NEPSE does not necessarily mean that the reforms have failed. It shows that policy changes alone have not yet been enough to create sustained buying pressure.

The government has moved toward greater flexibility, SEBON has accelerated regulatory work, and NRB has eased some restrictions on institutional investment. At the same time, NEPSE is being pushed to improve its systems and prepare for a broader range of products.

But until these measures translate into actual implementation, stronger participation, better liquidity and greater investor confidence, the market may continue to respond more strongly to immediate economic and company level factors than to policy announcements.

The latest NEPSE movement reflects that gap: the policy direction has become more flexible, but the market’s buying interest has yet to show the same strength.

Gap between policy reform and actual market demand! Will NEPSE rise before Dashain?