Regulator urges investors not to lose confidence
KATHMANDU, APR 04:
According to the capital market regulator, investing more in shares will be the easiest way for investors to boost the market.
“If investors purchase more shares right now they will be in for huge returns in the future, as share prices have hit rock bottom and investors will gain a lot once the market takes off,” said chairman of Securities Board of Nepal (Sebon) Baburam Shrestha.
He pointed out that once the share purchase rate goes up, the confidence in the market that has been crushed due to the ongoing slump will repair itself. “Unfortunately, even seasoned investors are shying away from equities and those not involved are too scared to be engaged in share trading and the stock index has hit rock bottom,” he added.
The excessive number of listed securities coupled with a high rate of interest has become a bane for the secondary market. The Nepse index that had reached 1,175 points in August 2008 has gone below 300 points twice –– in June 2011 and last week.
“In the current situation, when investor confidence is at an all time low and investors are looking for a way to exit the market without incurring losses, the government and regulators have to introduce provisions to inject life in the ailing market,” opined general secretary of Nepal Stock Investors’ Association Prakash Rajoria.
“The prevailing interest rate is not helping either. Investors who have borrowed by pledging shares are the ones who have been badly hit mostly due to the skyrocketing interest rate. In addition, banks selling their share collateral in the market to recover the disbursed amount is also pushing the market further down,” he stressed.
Nepse’s market capitalisation has declined by 53 per cent since the peak of August 2008 which translates to a loss of share value by 53 per cent.
“If interest rates are revised then demand will be stimulated, as for balancing the excess supply the mechanism of mutual fund and entry of market maker will handle it,” points out Sebon chairman Shrestha.
He also pointed out that regulation has allowed for any company with a net worth of Rs 20 million to apply for a licence to work as a market maker that can buy shares in bulk and dispose when the supply gets tight. “But no company has come forward so far,” he added.
However, he does not agree that whenever the market is in a bearish trend, the government or regulator has to rescue it. “The market should be left to run its own course and all that we can do as regulators is to facilitate its smooth functioning and prevent any wrong doings to protect investors,” he added.
Investor associations have been asking the finance ministry to create a market rescue fund and bring in institutional investors to rescue the market. They have also requested the central bank to ask banks to go easy on the borrowers who have taken loans against shares. They have also asked Nepal Rastra Bank (NRB) and Insurance Board to make it mandatory for banks and insurance companies to invest in shares.
“NRB is studying their demands and the possibilities in fulfilling them,” said spokesperson for the central bank Bhaskar Mani Gyanwali. “However, NRB will only allow measures which will not hurt financial health and is within prudential norms,” he added.
Source: THT
