Stock market approaching all-time high

KATHMANDU, Aug 11:

The Nepal Stock Exchange (Nepse) Index is heading toward the all-time high of 1175.38 points set seven years ago.

With the market on a bull run in the past few months, the Nepse benchmark index is 94.02 points short of the record. The market went up 41.43 points in first two days of this trading week to close at 1,081.36 points on Monday.

Analysts say that the stock market is on the track to hit the record with the possibility of promulgation of new constitution growing and with anticipation of positive earnings reports from the listed companies.

However, they say that much of the direction that market takes will be guided by the level of political volatility. Four brokers that Republica talked to pointed out four major factors that could propel the stock market to new highs, with some minor corrections.

CONSTITUTION PROMULGATION POSSIBILITY

Investors are turning upbeat with the recent developments that indicate that a new constitution will be promulgated within a month or two.

As the major political parties have inched closer toward agreement on most of the contentious issues of the constitution -- including a deal on demarcation of six federal provinces reached on Saturday night, the stock market is also responding to such developments with additional gains. Following the deal on the six-province model among the four major political forces, the benchmark index has jumped 41.43 points in two days.

"Political development plays an important role in the stock market. Since the constitution sets a long-term trajectory for economic development, it will boost the confidence of investors to pour their money into the stock market. This will lift the stock market," Badri Prasad Phuyal, proprietor of Kumari Securities Pvt Ltd, said.

However, protests across the country against the deal may also make the market volatile.

"The role political leaders will play in managing such discontent could also play the role of stabilizer for such volatility," he added.

EARNINGS REPORTING SEASON

Many listed companies are now publishing their financial reports for Fiscal Year 2014/15.

Most of the reports by listed companies published so far show that they are on sound financial footing. "There are expectations that most of the listed companies will come up with impressive financial results. Such records will boost the stock market," Narendra Sijapati, managing director of Kalika Securities Pvt Ltd, said. "The companies will start announcing dividend after publishing their financial reports. Impressive profits mean impressive returns to investors," he added.

LIQUIDITY SURPLUS AND LACK OF OTHER INVESTMENT SECTORS

A liquidity surplus in the banking system is also a major factor driving up the stock market. According to the Nepal Rastra Bank, the banking system currently has a liquidity surplus of Rs 80 billion.

Floating on top of the liquidity surplus, bank and financial institutions (BFIs) are reducing interest rates.

Anjan Raj Poudyal, the managing director of Thrive Brokerage Pvt Ltd, said that investors are currently finding the stock market as the best investment opportunity. "There is no avenue for investment that gives better returns to investors more than the stock market. The interest rate of banks is going down which means investors are getting cheaper funds to finance stock market investment while those who have been looking to making savings in their bank accounts are also switching to investing in the stock market due to the low interest rates there," he said. "The rising turnover in the stock market is the evidence that funds from other investment sector are also flowing toward the stock market. The rise in funds shows that the stock market is rising and stable," he added.

Nepse recorded its highest daily turnover of Rs 1.2 billion on July 22. The average daily turnover was around Rs 600 million on the first week of August compared against the Rs 350 million in the same period the last year.

PAID-UP CAPITAL INCREMENT REQUIREMENT FOR BFIs

The recent NRB decision to raise the minimum paid-up capital requirement for the BFIs by four times within two years is also propelling the stock market.

Through a circular, the central bank directed BFIs to submit within mid-September their plans for raising capital.

"The capital increment plan has become a big booster for the Nepse benchmark index and the gains in share prices of a majority of BFIs in the Nepse show that. Expecting that BFIs will have to issue bonus shares over cash dividend in line with the recent NRB decision to raise paid-up capital, investors are on a buying spree for banking scrips,"

Gunanidhi Bhusal, the managing director of Aryatara Investment and Securities Pvt Ltd, said.

"There is a strong possibility that the benchmark index will touch an all-time high," he added. In line with the NRB decision, the insurance market regulator is also planning to increase the minimum paid-up capital requirement of both life and non-life insurance companies by 10 and 16 times respectively to Rs 5 billion and Rs 4 billion.

Source: Republica