What is pulling the market down when it should be going up?

ShareSansar, August 13:

After reaching high of 1083.55 levels on July 25, the benchmark index of the only stock exchange in the country has shed almost 60 points over the recent weeks, especially over the past few days.

On the other hand, all the key indicators as well as the market as well as economic fundamentals are quite encouraging. Excess liquidity remains in the capital market, most of the listed companies are coming up with impressive fourth quarter report, economy is in sound footing due to timely fiscal policy announcement as well as prospect of political stability in the country.

In fact, this is the season when the market should have been rising.

So what is pulling the market down?

Well, even the market experts seem to be baffled by the development, which seems to be defying logic.

“Even we are puzzled,” says Chairman of Nepal Investors’ Forum Raj Kumar Timilsina. “The market is strong both fundamentally as well as technically; the liquidity scenario has not changed, economy and politics are encouraging, too. But the stock market is sluggish. This does not add up.”

“Profit booking by many investors could be one of the reasons, and the market should rebound soon,” says Vivek Bajracharya, a share investor. “Moreover, since the index has surged by more than 13 percent in July alone, correction was quite expected. Also note that the market is already in the green zone today.”

Flawed system is the main culprit

Whatever be the other factors stemming the market growth, one thing is pretty clear: The factors which have affected the market over the recent days include the systemic failure on the part of the CDSC when it comes to timely clearing and settlement, coupled by Nepse’s action against brokers for non-settlement of documents or cash  — apparently unintentional.

Despite all its claims, CDSC, a subsidiary of Nepse, has been utterly struggling on clearing and settlement even in ten working days.  

Following massive transactions of more than Rs 50 crore a day over the recent weeks, the work load has tremendously increased in clearing department of CDS. But from the investors’ perspective, it is a systemic problem on the part of the CDS – and it really worries them.

However, brokers, who also have to deal with paper works, are not as lucky as CDS because they get suspended when there is any delay from their side. But Nepse has been suspending brokers every now and then for failing to submit some documents or cash on timely basis. This has not only led to decrease trade volume and transactions, but has also taken a toll on investors’ confidence.

“The latest downward trend in the market is largely caused by a vicious cycle of Nepse to tighten the screw on the brokers, who in turn are now compelled to take buying order once when the share certificates are furnished and to take the selling order only when the clients produce money,” says President of the Brokers’ Association Narendra Sijapati, summing up the problem clearly.

In the final analysis, let us not forget that the market is basically driven by investors’ confidence more than anything else. Nepse, CDS as well as Sebon need to be cautious of this fact – sooner the better.