What is rallying the market, actually?

ShareSansar, December 15:

The average daily turnover of Nepal Stock Exchange hovers around Rs 38 crore after the November 19 Constituent Assembly election , which is more than double the amount compared to pre-polls trading just a month ago.

The average daily turnover after the formation of the interim election government led by Khila Raj Regmi was Rs 13 crore, up from some Rs 8 crore between the dissolution of the last Constituent Assembly to the point the parties agreed to form the interim government to hold the fresh election.

It cannot be merely because of surplus liquidity in the capital market as the commercial banks and other BFIs were already slashing their interest rates and the central bank had issued numerous reverse repos to mob up excess liquidity even before the election.

So, is it basically the prospects of political stability and rapid economic growth in the country, or there are other undercurrents, which have triggered a strong market rally after the CA election?

“This rally is led by a combination of several factors such as the indication of the willingness of the political parties to work together for stability, plus easy availability of the fund to invest besides limited returns in other sectors such as FDs and bonds,” says Pravin Raman Parajuli, the Chief Executive Officer of Nabil Invest, which is one of the only two mutual fund managers in the country so far.

Though as an investor, Parajuli added, his point of concern is that “the growth is not justifiable fundamentally, the growth cannot be termed as “worrying” since the volume of transactions, the weighted average price, has also increased.

The news of the central bank working on full implementation of the Basel III by 2019 has further fueled the market, as it will eventually make all the commercial banks to soar their paid-up capital to Rs 5 arba in six years.

Other BFIs, too, will have to raise their paid-up as per the requirement of Basel III.

The BFIs will have to opt for more bonus and rights shares, or seek merger to meet the requirement.

Yet another reason for the growth is the entry of black money in the market, including those pumped to party activists and supporters in the run up to the election, according to some investors and analysts who are closely following the market.

SEBON urges investors to ‘pause and think’ before investing

This has made the Securities Board of Nepal (SEBON) a little wary, though it does not yet feel that the market has heated up to a dangerous level, which requires its intervention.

“Earlier the election results, and now the Basel III, have propelled the market to a new height. We are a bit worried about the rate of growth since it could lead to a bubble like those days when the market had breached 1150 levels,” says SEBON spokesperson Niraj Giri.

Stating that the SEBON has been “cautiously watching the market”, he added, “We urge the investors to pause for a while before investing since it is too early to guarantee political stability in the country. Likewise, the central bank is only seeking inputs from the BFIs and other stakeholders for the implementation of Basel III – it has not enforced it yet.”