Which sector is more volatile with respect to change in NEPSE? Find out the risk involved in each sector

Tue, Jun 18, 2019 3:25 PM on Exclusive, Latest, Others, Stock Market,
Which sect...

On the last day of the previous month i.e. 30th May, 2019, the NEPSE index reached a high of 1349.38 points. But it closed at 1319.47 points. Since then, NEPSE has been on a losing streak, shedding points every passing day.

During that period, the sub-indices were also at a high. Each sub-index represents a different industry in the market. The number of companies under each sub-index varies. Evaluation of a sector is equally important for investment purpose. Before investing in a company, it is recommended that an investor carefully analyze the sectors in the market and based on that analysis choose the sector to invest in. Evaluation of sectors is the first step an investor should take before investing in a company to identify the environment and trend of that particular sector in the market.

For the purpose of analysis, the volatility of the sub-indices have been determined since the closing of 30th May, 2019 till 18th June, 2019. This particular period has been chosen as NEPSE was constantly falling in the mentioned period. This will give a brief overview of the elasticity of sub-indices with respect to fall in NEPSE.

Sector Closing on Change %
30/05/2019 18/06/2019
Non-Life Insurance 5,813.83 5,277.08 (536.75) -9.23%
Life Insurance 6,529.67 6,094.08 (435.59) -6.67%
Microfinance  1,507.10 1,412.89 (94.21) -6.25%
Hydropower 1,274.97 1,197.47 (77.50) -6.08%
Others 759.44  719.11 (40.33) -5.31%
Commercial Banks 1,176.66 1,130.08 (46.58) -3.96%
Mutual Funds      9.97 9.62 (0.35) -3.51%
Manufacturing and Processing 2,781.58 2,715.95 (65.63) -2.36%
Finance 625.92 615.00 (10.92) -1.74%
Hotels 2,105.36 2,073.64 (31.72) -1.51%
Development Banks 1,607.75 1,586.52 (21.23) -1.32%
Trading         254.82 263.90 9.08 3.56%
NEPSE        1,319.47        1,258.66       (60.81) -4.61%

In the review period, NEPSE lost 60.81 points or 4.61% of the closing on 30th May, 2019. Considering this, Non-Life Insurance sector comes to be the most volatile as it lost 9.23% in the mentioned period. The sector has changed more than any other sector in the market. Sectors like Hydropower, Microfinance, Life Insurance and Others have also been more volatile with respect to change in NEPSE.

The only sector to post a gain in the review period was Trading sector as it gained 9.08 points or 3.56%. The remaining sub-indices have been comparatively less elastic to rate of change in NEPSE. Similarly, with a loss of 1.32%, Development Banks were the least volatile sector in the period.

Such analysis is necessary as an investor gets an overview of the risk and returns involved in different sectors of the market. More volatile industry results in higher return but carries an exceptional amount of risk with it while relatively lesser volatile industry may reap lower returns but carry minimum risk. The risk and return analysis associated with each sector helps an investor to make informed and suitable decision.