Why the banking group has not been able to grow?
ShareSansar, May 4:
Buoyed by the prospect of political stability and economic growth the overall share market is in a bullish trend for the past few months. But the growth of banking group that weighs more than 80 percent of the market capitalization has been sluggish.
The main factor that has been impeding the growth is the fear of promoter shares conversion of the commercial banks, which would further increase the supply of the banking scrip in the market and drag the price down.
But a closer look at the actual composition of the promoter-ordinary share ratio, including foreign investors’ stake in some of the BFIs, show that the problem is not as serious as investors generally perceive it.
ShareSansar talked to a number of leading brokers, who have been keenly following the market for years, to explore all the factors that are stemming the growth of this group — and if and when the market would bounce back.
Here it is very important to note that the share market just cannot complete the bull without BFI sector, with overwhelming weightage of the market capitalization, does not go on a bull.
“If you look at all the three bulls of the past, the benchmark index had doubled within six months,” says Ishwori Rimal of Nepal Stock House (broker number 14). “Going by the track record, the price of BFI scrip must surge soon.”
Nitesh Sanghai of ABC Securities (broker number 17) agrees.
“Insurance group is witnessing super natural growth over the recent weeks while the BFIs have been growing steadily,” Sanghai says. “The insurance sector can push the benchmark index around 900 levels. But what we should not forget is that the banking group must rise if the overall market is to complete the bull.”
He further said that the growth of the banking group is also inevitable once the insurance group reaches the saturation point.
“Going by the unnaturally high rise in insurance group, ordinary investors will soon reach a point where they will just not be able to afford to buy the insurance companies scrip. In fact we have more or less arrived at that point already,” says Ananta Poudel of Online Securities (broker number 49).
‘BFIs will bounce back by mid-July’
What they also seem to agree is that the BFIs will bounce back toward mid-July when the pro-market government is due to come up with budget and new monetary policy, which is expected to give boost to the capital market.
“It’s only a matter of a few weeks, may be a month or two, the banking group will surely rise,” says Poudel. “We are confident that the timely budget and the next monetary policy will turn the tide in favor of banking group.”
Bhakti Ram Ghimire of Imperial Securities (broker number 45) says that it is somewhat worrying the way the insurance and hotel groups have been surging.
“See, the insurance group is rising mainly due to rumors that the regulator will ask the insurance companies to shore up their paid-up capital. The growth of the hotel group defies logic since they are growing despite negative growth or hardly any returns. The growth cannot be sustained only on the basis of sentiment that these groups may give higher returns in days to come,” Ghimire says.
On the other hand, it is somewhat bizarre that the banking group is not rising despite good returns mainly due to the fear of promoter share conversion.
“But common sense must prevail. How do you justify the fact that the scrip of Oriental Hotel or one of those non-life insurance companies is priced at par with the share of some of the finest banks such as NIBL?” he adds. “Even if it’s just about the market sentiment then why do we forget that BASEL III is just round the corner, and sooner than later the central bank will ask the commercial banks to raise their paid-up to Rs 5 arba.”
As an official with one of the leading brokers (number 56) says all the investors opting for banking scrip need to do now is remain patient.
“Toward mid-July (with the budget and the monetary policy) the banking sector will bounce back—if not sooner,” says he.
