Why underdogs are fairing well in the stock market?

ShareSansar, November 28:

There is a steady rise in the price of many BFIs, which were not traded well only a few weeks ago.

More and more investors seem to have got newfound interest in these BFIs –more than even the blue-chip companies and leading commercial banks.

For instance, the price of Nepal Bank Limited, which hovered around Rs 150 only three months ago has witnessed a significant improvement, and is now being traded for around Rs 255.

Similarly, plenty of development banks and finance companies and most of the insurance companies are doing extremely good – notwithstanding the actual status of their financial health.

So what are the factors that are attracting investors, especially the smaller ones, to these BFIs?

Investors as well as market analysts see a number of reasons behind this. One of the reasons, they say, is related to surplus liquidity in the market.

Now that the IPO issued by any company is being oversubscribed by many times, the cost of investment is getting higher for a share investor. Hence, many of them are looking other means for better returns on investment than through the IPO.

Shares of relatively smaller development banks such as Garima Bikas Bank, Sewa Bikas Bank, Kamana Bikas Bank, Mahakali Bikas Bank, Gaurishanker Bikas Bank and finance companies such as ICFC and Kaski which are already listed and being traded in the stock market, have offered a good investment opportunity for them at a time when the market is being buoyed by favorable political atmosphere.

“Investing on the shares of BFIs which are relatively lower at a time when the market is clearly on a bullish trend provides a cheaper investment option,” says Anuj Agrawal of Agrawal Securities Private Limited, a leading broker firm.

Agrawal added that the other reason behind the attraction toward smaller BFIs could be not so impressive first quarterly reports of some of the commercial banks and other bigger listed companies.

He, however, thinks that some of the insurance companies are being overvalued in the market for some unexplainable reasons, which is not very encouraging news.

One of the prominent market analysts and trader, Uddhav Siwakoti attributes the growing attraction toward smaller BFIs to “cyclic” and “chain” effects of the overall bullish trend.

“When the entire market is surging, investors are convinced that the shares of all the listed scrips will rise, this is a cyclic effect,” he explains. “The chain effect is that when the share prices of bigger BFIs rise, they will also push the prices of other BFIs.”

He believes that the surge is propelled by the impressive victory of Nepali Congress and the CPN-UML, the two largest political parties with liberal economic policy, in the Constituent Assembly election, has given a strongest indication yet that the country is on the path of political stability and economic progress.

Apart from the political development, the recent move of the BFIs, especially the commercial banks, to slash their interest rates in the face of surplus liquidity is also fuelled the entire market, including the shares of all categories of BFIs.

Insofar as the shares of Nepal Bank Limited is concerned, Siwakoti opines that its shares are high on demand due to the news of asset revaluation of the oldest commercial bank with properties worth billions of rupees across the country.

“It is believed that the revaluation will cover up for its negative net worth,” he said, adding that huge investment made by some leading player in the market in Nepal Bank’s shares over the recent months has also positively influenced the price.