Why you should not be afraid to invest in share market?

Public comments issued by politicians as well as political ideology of a party can directly or indirectly affect the stock market. After the comprehensive Peace Agreement in 2063, rapid growth was seen in the only stock market of the country. But it was abruptly stemmed following a statement issued by Dr. Baburam Bhattrai in Bhadra 2065, which dubbed the share market as “a gambling house”. The statement in a way dealt an unsettling blow to the market, which was largely propelled by the investors’ confidence.

After the completion of the Constitution Assembly elections-II, the share market is on a rising trend like the surge following the Constitution Assembly elections-I. But the times have changed. Situation now is totally different as compared to the past.

During the early days after the CA-I, the Maoists were not entirely a civilian party though they emerged as the largest party in the elections. They had weapons and the combatants from the decade-long armed insurgency. The market was deeply wary about their stance on free market economy despite their repeated assurance that they want to cooperate with the private sector. But there is a sea change in their ideology and structure now. All political parties, including the Maoists, in the CA-II are completely civilian, mainstream parties. Another encouraging trend of the country, including the market, is that the parties have leant a very important lesson following the failure of the CA-I that without a mutual agreement, the new constitution will not be promulgated. So, political parties realize that they have no other option than to settle for a compromise on the thorny issues. Therefore, though it sure takes time to agree on a constitution, they will come to the common position eventually. For they know very well that if they fail to forge a consensus then all achievements gained after the Janandolan-II will be wasted. Political party was cognizant of this fact.

Insofar as the controversial issues regarding the Maoists’ demand for an independent investigation into the alleged vote rigging in CA elections-II is concerned, political parties have already agreed to form a panel to resolve the dispute. The CA-II has also recently decided to own all the major decisions taken by the first CA. These achievements are just a beginning which shows that the political parties will forge more agreements on the constitution drafting process, overcoming their ideological differences. Formation of a pro-market government and the recent agreements have raised the hope of investors. That is why the market reacted so enthusiastically immediately after the election results were out and much before a pro-market government was formed.

Now the million-dollar question: Is these positive political developments sufficient to sustain the growth of the share market? Of course not, for the real growth in the stock market, economic activities and economic policy play the most important role. Politics and the economic policy are directly related to each other, but for the growth in share market, economic policy is of the prime factor, as any changes in economic policy and activities will have a huge impact on the market. There is no need to be worried in that front since the Nepali Congress, which spearheaded economic reforms in the country, is leading the government and pro-market leader Dr Ram Sharan Mahat is heading the Finance Ministry. To sum up, if you were looking forward to invest and make some cool money from the share market, now is the time.

Having stated this, an investor has two options insofar as the trading strategy is concerned—long-term and short-term position. Can we win in the short period of investment? To be brutally honest it partially depends up on meticulously calculated risk and largely on fate. Bluntly speaking if you are investing for less than a year, you are less of an investor and more of a gambler. Your notion is to earn money in the short interval -- at any cost.  However, for instance, at present most of the listed companies have already declared their dividend. Generally anywhere in the entire world the price of shares will not rise immediately after the getting the return from the companies. But here some investors artificially raise the price of the companies they are targeting to earn in the short term. Manipulation of the stock market by a handful of big players by taking advantage of loopholes in the system means that the investment in the secondary market especially a relatively new and inexperienced investor a dicey proposition. Do not forget that the stock market investment is a zero sum game.

But there is no need to be apprehensive if you will invest for a longer period as per your capacity. Those who take a long-term position hardly ever lose in the market like those investors who were insolvent in 2065 crisis. But you need to choose the strong portfolio after conducting some homework on the company, including the background of the promoters and management team besides the balance sheet and other relevant documents. To begin with you can invest on such companies where return is higher than the interest amount received if you will deposit the amount in the bank.

So many rumors are doing rounds in the market. Since any piece of information that may influence the price of the listed companies are crucial. Hence we cannot afford not to listen to such rumors. At the same time, we have to act on it only after thoroughly scrutinizing the fact. So much for the general strategy.

Last but not the least; if you invest at this point, when most of the companies have offered the dividends and the second quarterly reports are out, you are almost sure to win in the market. All you need to do is wait at least one year till the companies declare their return for the current fiscal year.

So don't lose your confidence as recently decline in the market is a temporary phenomenon— it almost a seasonal factor if we look at the slack trading during Falgun and Chaitra over the past years. You can imagine only such proportion of profit as you invest in market. But don't be overexcited. Right temperament is very important if you want to sustain yourself in the share market. If you are not a seasoned player, do not invest beyond your capacity by borrowing money in higher interest rate for more profit. This will be risky for you. At the same time don't be anxious, don't be afraid. Just remember the stakes are low, and the prospect of returns is much higher at this juncture.

- By Sharad Ojha
snepalmail@gmail.com