Will NEPSE benchmark index breach 1,000 level today?

ShareSansar, July 8:

The benchmark index of Nepal Stock Exchange Limited (NEPSE) is set to hit the four-digit within a day or two.

Though the Nepse index was expected to cross 1,000 levels yesterday itself, it eventually closed less than 5 points short of the four digits. The local bourse may breaches the resistance of 1004.28 level today, something which was set back on September 18, 2008.

Crossing 1,000 levels after such a long hiatus itself speaks volume of the bullish trend in the market. And more importantly, it will give a huge psychological boost to the investors.

It is surely something to celebrate—especially for all those seasoned investors and other key stakeholders in the market. And that the same time, it also merits better understanding of the bullish market, especially the opportunities and as risk involved here.

Hence ShareSansar takes this opportunity to sensitize the investors, particularly the new ones on the dynamics of the bullish market so that you stand only to benefit and not to lose.

What is bull market and what should investors do?

In simple words, bull market is when the market price of scrips is rising.

Particularly in the bullish market even negative news of certain company will not affect the price of their scrip. Even our market faced similar scenario when the Chilime Hydropower and Standard Chartered’s news were out regarding its right share.

There was a rumor in the market that Chilime Hydropower was issuing 1:1 right share, however they later announced that it was just a rumor and they cleared out that they are not issuing any right share. Despite the fact that this is negative news this did not affect the price of the scrip, the price is still surging. So this clearly shows that we are currently enjoying the bull market.

Even in the bull market the investors need to be smart to enjoy good profits.

Here are certain important things the investors need to understand about the bull market.

Cycles of bull market in NEPSE

According to our interview with the guru of Nepal stock market, Mr Jeevan Basnet, the Nepalese stock market has a six-year cycle.  The current cycle started after the market crash on Bhadra 15, 2065. It reached the lowest point in the next three years.

Hence, it reached the bottom in 2068. The market gradually started to rise (the first wave) from 305 level and reached 555 level by the end of 2068. It further rose to 631 level by 2069 (the second wave). The third wave will come in 2071 (current year) and the bull will be over.  

The psychology behind the bull market

What investors perceive about the market has a direct effect on the movement of prices. For a bull market investors’ psychology is something very important.

In a bull market, everyone is interested in the market and willingly participating in the hope of obtaining a profit as it is characterized by optimism and investors’ confidence on the market trends.

Bull market is also characterized of “Bull Trap”, as everyone is interested in the stock market due to boom in the market new investors enter in the market in the high hopes of earning good profits, but these new investors are the one who fall in the bull trap.

It is a universal truth that there will be gainer and looser in the market. So the new investors are generally the one that fall in the trap.

Investing smartly in Bull Market

To gain highest levels of profits, an investor in the bull market should buy early in the upward trend of prices and should sell when the price level reaches the peak.

But, it is really tough and tricky to guess the peak of price level. Though, it is more likely for the investors to earn profits rather than suffering from loss in a bull market as the prices are on rise. Even if there are losses they are obviously negligible and temporary. In a Bull Market, more volume of investment raises the chances of good returns.

And a good understanding of long-term market trends can take the level of returns to a new high.

Completion of Bull Market

It is very important to understand the market dynamics to benefit during the bull market. Hence we need to know when does the bull market complete and decide accordingly whether to hold the share or to sell it.

Once everyone finally concludes things will get better forever, the bull market has now transitioned from mid to late phase. We call it the 20/80 rule. When 20 percent of people are only investing in the stock market then it is the initial phase however as 80 percent of people start investing in the stock market, which means the stock market, has become the common topic in all sort of groups then we know that the bull market has completed its cycle.   

At this point, euphoria sets in and everyone is interested in the stock market and wants to invest. As everyone is happy by the improvement in the economy and corporate results and they will become positive about investing; here the stock market has become such a common topic that everyone is talking about it everywhere. However investors might be over confident so they need to be cautious to avoid the bull trap.

Smart exit from the market

All smart investors follow this rule. When everyone wants to buy, they sell it. Smart investors sell all the lower quality and cyclical stocks and they hold onto the highest quality stocks for long term investment. Among the listed companies in NEPSE, companies which have earned profits for past three years, has paid-up capital more than 2 crore and the book value per share is not less than the paid up value are considered high quality defensive stocks. As such the smart investors hold onto these stocks.

On the other hand, companies which do not perform according to the above mentioned criteria fall under low quality stocks so smart investors sell it when the prices peak to the maximum.

They usually raise cash and get ready for the end of the bull market, to buy again during the next bear market. The smart thing to do is to hold off buying when the overall stock market has become irrationally hyped.