Stocks tumbled within an hour of the announcement that the CPN (Maoist Centre) had withdrawn its support to the KP Sharma Oli-led coalition government.

The Nepal Stock Exchange (Nepse) slid 30 points to 1,655 points as the market reacted to the unfolding political scenario. The index rose slightly later in the day, closing at 1693.07 points as trading ended on Tuesday with a loss of 9.20 points compared to Monday. According to stockbrokers, the market saw massive panic selling during the mid-trading hours forcing down share prices. The market rose towards the closing hours as investors moved to purchase stocks of good commercial banks, microfinance and insurance companies at lowered prices.

In the meantime, experienced investors grabbed fair-growth shares as the panic selling prompted by the political development brought down prices of high-value shares. Turnover at the secondary market, which had been observing a high volume of transactions of around Rs2 billion for a couple of months, has fallen in recent days to Rs1 billion with investors becoming more cautious. 

“Investors have become cautious and are adopting a wait-watch-go approach these days amid the political uncertainty. This has led to a drop in the volume of transactions,” said Anjan Raj Poudyal, managing director of Thrive Bro-kerage. “Moreover, the market has been largely influenced by expected changes in the upcoming monetary policy.” 

Market players expect changes like a capital hike in the finance sector and have diverted their investments.

On the other hand, fear of a hike in interest rates caused by a fall in liquidity due to a possible increment of the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) has also affected investor sentiments. 

Investors are also worried that the monetary policy for the next fiscal year will tighten margin lending which had been eased due to an excess liquidity situation in the banking system.

The insurance sector, which led the losers’ side, shed 97.21 points on Tuesday. The index has been on a downward trend for the past week.

“The insurance sector has lost its charm amid delays in reaching a decision on hiking the paid-up capital of insurance companies. On the other hand, many small and new investors have lost as profit bookers have been dumping insurance shares leading to a fall in prices,” said Poudyal. 

The insurance sector, which saw its index rise by 1246.91 a month ago, has seen a steep fall of nearly 500 points in the last five trading days.