The Nepal Stock Exchange (Nepse) made a dramatic recovery on Monday after plunging over 4 percent during intra-day trading, following reports that the central bank was considering easing margin lending, or loans to buy shares.

Nepse had started bleeding right after trading began for the day at 11 am on Monday. By 12:12 pm, the market had slid to 1,411.39 points.

But the index made a surprising recovery within a short period of time, and by the time the market closed, the Nepse index had risen 40.68 points to 1,510.16 points. 

The market fell in the initial trading hours after investors rushed to sell stocks fearing Sunday’s bearish trend would continue on Monday, Narendra Raj Sijapati, former president of the Stockbroker Association of Nepal, said.

On Sunday, the index had dropped 4.21 percent to close at a six-and-a-half-month low of 1,469.48 points.

The market quickly made a turnaround on Monday following reports that Nepal Rastra Bank (NRB) was mulling raising the limit on margin lending, according to Sijapati.

Currently, stock investors can acquire bank loans of up to 50 percent of the market value of shares.

“There was talk that NRB was considering revising the limit upward to 70 percent, which helped lift the market,” Sijapati said.

If the rumour turns out to be true, it will help investors who have acquired bank credit to purchase shares when the stock market was at its peak. When share prices are high, investors can acquire more loans from banks and financial institutions.

But the continuous downtrend witnessed by the market over the past few days has lowered the value of shares. As a result, banks and financial institutions are asking investors to pledge more collateral, prompting many investors to offload shares to service their debts.

Issuing a statement on Monday, Nepse has urged investors not to listen to baseless rumours.

“It is normal for share prices to fall at this time of the year when many listed companies have declared dividends. However, the liquidity position of the banking sector is satisfactory. So, investors need not panic,” Nepse said.

“Panic selling has drastically lowered share prices of listed companies in sound financial health. This attitude will only prevent investors from reaping the desired benefits from the investments they have made.”