Nepse sinks to new low

  • Rigid government policies, higher interest rates and liquidity crunch are scaring off investors
- Rajesh Khanal, Kathmandu

Dec 3, 2018-

Nepal Stock Exchange (Nepse) tumbled yet again on Sunday, posting a double digit loss and is on track for its worst performance in two and a half years.

The stock market lost 17.47 points on Sunday to close at 1,130.89 points, continuing the bearish trend.

The sub-index of commercial banks—which holds around 55 percent share in market capitalisation—also came down to a five-month low of 993.87 points.

The overall macroeconomic performance of an economy is reflected by the stock market.

However, the country’s only secondary market has been trending downwards for its worst performance in recent years, posing a risk to attracting new investment, market insiders said.

On Sunday, Nepse reached a two-and-a-half year low, plunging below 1,100 points when trading closed. The market had jumped to a record high 1,881.45 points on July 27, 2016.

However, it started to drop gradually. In the two-and-a-half year period, the market has lost 750.56 points. This led investors to lose massive amounts of money.

Compared to the market capitalisation that had reached an all-time high of Rs1,964.71 billion on April 11, 2017, investors have lost more than Rs600 billion in just one-and-a-half years.

Market analysts attributed the downturn to the left-alliance government that was formed on February 15. Since then, the secondary market failed to paint an encouraging picture and attract new investors, they said.

According to them, the investors’ low confidence towards the government policies triggered by the low liquidity position with the banks, high interest rates and delay by Nepse in implementing the online trading system fully were the key reasons behind the secondary market’s downturn.

Aatma Ram Ghimire, past president of Nepal Investors’ Forum, said the rigid policy implemented by the government could be the main reason behind this situation. “Implementation of policies such as anti-money laundering in stocks trading which made it mandatory for investors to show the source of income has discouraged big investors to invest in the secondary market,” said Ghimire.

Some investors have beseeched the Finance Ministry and the Nepal Rastra Bank to address the ongoing shortfall of loanable funds with the banks in order to correct the market.

“In addition, there is a need to revise the margin loan which is maintained at 50 percent of the value of the shares based on the 180-day average price,” Ghimire said.

According to him, the banks used to provide loan of up to 70 percent of the valuation of shares in the past.

Bharat Ranabhat, president of the Stockbrokers’ Association of Nepal, also stressed for immediate intervention from the government to boost investors’ confidence in order to correct the market.

“The problem of high interest rate and liquidity crunch should be resolved,” Ranabhat said.

The Securities Board of Nepal (SEBON), the sector’s regulator, said that it was holding talks with the concerned authorities to address the problem. “In addition, we are asking Nepse to resolve the technical glitches seen in the online trading platform to boost investors’ confidence,” SEBON Spokesperson Niraj Giri said.

Published: 03-12-2018 07:53

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