Print Edition - 2018-12-31  |  2018 The Year of Promises

Capital Market

  • Rs275.67 billion wiped out of market
- Rajesh Khanal

Dec 31, 2018-

Nepal’s capital market welcomed 2018 in an upbeat mood with a 44.22-point jump in the Nepal Stock Exchange (Nepse) index on January 1. The optimism came from the election results that gave a huge mandate to the then UML-Maoist (Centre) alliance that campaigned on a prosperity and stability plank. The capital market remained buoyant till February 15 when KP Oli took charge of the government. After the majority leftist government took over, the index fell steadily from 1,400 to 1,200 points over a period of 10 months. With the year 2018 coming to a close, investors resorted to holding a sit-in to force the government to act to stop the free fall.

The bullish run in the capital market that began after the election to Constituent Assembly II lasted four years till 2018 when the Nepse index lost 268.83 points in 12 months. To say that 2018 was a year of turmoil won’t be an understatement as around Rs256 billion was wiped out of the market. With the stock market flying high in 2016 and 2017, it was expected that the Nepse would reach new heights last year, but that did not happen. Potential investors stayed away from the secondary market. As per Nepse, of around 1.2 million demat account holders, only 200,000 are now actively participating in stock transactions. The index had been dropping steadily since the majority communist government took over last February, but the bottom fell out after the Nepse broke through the psychological 1,200-point last month.

Nevertheless, the country’s only stock exchange underwent some major developments over the period. A milestone achievement was the introduction of a full-fledged online system in November which replaced a semi-automated system. The government’s decision not to charge VAT on transactions done by brokers and Security Board of Nepal’s (Sebon) decision to issue licences to market dealers were among the other major initiatives. Four clearing banks received operating licences in addition to Global IME. In addition, a complete demat system was enforced last year. Sebon also allowed the Citizen Investment Trust to act as a market dealer though it is yet to receive a full operating licence. The regulator moved to control market misconduct such as insider trading and transactions in fake certificates. “Unlike in the past, the regulator made some efforts to streamline the market last year which is commendable,” said Aatma Ram Ghimire, past president of the Nepal Investors’ Forum. “Most of all, the move to go for complete paperless transactions and the online trading system was a landmark in the history of the stock exchange,” he added.

Despite the reform measures seen in the market, Nepse remained largely affected by fluctuations in the interest rate resulting from a shortage of loanable funds with banks. A high-level panel formed by the Finance Ministry also cited the need to resolve the problem of interest rates for the long-term development of the capital market. The government’s failure to incorporate real sectors in the stock market despite the announcement in the budget statement was among the setbacks. Financial institutions dominate the market and it has not been able to diversify. Banks and financial institutions and insurance companies accounted for 81.4 percent of the total market capitalisation as of mid-March in fiscal 2017-18, shows a Nepal Rastra Bank report. Stockbrokers have not been allowed to conduct margin lending and banks have not been given brokering licences. Problems with corporate governance, transparency and disclosure remain. “Sebon needs to take effective measures to stop wrongdoings such as insider trading,” Ghimire said. As per stockbrokers, authorities need to introduce measures to boost demand for shares when there is an increase in supply. “New demand should be created to absorb the excess supply,” said an anonymous stockbroker.

Despite the challenges appearing in the stock market, it is likely that the market will assume an upward trend in the future. Finance Ministry official Ram Sharan Kharel said the government would strictly implement the recommendations made by the panel formed to study the money and capital markets. Speaking at a parliamentary Financial Committee meeting a few weeks ago, Finance Minister Yuba Raj Khatiwada said the government was keen to direct savings into productive investment, according to the ministry. “The government is positive about introducing possible market instruments such as permitting margin trading through stockbrokers, allowing brokers to act as underwriters and providing brokering licences to commercial banks.”

Published: 31-12-2018 11:22

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