History witnessed us getting up from 292 point mark; inferences can’t be made from inadequate information. Check out why?

Wed, Mar 28, 2018 5:00 PM on Exclusive, Featured, Economy, Stock Market,
Aakriti Thakali Warren Buffet, the investment expert of all time, had said “Look at the market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” With the market indices going downhill, it is obvious for investors to feel distressed. In addition to that, no response from authoritative bodies involved in share market had led the Nepal Investors Forum to issue an ultimatum to take corrective actions immediately or face strike. See the press statement here. However, the consolation is that we haven’t hit the rock bottom yet. On Ashad 06, 2068 our index had touched 292 points, even then we didn’t fall, now our market has hit 1200 mark which is 600 points lesser than our all-time high yet 900 points higher than 292 mark. At this point we are facing one crucial dilemma of whether the government should interfere and if it did to what extent could it influence. Stock exchanges in free market economy are supposed to function through the mechanisms of demand and supply, but if we did leave everything to the market what are the chances that it’ll bounce back up on its own. Whatever it may, the aim of this article is to console the distressed investors that we haven’t lost everything yet. We can still pick up the momentum and rise back again. You might have seen many analysis and comparisons from various sources, which might have led you to believe that this market is going to crash before rising back up again. But those claims lack credibility because of various reasons such as:
  • When the market hit 292 point, the number we need to see isn’t just the index. We also need to consider the fact that it was about 6 years ago. The number of market participants were also less. When the players are least the chances of changing hands also is less and because of that the index couldn’t go very high.
  • The market at that time was relatively young, many investors were layman when least knowledge about investment in share market. The flow was directed mostly by rumors and hearsay. In comparison to that, market is more rational now. So it is safe to say that this time we won’t be letting the history repeat itself.
  • Similarly, the most important factor that has the most impact is Technology. From open outcry system to semi-automated, we’ve come a long way. But it doesn’t stop there, we are going to go further. One of the demands listed by Nepal Investors Forum was for NEPSE to implement online trading system. This will open the market for geographically dispersed investors increasing the market capitalization of our bourse.
  • When the market was in 292 points, the GDP of our country stood at Rs. 13.66 kharba, which now is Rs. 25.99 kharba. This shows that our economy has significantly grown form that time till now. This growth indirectly shows the growth of the companies in our country.
  • Also, the number of listed companies has almost doubled within the review period, which means the market capitalization has also gone up taking the market index higher.
  • Similarly, the number of institutional investors in the market, like Mutual Funds, Insurance Companies, BFIs etc has also increased. Relatively, back at 2067/68 this number was negligible and market was influenced by a small number of individual players.
This still doesn’t mean we close our eyes and wait for a miracle to happen, we also need to do our analysis and comparison to understand where the market stands. So for that purpose the below article accesses the three major indicators Price, Earnings per share (EPS) and P/e ratio of the commercial banks of Nepal. First of all, the below table consists of the names of listed commercial banks at the review period and now.
  2017/18 2010/11
S.No. Symbol Company Symbol Company
1 ADBL Agricultural Development Bank Limited ADBL Agricultural Development Bank Limited
2 BOKL Bank of Kathmandu Limited BOK Bank of Kathmandu Limited
3 CCBL Century Commercial Bank Limited
4 CZBIL Citizens Bank International Limited CZBIL Citizens Bank International Limited
5 CBL Civil Bank Limited
6 EBL Everest Bank Limited EBL Everest Bank Limited
7 GBIME Global IME Bank Limited GBL Global Bank Ltd.
8 HBL Himalayan Bank Limited HBL Himalayan Bank Limited
9 JBNL Janata Bank Nepal Limited
10 KBL Kumari Bank Limited KBL Kumari Bank Limited
11 LBL Laxmi Bank Limited LBL Laxmi Bank Limited
12 MBL Machhapuchchhre Bank Limited MBL Machhapuchchhre Bank Limited
13 MEGA Mega Bank Nepal Limited
14 NABIL Nabil Bank Limited NABIL Nabil Bank Limited
15 NBB Nepal Bangladesh Bank Limited NBB Nepal Bangladesh Bank Limited
16 NBL Nepal Bank Limited
17 NCCB Nepal Credit & Commercial Bank Limited NCCB Nepal Credit & Commercial Bank Limited
18 NIB Nepal Investment Bank Limited NIB Nepal Investment Bank Limited
19 SBI Nepal SBI Bank Limited SBI Nepal SBI Bank Limited
20 NICA NIC Asia Bank Limited NIC Nepal Industrial &Commercial Bank Ltd.
21 NMB NMB Bank Limited NMB NMB Bank Limited
22 PRVU Prabhu Bank Limited
23 PCBL Prime Commercial Bank Limited PCBL Prime Commercial Bank Limited
24 RBB Rastriya Banijya Bank Limited
25 SANIMA Sanima Bank Limited
26 SBL Siddhartha Bank Limited SBL Siddhartha Bank Limited
27 SCB Standard Chartered Bank Nepal Limited SCB Standard Chartered Bank Nepal Limited
28 SRBL Sunrise Bank Limited SRBL Sunrise Bank Limited
  The given table shows the number of listed companies back at 2067/68 and now in 2074/75. So the banks that were not listed back in 2067/68 won’t be considered for ease in comparison. Similarly, for the highlighted banks, following notes are to be considered: Bank of Kathmandu Limited (BOKL): Back then, it was two different banks – Bank of Kathmandu and Lumbini Bank Limited – but after the merger, the bank is now listed as Bank of Kathmandu (BOKL). Global IME Bank Limited (GBIME): Back then, it was Global Bank limited only. After that it merged with multiple banks and GBIME was formed. Nepal Bank Limited (NBL): Nepal Bank Limited was listed back then too, but on the said date its scrips weren’t trading. NIC Asia Bank Limited (NICA): Likewise back in 2067/68 NICA were two different banks – Nepal Industrial & Commercial Bank (NIC) and Bank of Asia. Prabhu Bank Limited (PRVU): Prabhu Bank was a finance company back then. After acquiring development bank it became Prabhu development bank and after that it merged with Development Credit Bank Limited and Kist Bank and became Prabhu Bank Limited. So after taking out the banks that weren’t listed or weren’t traded back then, we can now see the three crucial indicators of each bank below. The indicators we’ve considered are Price per share on Ashad 06, 2068 and Earnings per share (EPS) and P/e ratio as published on the audited report of 3rd quarter of 2067/68.
Symbol Commercial Banks 2067/68 2074/75
Price (2068.03.06) EPS P/E Ratio Price (2018.03.22) EPS P/E Ratio
ADBL Agricultural Development Bank Limited 121.0 52.9 2.5 300.0 20.4 14.7
BOKL Bank of Kathmandu Limited 367.0 44.3 11.8 310.0 17.7  17.51
CZBIL Citizens Bank International Limited 153.0 9.91 2.5 248.0 15.7 15.79
EBL Everest Bank Limited 828.0 83.2 13.5 665.0 28.1 23.67
GBIME Global IME Bank Limited 143.0 14.1 13.9 294.0 21.4 13.74
HBL Himalayan Bank Limited 385.0 44.4 12.3 572.0 27.3 20.95
KBL Kumari Bank Limited 177.0 16.5 17.6 233.0 16.1 14.47
LBL Laxmi Bank Limited 242.0 23.2 20.0 219.0 12.6 17.38
MBL Machhapuchchhre Bank Limited 106.0 0.9 152.9 212.0 11.7 18.12
NABIL Nabil Bank Limited 817.0 62.3 19.5 925.0 45.7 20.24
NBB Nepal Bangladesh Bank Limited 115.0 13.0 14.4 211.0 10.8 19.54
NCCB Nepal Credit & Commercial Bank Limited 177.0 12.3 16.1 230.0 15.2 15.13
NIB Nepal Investment Bank Limited 378.0 53.0 10.1 635.0 34.5 18.41
SBI Nepal SBI Bank Limited 409.0 22.6 25.6 516.0 22.7 22.73
NICA NIC Asia Bank Limited 352.0 36.2 13.0 298.0 14.2 20.99
NMB NMB Bank Limited 129.0 14.3 16.3 395.0 31.2 12.66
PCBL Prime Commercial Bank Limited 160.0 15.5 13.6 275.0 17.8 15.45
SBL Siddhartha Bank Limited 185.0 20.5 13.1 281.0 21.9 12.83
SCB Standard Chartered Bank Nepal Limited 1300.0 69.3 25.0 830.0 28.5 29.12
SRBL Sunrise Bank Limited 115.0 6.4 35.6 225.0 14.4 15.63
  *The p/e ratio of 2067/68 isn’t based on the price of 2068-03-06, rather it is the ratio shown in the Balance Sheet of the respective entity during the third quarter of the year. However, the current p/e ratio is derived by dividing the annualized EPS provided in the Balance Sheet of entities on Second Quarter report of 2074/75 by the price of scrip on 2074-12-08. Price: Out of the 20 commercial banks taken into consideration, only 5 banks’ current market price has fallen below the Price back in 2068. These banks are namely BOKL, EBL, LBL, NICA and SCB. However, no conclusive judgments can be made from price alone. Almost 6 years has passed since then, and during that period the paid-up capital of all banks has gone up to Rs. 8 arba as per the NRB’s directive. Similarly, during this period many banks have distributed cash dividends, bonus shares, right shares and FPO (Further Public Offering). The solely looking at price won’t give us a full picture because of which we’ve also compared their EPS and p/e ratio for better understanding. The comparison of price, nonetheless has shown us that the market hasn’t gone entirely bad. price Earnings per Share (EPS): The EPS shows the amount of return a company is generating per share. It’s a very important factor for making an investment decision as it shows how well the company is performing. The market price of the company might go up and down because of various external factors irrespective of company’s internal functioning. The price at many time be over or under valued. However EPS represents the actual money generated for each unit of share that investors like you and I hold. Looking at the table above, 12 out of 20 banks’ EPS is lower now than in 2067/68. The EPS is derived by dividing Net Income by the total number of shares outstanding. So this amount went down, when banks had to increase their paid-up capital to Rs. 8 arba in a short window. Most banks to major steps like issuing right shares, FPO and merger and acquisition. This has increased the number of shares outstanding, thus decreasing the EPS. Thus, rather than comparing between the two years, looking at the trend among the banks themselves we can see uniformity in EPS. The amount ranges from Rs 10 to Rs. 45 with small variation in between. This shows that the companies are earning fairly well, which in turn points towards better performance. eps P/e Ratio: P/e ratio is the ratio of price per share to its EPS. It shows the amount investors are willing to pay per unit of earning generated by the company. Higher ratio refers to over valuation of the scrip. So for a long term investor, lower the ratio better. However, as per the table above the P/e ratio of banks now is higher than back at 2067/68. Usually this might seem as bad performance, however we still have to consider the facts already discussed in above topics. Those factors which affected price and EPS, will also affect P/e ratio.  pe