It’s that time of the year again: History has been an evidence for Baisakh to be “the best month for investment”

 -Dheerusha Tiwari

As it is said:

With sadness comes happiness,

Even the darkest night will end and the sun will rise,

The last view comes after the hardest climb, and

Every bad time heals to bring good times

So may be,

 With a new year and a new beginning,

Even a bearish trend is followed by a bullish trend

The red colored display chart on NEPSE has now turned green. Few days ago, clouds of fear was hovering around the stock market with its bearish trend. The broker offices had few incoming and comparatively higher outgoing of investors. Everyone had almost lost hope that the only local bourse of the country would ever take a “U turn”. However, it’s been a week or more scenarios have changed. The NEPSE chart has finally shown a bullish trend. Investors are enthusiastic about the secondary market and are beginning with a fresh start along with a new year.

If we look to the other side of the story, there are investors who had lost enough in the recent bearish trend. So, these investors might be reluctant to invest in the market. This article therefore, aims to explain the reasons for the ongoing sudden bullish trend in Nepalese stock market and evidences from the past that shows why this time of the year has been one of the best time for investment.

There are three major reasons attributed to the recent bullish trend of Nepalese stock market:

Maximization of wealth is a major objective of investment for any investors. In the month of Baisakh, majority of companies publish their third quarter report. The publication of such financial reports is both evidence and anticipation of a company’s financial status throughout the year. Baisakh, therefore, resembles the “month of decision”. Investors take several investment decisions through analysis of several quarterly reports during the month. The third quarter report presents how a company has been doing throughout the year. More than that, third quarter report also provides investors with an estimation on what dividend return companies will provide at the end of the fiscal year. Hence, a number of optimist investors emerge out of the market in a hope to maximize their wealth by observing the quarterly reports.

The end of Baisakh is a time where government authorities come forward to discuss several national policies. National budget of the country is announced within Asar. This adds enthusiasm among investors. Besides, secondary market of Nepal and economic development in interrelated with one another. So, a thoughtfully presented budget aspiring for economic development often brings positivism among investors. Thus, investors are more inclined to make investment in the month of Baisakh.

Usually, in the last quarter of fiscal year, government concentrates on spending more of its capital expenditure. This is the time where government speeds up its entire unused budget in the construction of infrastructures and several development works. This brings a sense of development in the nation leading to positivism in the secondary market. In addition to this, the higher government capital expenditure can also lead to lower interest rate. Hence, Baisakh brings a bullish trend followed by rays of hope among investors.

The pages of history has also dotted down the month of Bhadra and Shrawan as the months with historical high. As of 15^th Bhadra, 2065, NEPSE was seen with an index of 1175 and as of 12^th Shrawan, 2073, a peak of 1881 was also created. Thus, rational investors are motivated to buy shares early with a hope o repetition of the same trend in the near months. Hence, Baisakh month brings out higher demand of shares purchase from the investors side leading green chart on NEPSE.  

With the end of Chaitra, investors are free from tax liabilities and interest payment. They usually settle all their tax liabilities in Chaitra and look for investment opportunities in Baisakh. The investors are free from tax liabilities and interest expenses, hence, are under no pressure for paying off any kind of obligation in the particular month. With the beginning of a new year, the investors are also filled with positivity and new resolutions that adds up to the bullish trend in Nepalese secondary market as of Baisakh.

Demand and supply can be a theoretical aspect to the rise and fall in prices of stocks of companies. However, stock market also has a tendency to move as per the behavior of investors. The evidences from the past also suggest the month of Baisakh (mid April) is evident for the bullish trend in the history of Nepalese share market:

The table above gathers the NEPSE index of last five years. In order to maintain consistency, 22^nd of every month has been selected randomly as a base date for every year. The year of 2073, 2072 and 2071 clearly shows, every year in the month of March i.e. Chaitra observes a bearish market followed by bullish market in the months of April (Baisakh) and May (Jestha).Asof March, the NEPSE index of year 2017 stood around 1481, followed by a rise in April i.e. 1693. Besides, in 2016, NEPSE index was observed at 1345 in March. It was followed by an increase to 1454 in April and 1509 in May. Besides, in the year of 2014, NEPSE index was labeled around 774 in March, 815 in April and 852 in May showing an increasing tendency of index over the months. Coincidently, each year in May, NEPSE is observed to be increasing compared to the prior year i.e. a rise from 852 to 909 to 1509 and finally, 1616. The analysis excludes the year of 2015 when NEPSE index could not see a significant rise as the nation was saddened by the April earthquake. Hence, the evidences from the past match to the current trend. Thus, a presumption can be made that secondary market might bring luck to the investors in the near months.

If we imply the principles of behavioral finance, these incidents come under “calendar anomalies” or “calendar effect”. It refers to the theories that assert certain days, months or times of year are subject to above-average price changes in market indexes. It can therefore, signal good or bad time to invest. Such anomalies have an existence in international stock market and Nepalese secondary market is no different.

There is no guarantee of a fixed return from the present or upcoming secondary market, however, investors might benefit if the secondary market functions similarly to the trend from past years. Normal investors and beginners usually prefer to invest once the market reaches the peak point. It is exactly the time when majority of investors sell their shares and loss have to be bore by the average investors. Thus, rather than making a mistake of investing when the market reaches the peak point, history shows “this time of the year” is foreseen as the best time for investment.

So, are you looking forward to take advantage of this anomaly in the Nepalese secondary market? What do you prefer- waiting one more weeks, one more month or investing right now? Or were you clever enough to invest it in the bearish trend in the past few days?

Our team, however, suggests reading the disclaimer before taking any such investment decision based on the article.

(Disclaimer:  Any kind of information that is provided in the article should not be used as a sole advice or recommendation by investors in order to design their investment portfolio. So, before taking steps for any kind of the information, the investors are required to base their judgment on their own financial analysis, appropriateness of the information and seek independent financial advice. The information of the company has been taken from the authorized sources such as website of the company, NEPSE, financial reports and press releases of the companies so, any changes not updated in these may differ in the analysis.)