In-Depth Analysis of NEPSE Historical Data: Seasonal Trends Across Sub-Indices

The Nepal Stock Exchange (NEPSE), established on January 13, 1994, remains the sole stock exchange of Nepal. As of August 2024, the total market capitalization of companies listed on NEPSE reached NPR 476,590.9 crore (approximately US$36 billion). NEPSE's core objective is to provide marketability and liquidity to government and corporate securities, ensuring a significant platform for buying and selling securities via members and intermediaries such as brokers and market makers.

Currently, NEPSE lists 244 companies across diverse sectors, including Banking, Finance, Insurance, Hydropower, Manufacturing, Tourism, and more. Securities listed on the exchange are categorized into 13 sectors, encompassing Commercial Banks, Hydropower, Microfinance, and Mutual Funds, among others. NEPSE has 92 registered brokers as of September 2024, facilitating individual investors to open trading accounts and trade directly through brokers' platforms.

Ownership Structure of NEPSE

NEPSE’s ownership is distributed across various institutional shareholders. As of July 2024, the Government of Nepal holds a majority stake of 58.66%, followed by Nepal Rastra Bank at 9.50%, the Employees Provident Fund at 10%, and Rastriya Banijya Bank at 11.23%. The remaining 16.74% is held by other shareholders. The current paid-up capital of NEPSE stands at NPR 1 billion (roughly US$7.35 million).

NEPSE Index

The NEPSE Index, a capitalization-weighted index, serves as a key indicator of market performance and is heavily influenced by the banking sector due to its significant market capitalization.

Performance Overview (2003–2024)

NEPSE has experienced a dynamic trajectory since 2003, with the market fluctuating in response to internal and external factors. In 2007, the stock exchange achieved a notable gain of 69.43%, reflecting a bullish market. The index began to stabilize over the following years, recording an impressive growth of 55.71% in 2006.

The remarkable 68.18% growth in NEPSE during 2020 was largely driven by the market's recovery following the COVID-19 pandemic. Despite the global economic downturn, investor optimism surged in Nepal as the market rebounded from the initial shock of the pandemic. The lockdown-induced dip created a window of opportunity for many investors, leading to a strong rally in the latter half of the year.

The win-loss ratio of the market's monthly performance shows that the market closed positively 57% of the time from 2003 to 2024, indicating resilience despite numerous challenges.

Historical Monthly Performance of NEPSE Sub-Indices: Sector-wise Analysis

The Nepal Stock Exchange (NEPSE) now tracks 13 Sub-Indices, reflecting the performance of various sectors. These indices include Banking, Development Banks, Finance, Hotels and Tourism, Hydropower, Investment, Life Insurance, Manufacturing and Processing, Microfinance, Mutual Funds, Non-Life Insurance, Others, and Trading.

Each sub-index has a unique trend of monthly performance, with some indices formed later than others. The data shows the months in which each index experienced the most significant positive changes. For example, the Banking Index saw its highest monthly gains in certain years, while sectors like Hydropower and Microfinance had their best-performing months at different times. This breakdown offers a detailed historical comparison of market performance across various industries, helping investors identify periods of strong sectoral growth.

1. Banking Index

From 2011 to 2024 AD, the NEPSE Banking Index has consistently shown a strong upward trend, particularly in July, driven by the fiscal year-end's influence on the banking sector. The index's performance in July boasts a remarkable win ratio of 93%, indicating frequent gains during this period. April also sees positive movement, albeit with less consistency, but remains an important month for the index's overall performance.

2. Development Bank Index

The NEPSE Development Bank Index has demonstrated steady growth from 2011 to 2024 AD, particularly in January, April, and July. The cumulative positive changes are 69.8% in January, 59.23% in April, and a significant 139.28% in July, showcasing the index's strong performance, especially in July. The win ratio for July is flawless 100%, reflecting consistent gains, while January and April show respectable win ratios of 62% each.

3. Finance Index

The NEPSE Finance Index shows a positive trend, particularly in January, June, and July. The gains are 70.84% in January, 66.89% in June, and 138.68% in July. July's win ratio is 71%, followed by January at 62%, and June at 57%, making July the most significant month for gains.

4. Hotels And Tourism Index

The Hotels and Tourism Index also performs well, with January, March, and July being standout months. The cumulative gains are 54.93% in January, 95.12% in March, and 96.94% in July. March and July are the peak months for growth, while January also makes a significant contribution.

5. Hydropower Index 

The Hydropower Index shows consistent gains in January, April, and July, with cumulative changes of 86.56% in January, 53.68% in April, and 93.7% in July. January and July have the strongest performances, with win ratios of 79% and 69%, respectively.

6. Investment Index

The Investment Index sees growth in January and July, with cumulative gains of 33.37% and 47.7%, respectively. The win ratio is 100% in January and 75% in July, indicating a strong performance in both months.

7. Life Insurance Index

Key months for the Life Insurance Index are January, July, and December. The cumulative gains are 70.56% in January, 42.69% in July, and 74.61% in December. December and January show the most significant gains, with win ratios of 100% and 67%, while July still makes a noteworthy contribution.

8. Manufacturing and Processing Index

This index sees positive trends in July and December, with cumulative gains of 86.82% and 84.8%, respectively. The win ratio is 71% in July and 85% in December, highlighting both months as significant for growth.

9. Microfinance Index

The Microfinance Index exhibits growth primarily in January and July, with cumulative gains of 80.47% in January and 61.15% in July. The win ratio is 100% in January and 71% in July, making both months key periods for gains.

10. Mutual Fund Index

The Mutual Fund Index has July as its standout month, with cumulative gains of 48.84% and a 100% win ratio, making July the peak month for performance.

11. Non-Life Insurance Index

Key months for the Non-Life Insurance Index are January, July, and December. The cumulative gains are 75.82% in January, 57.55% in July, and 44.67% in December. January emerges as the most significant month, with a win ratio of 83%, followed by December and July.

12. Others Index

The Others Index shows strong growth in July and November, with cumulative gains of 80.75% and 67.64%, respectively. July has a win ratio of 86%, making it the most important month for gains.

13. Trading Index

The Trading Index has growth peaks in January, March, July, and November. The cumulative gains are 79.97% in January, 310.08% in March, 55.31% in July, and 161.86% in November. The win ratios are 77% in January, 55% in July, and 55% in November, with March and November being particularly strong months.

Conclusion:

The data from 2011 to 2024 shows a clear trend of seasonality in the performance of various NEPSE sub-indices. July stands out as a critical month for most indices, largely driven by the fiscal year-end, which impacts investor sentiment and financial reporting. Across 13 sub-indices, July consistently records significant gains, with win ratios ranging from 55% to 100%. This underlines the role of fiscal cycles in driving stock market behavior in Nepal, particularly within the banking, development bank, finance, and insurance sectors.

In addition to July, January emerges as another important month for gains, especially for the Microfinance, Non-Life Insurance, and Life Insurance indices, possibly reflecting new-year economic optimism and reinvestment after year-end reviews. January’s strong performance, with win ratios often exceeding 60%, makes it a key month to watch in terms of early-year market movements.

March and April also show growth for select indices such as Hotels & Tourism, Hydropower, and Trading, suggesting these months could be linked to seasonal trends within specific industries. For example, the tourism sector may benefit from seasonal travel during this period, while hydropower gains could relate to sector-specific policies or project completions.

Finally, December emerges as a key growth month for Life Insurance and Manufacturing & Processing, potentially due to companies’ year-end policies and investor positioning ahead of the new fiscal year. The presence of December as a notable month points toward cyclical investment strategies within the Nepali market.

Article By: Praisha Shrestha