NEPSE: Current Scenario, Flashbacks and Future Prospects: Why is it the best time to grab stocks of good companies?

- Sandeep Rana/Prahlad Rijal The current scenario of Nepalese economy, recent developments and stock market all are pointing at one fact: it is high time for investors to grab stocks of good companies in NEPSE. Here are few details and updates on the market that one should consider: An Ongoing Market Correction The benchmark index which touched an all-time high of 1,881 points last year is now hovering over 1,530 points suggesting that the market is facing a correction. It was already expected that a correction was inevitable as the market rose significantly last year after companies floated excessive right and bonus share, however, the correction is still said to be ongoing. Moreover, the companies whose scrip was traded at high prices are now being traded at lower ranges.  Last year’s bull run can be attributed to increase in stock prices of Banking and Finance institutions leading to positive investor sentiments. As of now, data shows that insurance and Micro finance sectors are seeing a super bull. Lately, Stock prices of most of the companies have come down suggesting a good time to grab stocks of good companies. A Growing Economy: According to a report of World Economic Forum, a Swiss non-profit organization, Nepal has been ranked as the 3^rd fastest growing economy in 2017/18 with the growth projections of 7.5 percent. The World Bank has credited the growth to a good monsoon, reconstruction efforts and normalization of trade with India. Moreover, the expected growth rate during next year is 6.5 percent. This hints that the Nepalese economy after facing the Great April 2015 Earthquake and subsequent economic blockade by India has got off on the recovery track and is slowly growing. However, taking a look into the GDP and the total market capitalization, the latter is far lower than the size of total GDP. It means the prospects are favorable in the stock market and market is yet to grow. With the growth in the economic activities, the companies are also expected to jump in the growth bandwagon trudging the NEPSE forward. Moreover, due to a massive increase in capital base of the banking sector, banks are now capable of discharging huge amounts in loans. Furthermore, loan demand of the corporate and retail sectors is also increasing and with the right shape of things, those sectors are set to see an increase in their profitability. Likewise, after the Great Earthquake, awareness regarding insurance and its importance has rose leading to an increase in the businesses of the insurance companies. Moreover, the government is also mulling over implementing a compulsory insurance policy. Thus, the insurance business is set to soar in the upcoming days and it will affect the stock market, nevertheless, positively. Online Trading: Recently, talks have surfaced that there is a high possibility of introduction of online trading system in NEPSE. A technological advancement of such a magnitude will surely induce a never-seen-before bull run in the market. Historical cases have shown that, technological advancements in the stock markets lowered the entry barrier to trading leading to a tremendous increase in the prices and indexes. The impact of new infrastructure was visible as NEPSE rose to a historical high with the introduction of CDS (Demat) system during fiscal year 2072/2073. With the online trading in operation, the market will see many new investors from inside and outside the Kathmandu Valley. Moreover, Nepali citizens working or living in foreign lands can also participate in the stock market rising up the transactions and turnovers. Declining Interest Rates: As of now the return from dividends and share prices have outgrown the return from average deposit interests. As the rate of interest is declining continuously for the past few months, the returns from shares are higher than returns from interest. Many companies’ stock yield is more than the market interest rate. Thus, the retail and institutional investors might channel more funds in the share market if the interest rate continues to decline in the upcoming months.  Upcoming Elections: With the conclusion of Local level election, Nepal has trudged yet another political milestone, however, things won’t stop here. The Federal Level and Central Level elections are yet to be held. With the successful implementation of the federal structure, market analysts believe that Nepal will be politically stable in the upcoming year. Political stability in the economy ensures an investment friendly environment which is expected to result in inflow of investments in the various economic sectors. With the growing economy, the NEPSE is expected to respond in favor of the investors.  Broker License to Commercial Banks: Recently, the Nepal Rastra Bank, regulator of banking institutions in Nepal, has formed a committee to study the possibility of allowing commercial banks to act as stock brokers.  As the Banks and Financial Institutions Act (BAFIA) has no provisions on barring commercial banks from offering stock brokerage services, the Central Bank is expected to give a-go-ahead to the banks. Moreover, the Securities Board of Nepal (SEBON) has also supported the idea to allow commercial banks to operate as stockbrokers. SEBON’s Securities Businessperson Regulations 2008 has a provision allowing banks and financial institutions to offer brokerage services. The provisions state that, “Banks or financial institutions established under the prevalent laws may conduct securities business as stockbroker, securities dealer and market maker through their respective fully owned subsidiary company.” If this idea materializes, the commercial banks can operate brokerage departments throughout the Country which will lead to an influx of additional funds. The banks, with available resources are capable to offer services in the rural areas too and such development will help the market to grow faster. Broker Branch Office Expansion As per the current stats, there are 50 stockbrokers in Nepal.  Moreover, 44 remote work stations were set up outside the Kathmandu Valley, but they are all based at urban areas leaving the rural markets untapped. With the expansions of broker offices in various parts of the Country the brokers will realize a business expansion leading to an increase in stock trading. New Mutual Funds in Pipeline Mutual funds, by pooling small investments from many investors hold diversified portfolios. They are usually equipped with ample information on the firms with good growth prospects. Moreover, mutual funds by channeling their investments influence the management of a firm to boost their performances which in turn leads to a favorable effect of firm’s stock prices. As of now, there are 5 new mutual funds in pipeline and one is set to launch IPO soon. With this the total number of Mutual funds in Nepal will rise to 17. Cases around various stock markets show that the growth in number of mutual funds has led to a growth in the overall stock market.  Margin Trading Facility to Brokers Talks have surfaced that the government is mulling over to facilitate brokerage firms to conduct margin trading. If the plan materializes, then the investors would be able to trade with more capital than they would without the facility. Thus, the Nepse still has a room to grow and the upcoming days signal a walk in the positive direction. However, investment in securities is subject to market risk and one must utilize his/her knowledge on the market potential and risks before jumping into investing funds.  Revival of Investor’s forum With the recently concluded elections of the Nepal Investor’s Forum, a non-profit body working for the betterment of the stock market, the Forum is said to be revived. Moreover, the Forum’s newly elected Chairman, Ambika Prasad Poudel in an interview with ShareSansar informed that the Forum is committed to study well-developed markets and advocate the need for changing certain policies that impede our market from becoming more investor friendly. According to Poudel, the Forum will focus to bring positive changes which will result in higher level of transactions, increase in government revenue and overall development of the market.   Increasing awareness about share market among general public Considering the recent developments and ease of trading with the Demat system, there has been a rise in number of the general public who are gradually becoming more aware about the stock market. The last years bull run have had an impact on the public psyche that investing in stocks can bring favorable returns. People from all walks of life can be seen these days in the trading platforms around Kathmandu Valley, learning enthusiastically about the market movements and future prospects. Thus, there has been a rise in the level of awareness among general public which will lead to an increased level of investment moving the market towards growth.  Disclaimer: Although the long term growth prospects in the NEPSE seem favorable to the investors. The short term scenario is quite different as market is showing volatile movements lately. Moreover, Investment in stock market is purely subjected to market risk and all the factors must be self-judged by the investors before buying stocks. Thus, one should consider this article as an aid in market analysis rather than a marketing call to invest in shares. We hope this article helps you to firm your investment decisions and Happy Dashain 2074, Wish you a Prosperous Investing Year ahead.