NEPSE; The Game of Narrative

Article By: @thatnepseguy

NEPSE is a game of narrative; and story. If we vividly remember the good old days of the 2020-21 bull market, the rise from 1100 to 3200 was a complete narrative game. Liquidity plays a vital role, let's keep this thing aside and focus on the narrative. Narratives are influenced by market makers to the public.

Stocks are not traded in the market, narratives are traded. Narrative drive to speculation and speculation drive to unsustainable rally (unhealthy growth) of the price. 

Case studies 1: Hydropower 

Hydropower is generally small-cap in nature. There is a lockup period for 3 years of promoters meaning they (promoters) can't sell for a minimum of 3 years. Low paid-up capital equates to less supply in the market, anywhere from 2-3 big whales can absorb major supply easily creating artificial scarcity of supply that led to a pump in stock price. What boosted its rally was the news of right shares. The price of the stock that proposed the right share was about 400-500% on average. Some of the stocks even did 10x. 

Case studies 2: NRIC 

NRIC, issued IPO to the public during the pre-COVID, listed in mid-COVID, and rallied post-COVID. The only licensed approved reinsurance in Nepal, the government had heavily invested, once it is successful in collecting premiums from foreign countries, it is the next big thing. The narrative was slowly building the hype cycle of NRIC. They never used to update their quarterly reports in time. Since it collects premiums from other countries, the paid-up capital was too small for NRIC, so the right share was imminent. This narrative drove the price from Rs 500 to Rs 2000, the right share was never announced and now this stock is trading at Rs 629 as of writing.

Case studies 3: RBCL 

One of the funniest rallies I have ever seen in the capital market since I joined was in RBCL. 

A company with paid-up capital of only Rs 26 crore, but this is very small for a non-life insurance company because as per the insurance board, the minimum requirement for a non-life insurance company was a minimum of Rs 1 arba at that time (now 2.5 arba). So the only possible way for RBCL to increase their paid-up was through bonus shares. A government-owned company, very old, had an enormous amount of assets to its name which can easily pass bonus shares. Hyping up the narrative again, the stock rallied from Rs 10k to Rs 25k. It topped in May 2021, as of October 2023, no notice of bonus shares has been announced and the stock price is Rs 13-14k per share. Accumulate, make stories, spread stories, sell stories. That's how it is played right?

Case studies 4: NTC

A mature strong fundamentally sound company NTC is a government-backed company with a whooping 91% stake meaning very less floatable shares in the tradable market. Never in its operational life, has the company ever announced any kind of bonus or right shares. But this is a bull market, the story is “traded” not the “stocks”. Any kind of story, from minor to major, any story is sold in this bull market and I am pretty sure some sort of new narrative will be formed in future upcoming bull markets as well. The rumor around every corner from social media to group chat, NTC is about to make its debut bonus share announcement was roaming around for quite some time. As expected, the price rallied from Rs 1000 to Rs 1800. The strange thing here is, this rally happened after the market topped out in August 2021. The rally started in October 2021 and topped out in February 2022. When NTC proposed bonus shares, it became the top of its individual cycle and the stock price hasn’t recovered to date. 

Case studies 5: NLIC (stock split and bonus shares)

Most investors love to have additional shares in their portfolio, especially if it is credited to their account free of cost. Bonus shares are the perfect example, every Nepali investor loves bonus shares. We have proven stories in Nepali markets, SIC, STC, HDL, MNBBL, CIT, EBL, NLIC, NABIL, etc are the prime examples that suit here. 

The stock split is a concept of breaking down the share price without touching its fundamentals. It only increased the supply and reduced the share price (especially for the expensive stocks) $TSLA did a stock split which made Elon Musk wealthier. First, there was hype for NLIC on upcoming bonus shares which was completely rumor/unofficial later when NLIC proposed for stock-split, it ended up being a “sell the news, event”

Case Studies 6: Commercial Banks 2016-17 

The regulatory body of a banking and financial institution, Nepal Rastra Bank, The Central Bank of Nepal, A minimum of Rs 2 arba paid-up capital was required to run a commercial bank. After the post-earthquake, the bull market resumed. The super bull was born (again the narrative wordplay) In the meantime, NRB brought up a policy to increase the paid-up capital of “A” class financial institutions (commercial banks) to Rs 8 arba. That's a 400% increase in paid-up capital. The one and only way to increase its paid-up capital was from either “BONUS SHARE” or “RIGHT SHARE”. The increase in the price of commercial bank’s stock pumped nearly 200-300% on average. All-time highs were EBL and SCB 3900s, NABIL 2500s, ADBL 1000s, KBL 600s.

Since I was not active during the 2016s bull era so not writing too much.

Case studies 7: NIFRA

An optimistic stock because this was owned by almost every IPO investor. On the day of listing, it had a positive circuit closing. It had continuously hit the circuit for 6 or 7 days straight, showing the promoters and its business module bullish assuming that this stock will be above Rs 1000 soon. The price rallied to Rs 670s, the supply was immense and could not reach Rs 1000. As of writing, it is Rs 190 per stock. A downfall of 71% from its all-time high.

Speculating in the stock market is like smoking a cigarette, we know it is harmful for our health and wealth, but we ignore the basics. Narrative can be driven and that’s called sectoral rotation. Narratives don’t last forever. A couple of weeks to Quarters (no one can predict), stocks that face rallies due to hyped-up stories mostly face “Sell the news event”. It is wiser the book profit early rather than to face loss later.

My favorite Indian investor, Late Rakesh Jhunjhunwala said “Trading is for generating capital and Investing is for growing that capital.” This guru mantra I have cut and pasted in my blood. We do not mix both, everything in this world has a system and if we puzzle them the consequences can lead to irrational investment decisions.  

Things have changed quite a lot today, new policies have been implemented, liquidity quite not flowing in the stock market, and interest rates are still expensive for “margin loan against share.” Well, we are not touching liquidity because it will take me another 10 pages. I will make this thing simple.

In the bull market, it is not the fundamental analyst who makes the most money nor is it the technical analyst. It is the insider, who knows what news is coming in the market therefore they will have already accumulated before the general public knows, slowly the rumor is spread and when there is an announcement from the company, it is mostly “sell the news event.” The perfect example of “Buy the rumor, sell the news.”

The effective way to be up to date with the narrative is to be as as active you can. Checking the volume of a stock and major floorsheet of the top 5-7 brokers who are always on top of their turnover list. You can get a slight hint from the chart pattern as well.

Not every trade is successful, even the best setup is incomplete without risk management, the market is very volatile in nature anything can happen and everything is uncertain. Let’s not worry about the uncontrollable, worry about the things that can be in control and that is taking profits and stopping losses. I would rather make money instead of being right. I mean sure we try to be right but it’s all about having an edge in the market.

If you play the normie game and buy when the company announces the major news, instead of a trader you will become a long-term investor from that very day if you ignore risk management. You will end up being an exit liquidity for market makers.  

Not every narrative can guarantee you profits, narratives change from time to time so sectoral rotation + and taking profits is the best way to maximize your return in a bull market. 

Not sure when the bull market is coming, none can predict but keeping an aerial view of what is happening in the market can definitely help to become a one-step forward market participant. 

You just play with human greed in the bull market because the major fails to sell and regret it later.