NEPSE Investing Guide for Beginners Part 1: All About Primary Market and IPO

Article by Pratima Dhakal, Santosh Devkota, and Usha Adhikari

This is Part 1 of the NEPSE beginners guide series. The series is aimed to help new investors to learn the basics of investing in Nepal's capital market. 

Part 1 of this series revolves around the primary market. Part 2 discusses the secondary market in detail.

Primary Market

Before CDSC launched MeroShare, the process to buy any Initial Public Offering(IPO) was by buying the application form from the company's capital or company and submitting it through the designated offices within the stipulated time with the required information. 

Though only a few people were aware of this, there used to be a long line of people, after getting their turn waiting for hours in the queue, it was customary to submit a form by depositing a Cheque or amount equal to the amount one applied for. After accepting the form, Capital would send a slip, in which the serial number and all the details of the application were included. It was a long time-consuming and outdated process.

Applying this method, there used to be fewer investors than now, so to some extent, everyone was eligible for IPO. The possibility of getting an allotment was high. Since the IPO had to be applied from the designated place, some people used to go and fill by themselves, and the rest used to hire people to do that paying few charges to them. There were usually based on tens to thousands of units of demand then the company distributes based on the percentage of the individual demand.

The applicant’s name and the serial number of the form were used to check the IPO result. If there is an allotment, then people have to take the returned slip and go to the concerned capital and get the allotment certificate after matching the required information. Only after dematerializing the certificate in a DEMAT account through Capital or a broker, trade in the secondary market starts.

It was a very long process. And even after 2-3 months of allotment, it used to take a lot more time to get listed in NEPSE. In case of not allotment or partial allotment of IPO, then the rest of the amount, including an interest used to get deposited in the individual bank account by default.

But now the time has changed abruptly. Rapid awareness and interest are growing among many people about share market importance and benefits. The launch of MeroShare brought a new revolution to the Nepali share market. It provides an online platform to the users for applying IPOs. Now every Demat account holder can apply for an IPO from any place simply using their laptops or phones.

This approach has encouraged more people for applying for IPO hence, the increase in the rate of application is exponential. Currently, the number of people applying for IPO has reached 1.6 million. As a result, an oversubscription of IPO every time is seen which concludes that the demand is higher than the supply.

Oversubscription results in the allotment of only a few people. So, in the first week of the trading day in NEPSE, almost every company is hitting positive circuits, increasing the price of the stock because of high demand.

Recently, Mahila Laghubitta Bittya Sanstha Ltd. (MLBSL) reached 5000+; which means the allottees of 10 units who invested NRS. 1000 could sell it for about NRS. 50000. It is a lot of profit one can grab especially for students and small investors. However, many still have to be confused about how to apply for IPO and about the benefit from the stock market in Nepal.

We intend this article to facilitate students new and small investors who have zero knowledge of the stock market so that they will learn and earn at the same time.

We target this article on the assumption that you have no idea in this field so that we can help an unsuspecting student to apply for IPOs, also learn to enter the secondary market by choosing an excellent company.

With the public’s interest in the stock market increasing day by day, you can also enter the market and earn money for basic expenses and to pay for your college fees too. But that doesn’t mean everyone earns. For this, there are few facts to keep in mind which we discuss in this article. But first, we will learn how to apply IPO from MeroShare and the key steps before applying any IPOs.

Demat Account

DEMAT account is like a purse we carry, which stores your shares. For opening a Demat account necessary documents like citizenship, the passport-size photo should be taken to the nearest bank or broker office. There your DEMAT account would be created accordingly.

While most banks still require you to visit the office physically, few have started the service where you can open a DEMAT account online. Before opening the DEMAT account, only the thing to keep in mind is inquiring if the bank has a DEMAT charge while applying for IPO or not.

Because it is free in some banks while some charges for it. It might take a few days depending upon the institution to open the account. After opening the DEMAT account, note the DEMAT account number which is also your BOID number, do not share it with anybody else.

MeroShare and CRN number

After opening a DEMAT account, the same office which created your DEMAT will provide a form for MeroShare. You will need to pay the MeroShare charge while filling up the form. Then the username (which is your BOID number) and password of MeroShare will be provided to you.

MeroShare needs to be linked with the bank account for which you have to fill up a one-page form and get the CRN number of your account with the bank. CRN number is a unique number that is provided by a bank that allows you to be eligible for the IPO. For some banks, the CRN number is the same as their bank account bank linked with the DEMAT account. After all, this next step you need to take is to open the MeroShare website in a browser or install and open the MeroShare app on mobile (website recommended) and then log in to MeroShare.

They will notify you to change the password instantly and set a new login password and a transaction pin. After you change and set new passwords for login and transaction, you can log in to the MeroShare and you can now apply IPO (as well as right shares).

Initial Public Offerings (IPOs), as the name suggests, are the first public offering by any company. The minimum charge for IPOs is NRS. 100  per unit and minimum units to be applied are 10, therefore NRs. 1000 is required for an individual.

Recently, there has been a discussion of book building, so it might increase the premium value of a single unit. You can apply for over 10 units but due to oversubscription chances of allotment are very less so everyone gets only 10 to 11 units nowadays. If there is an enormous demand, we can submit more than ten units.

 There are many things in MeroShare to understand. The option called “My ASBA” is arranged to apply IPO. It requires a CRN number. You will learn more when you use it as practical learning is more effective than a theoretical one. It becomes easier as you get used to using it.

One should go through the following process to apply for IPO.

• Open any browser and go through the link MeroShare which leads you to the website of MeroShare.
• Click on the option Depository Participants and choose the bank or broker from which you have opened your DEMAT account.
• Type username and password that is provided by the bank or broker and login to the account.
• Click on the option “My ASBA” on the left menu where you can see currently opened IPO.
• To apply for that IPO, you have to simply click on the “Apply” form current issue option.
• Then click on Apply option which is placed on the corner of your MeroShare screen where you can know all the share details of that company.
• Then fill the form with your bank, unit you want to apply for, and CRN number.
• After you fill in all the details and apply for IPO, a 4-digit transaction PIN code will require, which is when filled it fulfilled the IPO filing process.
• You can also go to the Edit option if you want to change any of your details before applying.

After applying, the respective bank will verify your application in a day or two. Many applications turn out to be invalid because, after verification, the company offering IPO will discuss with its capital and announce the day of allotment.

After the capital completes the allotment process, you can check your result from IPO RESULT CDSC, and if allotted to you, congratulations! Just wait a few days (maybe 10 days) until the transaction starts in NEPSE and enjoy the first few days of the positive circuit and you just entered the primary market.

Article by Pratima Dhakal, Santosh Devkota, and Usha Adhikari

Kathmandu University, Dhulikhel