Reviewing 2075: Where did we go wrong?

“Stop this train,

I want to get off and go home again;

I can’t take the speed its moving in,

I know I can’t

But honestly, won’t someone stop this train?”

The above mentioned lyric from John Mayer’s song is a perfect analogue to this year’s journey of Nepalese investors in secondary market. Throughout this year, investors came across a number of days  when they wanted to give up on their investment. They wanted to “stop the train” i.e. the market because they could not take the speed with which it was consistently falling down. After the chaos created by online trading, investors sought for help from the government authorities and regulatory bodies wondering whether they could really “stop this train”. What were the consequences? Let us travel back in time and find out how we survived 2075.

Baisakh: Nepalese stock market entered the year of 2075 when NEPSE had just introduced internet based online trading. The internet based online trading regarded as “semi online trading” brought a lot of hostility among investors because the platform did not meet their expectations. The optimism brought in by internet based trading could not surpass the bearish trend that had been continuing over several months. In the same month, NEPSE also sent a final draft of margin lending to SEBON for its approval. In the amended margin lending draft, NEPSE added few more points to the earlier proposed draft and sent it to the regulator, SEBON, seeking an approval at the earliest possible. The beginning month of 2075 also witnessed first ever Capital Market Exhibition. SEBON’s decision to organize such exhibition welcomed praises and feedbacks from prospective and veteran investors. The month of Baisakh ended with an index of 1338. Investors started a new year with a lot of expectations from Nepalese stock market. The arrival of first ever online trading was one of the most awaited achievements that Nepalese investors would be cherishing this year.

Jestha: In the beginning days of Jestha, NEPSE’s sideways trend was guided by the speculations of monetary budget and fiscal policy. Nepal Rastra Bank (NRB) had started discussion regarding margin trading and estimated that the margin trading would be implemented after unveiling of monetary policy. However, after Finance Minister Dr. Yuvraj Khatiwada presented the budget proposal to increase Capital Gain Tax on stocks, the sideways trend took a downward trend. The new regulation to calculate taxes on current price instead of average base price worked against the investors benefit, leading to a declining NEPSE index. The rest of the month witnessed unity among investors throughout the country. As a result, investors were forced to carry the “no trade movement” throughout the country. Within a week, government took back its decision regarding Capital Gain Tax. On the last day of Jestha, the index hovered around 1241.

Asadh: The month of Asadh added more negative vibes to the already pessimist market. The full-fledged automated online trading was expected to begin from Shrawan. However, NEPSE announced the implementation of full-fledged automated online trading will be delayed and only User Acceptance Testing will be conducted from Shrawan. NEPSE further comforted investors urging them to participate in User Acceptance Testing (UAT) so that online trading will face no disturbances when implemented fully. Similarly, the governor of Nepal Rastra Bank (NRB), Chiranjibi Nepal, announced monetary policy that was not favored by investors. Few provisions such as margin lending capped to 25% of the BFI’s core capital straight down from 40% and the maximum limit for overdraft and revolving credit limit contracted from Rs 75 lakh to Rs 50 lakh discouraged investors sentiment in the market. After the midweek of Asadh, the newly elected government decided to discard the appointments carried out by the then temporary government of Sher Bahadur Deuba. Mr. Chadra Singh Saud, the CEO of NEPSE was also forced to resign from his current position. This further stood as a hindrance for the completion of online trading that was being developed under the leadership of Mr.Saud. Within few days, Mr. Saud reached Supreme Court pledging for justice against the cabinet’s decision which revoked his appointment. By the end of Ashadh, Mr. Saud got his position back as Supreme Court decided in his favor. The speculations on Mr. Saud’s fate and hindrance in online trading took the index to around 1212 at the end of Ashadh. The only positive event for the month was NRB’s theoretical approval of margin trading however, the central bank was still in the process to create a proper strategic plan and procedure to implement margin trading. The month of Asadh proved to be a hurricane to hard earned investment of the investors.  

Shrawan: The month of Shrawan was the beginning of a new fiscal year. In the beginning of the new fiscal year, NEPSE segregated the Insurance Index between Life Insurance and Non-Life Insurance. During the month, NEPSE continued User Acceptance Testing (UAT) by urging investors to participate in the testing process of online trading. NEPSE closed at 1210 points on the last day of Shrawan.

Bhadra: In Bhadra, NEPSE announced that the UAT would be completed by the end of Bhadra and mock online trading test would begin. The month of Bhadra ended with optimism of upcoming festive season among investors with a NEPSE index of 1253.

Ashwin: In the month of Ashwin, NEPSE, brokers and investors constantly exchanged feedbacks regarding online trading. NEPSE announced the full-fledged online trading will be implemented within a month or two. Several glitches were addressed during the mock testing so, investors were optimistic about the market post implementation of online trading. 

Kartik: In the month of Kartik, just before the arrival of the festival of lights, Tihar, NEPSE announced the official operation of full-fledged online trading. November 6, 2018 marked the history for first ever full-fledged online trading in Nepal. However, the same day also marked the day when online trading begun but the official NEPSE website stopped working. The day that was supposed to be a foundation for potential investors to enter the market and existing investors to celebrate a bigger achievement rather turned into the day when investors could not access information. Post the implementation of online trading, investors were blocked from the access of information for two consecutive trading days. NEPSE, regulatory body and investors had a major communication gap, which resulted agitations among investors. The index further declined to 1205. This decline was a waste of all the efforts that NEPSE had put into to develop an online trading. This decline was the analogue of frustration among investors. Investors even claimed that the stock market was better off without online trading because frequent technical disruptions created confusion among investors as they undertook an investment decision. 

Mangsir: Despite NEPSE’s CEO reassured the glitches had been addressed, investors faced a number of technical problems frequently. Worried about their massive investment, four investor forums urged investors to march towards NEPSE for a protest. In the month of Mangsir, Nepal witnessed yet another protest from investors. Within a day, NEPSE reassured investors with a series of plans to address the technical problems and to fulfill the demands of investors. However, NEPSE’s reassurance seemed as an excuse to calm the investors. Although a few day of peace was maintained between investors and NEPSE, the peace looked like the calm before the real storm. After few days, Investors’ Pressure Group was established, leading to a 6 to 7 days hunger strike outside the premises of NEPSE. The investor participants in hunger strike even demanded resignation of finance minister and other high level officials from seven organizations. In response, Ministry of Finance formed a committee along with Deputy Governor of NRB, Chairman of SEBON and Chairman of NBA to understand the problem and seek solution within seven days in order to resolve the problem in stock market. Post the formation of the committee, SEBON published few notices asking investors to remain patient. However, the online trading platform that had been a major headache to investors and the constantly declining index due to carelessness of government and regulatory body, SEBON, could not stop the allegations from investors.  The month ended at an index down to 1148 yet the hunger strike continued.

Poush: In the month of Poush, the hunger strike escalated into a more rigorous strike. Medias, investors, brokers and investor forums joined hands to halt trading in NEPSE. Some authorities including former Finance Minister Dr. Ram Sharan Mahat also showed support to investors. Finally, the committee formed by Ministry of Finance came out with twenty four major suggestions in order to improve the status of Nepalese Stock Market. The suggestions addressed four major demands of the investors which included an efficient online trading system, decreased weight risk of share loan from 150% to 100%, increased marginal trading from existing 50% to 65% of share value and increased share loan capacity from 25% to 40% of the core capital. On 17^th Poush, 2075, NEPSE restarted fully automated online trading with banking integration. Four of the banks were initially the part of bank integration, making clearance activity to be easier to investors. However, on the last day of Poush, NEPSE came across another technical issue. The newly listed scrip of Upper Tamakoshi, Nation’s Pride Project, registered 50% rise in the price while a company’s share price can increase only 10% in a single trading day. The index closed at 1186 points by the end of Poush. 

Magh: In Magh, SEBON announced its progress on PAN number. The purpose of PAN issuance was said to be solely transparency in the system. However, existing investors thought that prospective investors might find compulsion to issue PAN number a discouragement to enter the stock market. So, several talks were held between representatives of brokers, investors, NEPSE and SEBON. By the end of the month, the index closed at 1128 points.

Falgun: In Falgun, Ministry of Industry, Commerce and Supplies prepared a bill to allow foreign investors to invest in Nepal Stock market. According to the proposed bill, the foreign investors can only invest in the secondary market of Nepal as institutional investors. SEBON rolled out the Specialized Investment Fund Regulation 2075 in order to promote alternate investment vehicles in Nepal that would include private equity fund, venture capital fund, and hedge fund among others. NEPSE index closed at 1155 points.

Chaitra: In the last month of 2075, Chaitra, NEPSE, SEBON and investors held discussions and finally agreed to implement PAN number from Chaitra on wards on those transactions that cross the mark of Rs 5 lakhs. The 5 lakhs mark was set in order to encourage small investors. The implementation of PAN number stood out as an example of improvement in stock market amidst all the chaos. . In the same month, Broker Association’s Nepal also presented 28 point letter demand to SEBON. The demand letter was presented in response to SEBON’s negligence in implementing suggestions provided by broker houses in regards to establishment of new infrastructure and equipment, reinforcement and simplification of the regulations. However, SEBON labeled the action as planned agitation and invited brokers to join a professional dialogue with the authority. Just when investors thought authorities were getting serious about development of stock market, Investors’ Pressure Group announced another relay hunger strike. The strike was in response to lack of fulfillment of the 32 demands presented by the group earlier. The strike created more turmoil as the police officers interrupted the protest by arresting the participants. SEBON released press releases assuring investors that the few demands were already fulfilled and almost all of them were being worked on. Besides, many veteran investors and authorities forwarded their viewpoint that the strike resembled political interest rather than investors’ interest. However, Investors’ Pressure Group constantly argued that the strike was taken place for the sake of investors. The group halted the protest so that the Investment Summit 2019 could be conducted in a fair environment. Besides, Share Laganikarta Sang Nepal came forward to support Investors’ Pressure Group and strongly criticized the arrest against the investors who were protesting against the alleged inactivity of government to improve the ongoing gloomy market. Finally, the month ended on a positive note as SEBON became the first Nepali institution to receive membership of OCED INFE (International Network of Financial Education) which will help in generating mass financial awareness in the country. At the end of the year 2075, market closed at 1184.02.

 In a nutshell:

The year of 2075 observed a lot of chaos, few improvements, a lot of discussions and a lot of protests. Amidst all these, we have all been committed for one motive: a better stock market. However, we are yet to see what unfolds in the upcoming year.

Happy New Year 2076

Invest Responsibly!