The Volatility of NEPSE Through a Measure of ROI; GUFL From Best To The Worst
Tue, Jul 19, 2022 5:07 PM on Stock Market, Exclusive,
The highlight of the article - GUFL is the worst performing stock of FY 2078/79 where the investors have lost 62% of their wealth. (GUFL was the best performing stock in FY 2077/78 where the investors had gained the most 942% of investment value)
One of the simple measures used in the finance domain to analyze profitability is “Return on Investment (ROI)”. It is simply the comparison of value relative to its cost. I.e., it calculates the gain/loss from a particular investment over a period of time. The calculation takes into consideration of all the returns gained from the investment and the value of such investment on that day and is compared with the cost. It is relatively simple to calculate and is considered a universal measure of profitability.
We have closed the financial year 2078.79. NEPSE had a rough roller coaster ride during the period. The year started at 2885.40 points, reached to its all-time high of 3226.89 points during the year, and closed at 2009.47 on the last trading day of the year after losing -37.72% from its all-time high point.
I have calculated the return on Investment (ROI) for the financial year 2078/79 of various stocks listed on the NEPSE and compared it with the return on Investment (ROI) for the financial year 2077.78. These data are extracted from the website of Sharesansar.
The average ROI of the stocks in the financial year 2078/79 is -26.8%. However, the average ROI of the stocks in the year 2077/78 was 194.15%. The investors lost a great fortune in the last year. The extreme fluctuations in the ROI of the stocks in the market show the vulnerability of NEPSE. The global markets are expected to plunge because of the ongoing war, a slowing economy, and possible fear of recession, but the Nepalese market suffered a huge loss in less than a year time frame. Often, investors consider the emerging markets to be highly risky, but these variations in the returns of stocks can not be solely justified on account of an emerging market or global scenarios. These kinds of extreme fluctuations in return are not healthy for the growth of the market in long term.
Stock investments are always subject to risks. But the regulatory authorities should always be vigilant to prevent any false trading in the market and protect the investor's wealth. The market should be fair to all investors. These extremities hint at some contradictory observations to the fair market principle. On one hand, we are talking about attracting NRIs, and other foreign investors to invest in Nepal but on the other hand, we have a highly vulnerable market. These extremities and uncertainties in the market returns will not make our market feasible to invest in the eye of an investor.
Keeping aside the theories,
- Top 5 stocks of 2078-79 where the investors lost the highest investment value,
- Top 5 stocks of 2078-79 where the investors gained the highest ROI,
But interestingly, mutual funds have performed comparatively better in the bearish market. The average ROI from mutual funds stood at -5.18%. The worst performing mutual fund was NIBSF2, where the investors lost -15.25% and the best performing mutual fund was NIBSF1 where the investors gained 6.14% of their investment.
As per the economists, the global economy is expected to go through slow down and might result in a recession in the coming years. These unfavorable conditions will make the market more volatile. Investors need to be more cautious while making investment decisions, especially when investing in a risky and volatile market like NEPSE. A better option of investment could be mutual funds if the investor lacks investment awareness or is looking for low risk in his portfolio. Further, in the volatile market, the investments could be shifted to the stocks having high dividend yields.
Notes:
- Closing Stock prices on the first and last trading day of each financial year are taken for this study.
- The ROI is measured annually based on the investment worth on the first trading day of the year, all returns including cash, bonus, and right shares issued during the year, and the investment value on the last trading day of the year.
(Disclaimer: The analysis is only for the study and research purpose. The data and the calculations presented represents the approximate value which is close to accuracy. You are advised to take your own considerations before investing.)
CA Bimal Dhungel
