New policy affects market movement

The Nepse index (-3.98%) declined steeply on Sunday and Monday and subsequently stabilized to hover around 680 points, which technical analysis indicates is the market support level. The lull in the market can be mainly attributed to the recent news of a meeting between NRB, SEBON and promoters regarding a policy for publicly held companies to convert 19% promoter shares to ordinary shares. Consequently, investors anticipate the share prices to drop drastically due to supply pressure. [break]



None of the seven sectors that were active this week recorded gains. Despite the lucrative dividend (35% cash and 50% bonus shares) announced by Nabil Bank (-Rs 355), Commercial Banks (-6.08%) performed dismally, partially due to the lower-than-expected dividend declaration (20% cash) by Nepal Investment Bank (-Rs 233), which was also the biggest loser of the week. Development Banking (-1.79%) and Hydropower sector (-0.32%) fell as well. The Insurance sector (-0.87%) also traded in the red, as the share price of Lumbini General Insurance (-Rs 25) recorded one of the biggest losses.



World Merchant Banking & Finance (+Rs 75), Everest Finance (+Rs 43), and Union Finance (+Rs 25) were the top three advancers, in spite of which the Finance sub-index (-1.61%) plummeted. Similarly, the decline in the price of Nepal Telecom Company (-Rs 4) dragged down the ´Others´ index (-0.71%), while the price of Salt Trading Company, which declared 15% bonus shares, remained unchanged along with the Trading index.



Amongst other developments, Everest Bank has requested all its shareholders to submit applications to convert their fraction share holdings into full units. Both Prabhu Finance and NMB Bank are auctioning off their unsubscribed right shares. On the IPO front, Public Development Bank announced the allotment of its IPO on 25 August, 2009. Despite the allotment of major IPOs and the healthy profits booked by most listed companies, investors are pessimistic that returns by way of bonus, dividend and rights issue will be lower than in previous years.



Additionally, fear of regulation risk, specifically the promoter share conversion provision unless addressed prudently in terms of volume and interval will exacerbate the current situation and cause a reversal into a long-term downtrend as indicated by charting patterns. The market volume (Rs 51,27,22,572) dropped by 3.86% despite bulk trading of National Hydropower (Rs 7,245,200) and Nepal Bangladesh Bank (Rs 21,053,449) which accounted for 5.52% of the turnover.

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