Circuit breakers are introduced to protect the market from negative effects of sudden upward or downward movement in share prices. [break[This breaker generally sets upper and lower limits in movement of index or share price for specific timeframes.
For instance, it is rolled out for 15 minutes if the index rises or falls by over 3 percent from the closing price of the previous day in the first trading hour of the day from 12 noon to 1 pm. It is then put into effect for half an hour if the market moves up or falls by over four percent in the second trading hour from 1pm to 2pm. But trading is halted for the entire day if the index falls or rises by over five percent in the final trading hour of the day from 2pm to 3pm.
On Tuesday, first circuit breaker was clamped after Nepse index rose by over four percent in the second trading hour of the day to reach 372 points. At this point, trading was halted for half an hour. But within less than an hour of resumption of trade, the stock market plunged by 5.1 percent to 336.29 points. As a result, trading was closed for the day around 10 minutes prior to the scheduled closing hour of 3pm.
“This is the second time in Nepse´s history that two different types of circuit breakers were clamped on the same day,” Nepse Spokesperson Shambhu Pant said, without elaborating when the first incident took place.
This is the third consecutive day Nepse had to clamp circuit breaker following unusual movement in the index. This started on Sunday when circuit breakers were used three times after the market rose by more than the stipulated limit to finally end 5.44 percent up at 337.35 points. It was the same on Monday when the index closed 5.09 percent higher at 354.51 points. But the bull run of two consecutive days ended on Tuesday when market fell by over 5 percent by the closing hour.
The market was dragged down on Tuesday due to fall in share prices of stock market honchos like Nepal Telecom and high-profile commercial banks like Himalayan, Everest and Standard Chartered. But experts could not say what exactly caused share prices of these companies to take a dip.
“For prices to fluctuate like this there has to be substantial change in financials of companies, which has not happened here,” Niraj Giri, spokesperson of Securities Board of Nepal (Sebon), told Republica. “So it´s the herd mentality that has ruled the market.”
In a country like Nepal, where retail investors make a bulk of stock traders, chances of investors blindly following the market trend cannot be ruled out. “That´s why share prices went up for two consecutive days to finally fall today (Tuesday),” Giri said.
Despite Tuesday´s fall, many say investors are gradually gaining confidence as the stock market index which had plunged to below 300 points less than three weeks ago currently hovers at 336 points. Many say this is because of positive developments taking place in the political arena.
“The improvement in the index shows there is appetite for investment on the market,” Giri said. “But retail investors should be cautious as sudden fall or rise in share prices shows the market is still volatile.”
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