Investors apathetic to margin trading amid bearish market

Published On: November 10, 2019 11:30 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Nov 10: Margin trading through brokerage has failed to attract investors even in over a month since the service came online, which is blamed mainly to the ongoing bearish trend and the high rate of interest that the stockbrokers charge on the margin loan.

Margin trading is a platform that enables investors to borrow money from their brokers to buy shares. Margin trading enables investors to borrow money from their broker to buy shares. Both stockbrokers and investors have long been demanding the regulator to allow them the margin trading option to carry out their share transactions, citing that it could boost trading in the stock market.

So far, 21 out of 50 brokerage companies have received license to offer the margin trading facility to their clients. As per the Nepse guidelines, stockbrokers need to notify the Nepse if they provide margin trading service to their clients. “We have not received any information on the margin trading until now,” said Murahari Parajuli, spokesperson of Nepse.

Bharat Ranabhat, president of Stock Brokers' Association of Nepal, acknowledged that response of investors towards the facility is not encouraging as expected. “It could be due to the continuous downfall of the secondary market in the recent days,” he added.

The country's only stock exchange market is hovering around 1,100 points in the past few months. On Thursday, the secondary market dropped 6.05 points to close at 1131.97 points, one of the lowest points in the past eight months. The average daily transaction has also fallen below Rs 200 million due to low demand of shares from the investors.

Ranabhat claimed that the stockbrokers have been offering margin loan at an interest rate of 14 percent per annum, which is reasonable compared to what the banks provide under the heading. Investors on the other hand said the interest rate of stockbrokers is higher than those of the banks.

“Loans from stockbrokers are 1.5-2 percent costlier compared to the interest rates charged by the banks, which has discouraged investors the most,” said Chhote Lal Rauniyar, chairman of Nepal Investors Forum. He also attributed the dented confidence of investors to the government failing to implement effective policies to attract the big investors at the country's only stock exchange market.

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