Circuit breakers come on twice after stocks surge on Beema Samiti hiking of paid-up capital of insurers

KATHMANDU, April 3: The decision to raise the minimum paid-up capital of insurance companies by four times announced by the Beema Samiti late last week has set off a buying spree at the stock market, sending the Nepal Stock Exchange (Nepse) benchmark index up 79.47 points on Sunday to close at 1,667.11 points.  

While the stock market has been on an upward trend since early last week following a long slump cause by shortage of lendable funds in the banking system, the decision by the insurance regulatory authority further boosted the market rally. 

So high was the buying pressure at the stock market that rapid surges of the benchmark index forced Nepse to impose circuit breakers.

Nepse had to impose circuit breaker in the second hour of trading after the benchmark index jumped 4 percent. The market reopened for trading at 1:27 pm. However, the market operations were again suspended, this time for the whole trading day, after Nepse hit another circuit breaker following a rise of 5 percent in Nepse Index.

In 2016, a decision by Nepal Rastra Bank (NRB) to raise paid-up capital of bank and financial institutions (BFIs) had prompted a stock market boom which also affected insurance company shares. Investors expected insurance companies to follow BFIs and offer stock dividends and rights issues to raise their own paid-up capitals and started grabbing insurance company stocks along with those of BFIs. 

A board meeting of the Beema Samiti held on Friday decided to raise the minimum paid-up capital requirement for both life and non-life insurance companies by four times. 

Each life insurance company will have to increase its paid-up capital to Rs 2 billion while a non-life insurance company will have to raise its paid-up capital to Rs 1 billion by mid-July 2018.

Before the announcement, a life insurance company had to maintain a minimum paid-up capital requirement of Rs 500 million and while for a non-life insurance company, the minimum requirement was Rs 250 million.

Gunanidhi Bhusal, a stock broker with Aryatara Investment and Securities Pvt Ltd, told Republica that an election fever gripping the country and the decision to raise paid-up capital of insurance companies had fuelled Sunday’s stock market boom. 

Another stock broker -- Narendra Sijapati -- also echoed Bhusal. “There was huge attraction toward shares of those insurance companies who were operating with low capital bases. Despite high demand, the supply of shares in the market was almost zero as investors were not ready to off-load their holdings. So investors diverted their attention to shares of bank and financial institutions,” Sijapati, the managing director of Kalika Securities Pvt Ltd, said. 

On Sunday, shares of insurance companies climbed 733.37 points to close at 8,584.36 points.

Sub-indices of development banks and hotels also rose 88.29 points and 87.13 points respectively, closing at 1,864.76 points and 2,151.5 points. The shares in the Banking group, the heavyweights of the stock market, also went up 70.6 points to close at 1,564.42 points.

The HydroPower group index ended 68.91 points higher at 2,079.21 points. The Manufacturing and Processing group also logged a gain of 31.09 points to finish at 2,199.88 points. Sub-indices of finance companies and the Others groups went up 16.75 points and 7.81 points respectively, closing at 741.53 points and 692.1 points. 

A total of 1.68 million units of shares of 134 companies worth Rs 964.25 million were traded in the market through 4,540 transactions.

 
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• minimum paid-up capital