KATHMANDU, Dec 27: Nepal Stock Exchange (Nepse) index shed 42.84 points, or 2.9 percent, on Monday to close the day’s trading at 1,423.57 points. 

The benchmark index has dropped 449 points, or 24 percent, in just five months. Nepse was at 1,881.45 points on July 27. 

The stock market has taken a downward path as bank and financial institutions (BFIs) are facing liquidity crunch and competing with each other to increase interest rates to attract more deposits. 

According to analysts, the stock market, which logged gains in the past three years, with occasional corrections, is now seeing the impacts of liquidity crunch in the banking system.

Many bank and financial institutions are offering an interest rate of up to 10 percent on fixed deposit to attract more deposits. With deposit base depleting in the run up to the tax filing season, most of the BFIs have either stopped or are tightening margin lending.

Analysts also say that investors, who have borrowed from the BFIs to purchase shares, are also off-loading their shares as they are getting margin calls to repay their loans. “Many small investors seemed to be panicked as they think they will be losing their lifetime saving if they do not off-load their shares,” a stock broker said, requesting anonymity. “There is a panic sell-off situation. It is likely to worsen further as there is herd mentality among investors.”

The tightening of funds from the BFIs is also evident in the turnover of Nepse. A total of 1.55 million units of shares worth Rs 481.25 million were traded on Monday, compared to average daily turnover of Rs 1 billion in the past months. 

Share prices of only 13 out of 130 listed companies went up on Monday. Insurance group suffered the biggest loss as its sub-index plunged 311.01 points to close at 6,661.28 points. Similarly, the sub-indices of Hydropower and Hotels groups also fell 44.16 points and 37.05 points, respectively, to settle at 1,699.38 points and 1,808.05 points. Banking, the heavyweight trading group in the secondary market, also shed 40.86 points to close at 1,357.84 points.

Development Bank and Finance groups also ended 33.19 points and 19.94 points lower at 1,511.25 points and 686.98 points. ‘Others’ group also went down 18.8 points to close the day’s trading at 730.56 points.

 
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