Nepse sees upheaval amid adverse climate

KATHMANDU, July 19: Exorbitant bank interest rates, lower rate of return from investment in the capital market, and deepening liquidity crisis continued to take their toll on the country´s stock market pushing the Nepal Stock Exchange (Nepse) index down 24 percent to 362.52 points. Nepse index finished at 377.73 points on July 15, the first day of the fiscal year 2010/11. Total turnover during the last fiscal year touched Rs 6.63 billion, 43.57 percent less than the fiscal year before.



Despite sporadic spurts, consistent slowdown in the stock market has financial factors as the reason, analysts said.[break]



“Rising bank interest rate on lending, lower return on stock market investments, and a protracted liquidity problem are the major factors behind the continued slowdown in the sole capital market leading the Nepse index to disappointing levels below 290 points, which is over six-year low,” said Rabindra Bhattarai, an market analyst. Nepse index, which is also the indicator of investors´ confidence in the market, dipped to 292.32 points on June 15, the lowest point for the year. On April 20, 2005, Nepse index was recorded at 292.59 points.



Frequent margin calls by banks and pressure to pay instalment to banks for the loan taken by the housing and real estate sector further upset an already sluggish stock market. “Moreover, series of reports about financial troubles faced by different banks and financial institutions also discouraged investors from putting money in this sector,” added Bhattarai.



However, reports about Nepal Rastra Bank preparing to loosen provisions on margin lending, loan taken against shares as collateral, proved a major turning point in the stock market, giving it a new lease of life. "Reports that NRB is softening its policy on margin lending helped revive the stock market that had seen seven-year low though it happened near the end of the year,” said Bhattrai.



Nepse jumped in double-digits for four days since June 19 to 364.4 points triggering an euphoria among investors. Nepse had touched the year-high at 471.14 points on July 21, 2010.



The rally at Nepse couldn´t last for long. Nepse index dropped 17.62 points and 17.28 points on June 26 and 27 respectively.



Establishment of Central Depository System (CDS) and Clearing Ltd to introduce online trading and recording system in the stock market, induction of 14 new stock brokers, introduction of mutual fund regulations, initiation to introduce credit rating agency regulations, softening the margin lending policy announced by Nepal Rastra Bank, reduction in capital gain tax -- a tax against profit on sales of shares and properties -- are the positive developments in favor of the stock market.

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