The legendary investor Warren Buffett once said, investing is simple but not easy. Assets have always been ruled by the cycle of greed and fear. A bull follows a bear, and vice versa. It is a cliché, but securities—equities, fixed income, commodities, real estate, derivatives and what have you—do not always go up nor do they stay down forever. A bull market is sustained so long as someone—a greater fool—is willing to pay a higher price expecting the price to go even higher. Once this stops, the cycle goes the other way. When a bottom is forming, let us say in equities, many would have sustained memories so bad they swear off stocks, and this is what sets the foundation for the next up cycle.

In a typical market, the majority has a bias to the long side; they benefit when prices are up. So, no one complains when markets are rising—no matter how overhyped and how much prices deviate from their intrinsic value. But when things are in selling mode, it is normal to be quickly looking for scapegoats. This is particularly so in immature markets, not to mention Nepal, where the history of equity investing goes back only a little over three decades. In the most recent example, in an apparent attempt to apply pressure, various investment groups and associations representing investors and brokers met with Finance Minister Swarnim Wagle, demanding reforms to help boost investor confidence.

The Rastriya Swatantra Party (RSP)-led government was formed on March 27 this year. Anticipating this, five trading sessions before the March 5 parliamentary elections, the Nepal Stock Exchange (NEPSE) began rallying from 2,609, catapulting to 2,970 by the 25th and then fell to 2,670 by April 6. It was this drop—minuscule in the big scheme of things—that led various groups, including the Stockbroker Association of Nepal, to visit Wagle and express concern over the waning investor confidence. Such behaviour by industry professionals in and of itself is a sign of a market that is wet behind the ears. You cannot possibly waste a finance minister’s time every time the index loses 10 percent.

Importance of technical analysis

It is a cultural issue. In the past, finance ministers and Nepal Rastra Bank governors were routinely put under pressure to loosen rules. The central bank was widely criticised for inducing the NEPSE peak in August 2021 when the 2021-22 Monetary Policy instituted a restrictive margin policy; little did it matter to the critics that the index, in a sign of rampant speculation, had tripled in just over two years. There have been times when a minister acts as a typical politician to curry favour among the investing public. Bishnu Poudel, former finance minister, in September 2024, showed up at NEPSE headquarters seeking answers for a decline from 3,000-plus to 2,500-plus within a month.

The NEPSE first crossed 3,000 in June 2021, peaking at 3,227 in August that year. The selling that followed ended at 1,807 in June 2022; 1,800 was hit several times in November 2020 before a breakout occurred later that month. After the June 2022 trough, the index seesawed between 1,800 and 2,200 for more than a year until a powerful breakout occurred in July 2024, later hitting 3,048 in August that year. The Bulls made a round trip to the 3,000-mark after three whole years but could not sustain the momentum. Thus began another sideways move between 2,400 and 3,000, with the latter also tagged in July 2025 and March this year and the former in October 2025. These things have technical memory.

Once 3,000 is decisively taken out, this could stir a technical buying frenzy; it could be further aided by shorts covering their positions if shorting were allowed, but it is not. Short sellers borrow shares, sell them immediately, and buy them back and return the shares to the original owner after the price drops, pocketing the difference as profit. Markets move in cycles, swinging between green and red. Shorts with the necessary skill set can benefit from a decline in prices, thereby injecting a balance in the market, but they are not always right; if the shares instead rally, they get squeezed and are forced to buy back, which would then put upward pressure on the security, helping the longs.

Getting rid of deep-rooted but toxic practices

In any market, it is never a good idea to only have upward bias. The banning of shorting in Nepal helps create a lop-sided bias favouring the longs. This is particularly so because margin trading is legal. In a cash account, customers pay the full amount for the shares they buy; in a margin account, interest is charged on funds borrowed from brokers, who use clients’ accounts as collateral. Margin trading comes with pros and cons. In an up market, the ability to buy more than one can afford will magnify gains. But in a down market, the reverse is true. Leverage is a double-edged sword. If a client fails to meet a broker’s margin call, accounts can easily blow up. Shorting, in fact, acts as an antidote to margin trading.

The introduction of shorting will enable Nepal’s stock market to make further progress towards maturity. Investors’ tool kit will have been further widened with the introduction of derivatives such as options and futures. These are the things that the various industry groups should focus on drumming up government support for, not just on measures to artificially push up prices. The NEPSE, which began its life in January 1994, has come a long way, with the market cap having gone from millions to trillions, but it lacks even the most basic tools. The index also remains heavily weighted towards banks and insurance companies; major companies such as Ncell are yet to get listed on the main board.

Kudos to Wagle for not being too accommodating in these investor meetings. If he wilts under pressure, more will be asked of him in the future. In the past, finance ministers have tended to go overboard, promising this and that. Most politicians are laser-focused on the next election cycle, hence gravitating towards populist measures. In last month’s elections, voters nearly gave a two-thirds majority to the RSP, expecting a total overhaul of such entrenched but corrosive practices. Wagle should act differently from his predecessors in this regard. It is not his job to only want higher stock prices. The focus should instead be on policy aimed at sustained economic growth, which in due course will be reflected in stocks.