As panic selling gripped the investors, the Nepal Stock Exchange (Nepse) index fell by whopping 88.81 points—the highest single day loss—on Monday. With the market reeling under a strong selling pressure, investors lost Rs98 billion on the day.
With the market on a free-fall, Nepse was forced to impose the circuit breaker, just two hours into the trading. The circuit breaker system is applicable in three stages of the index movement either way at 3 percent, 4 percent and 5 percent. With more than five percent fluctuation in the Nepse index, the trading was suspended for the rest of the day
It was a black Monday at Nepse as all the trading groups, except the manufacturing, saw a steep decline. The insurance sector was the worst hit losing 537.84 points, followed by the finance companies, the commercial banks and others. Nepse index that opened at 1764.74 points on Monday closed at 1675.91 points.
Stock analysts point to multiple factors for the current situation. According to them, influx of new investors looking for high returns, profit booking by big players, rumours of capital increment of insurance companies and micro-finance institutions (MFIs), overpricing of stocks along with regulator’s move to probe black money in stock market influenced the market.
The proposed capital increment plan of the financial institutions and insurance companies was one of the reasons for the bullish run at Nepse. Stocks of the insurance companies and the MFIs surged dramatically over the past year, with the investors going on a buying spree. However, they suffered a jolt when the central bank did not make any announcement regarding the capital increment for the MFIs in the new monetary policy. This led to a steep fall in the prices of MFIs stocks.
“The market is currently in a panic mode and many of the new investors are losing confidence as the index continues to fall,” said Atma Ram Ghimire, president of Investors’ Forum.
Some of the analysts define the bearish run in the last eight trading days as market correction. “Many of the stocks were overpriced and a correction was inevitable,” said Prakash Tiwari, financial analyst at Hathway Nepal, an investment company.
According to Tiwari, the market is currently ending its bull cycle as the dividend payout capacity and the effects of right and bonus share allocation have started to fizzle.
The influx of new investors, according to stock analyst Rabindra Bhattarai, was the reason why Nepse surged by over 600 points in a relative short period.
“The market lost 10 percent in the last two weeks because of these new investors who panicked when the stock prices started to slide,” said Bhattarai.
Recent comments from the Securities Board of Nepal (Sebon) also stoked fear and dented investors’ confidence, say some analysts.
Amid bullish run, Sebon has been consistently warning the investors to exercise caution while making investments.
It also formed a committee to probe alleged inflow of illicit money into the capital market.
“Regulatory authorities should not pass statements that influence the market trajectory. While they have right to guide the market, they should stop micro-managing it,” an analyst added.
Sebon calls for calm
Kathmandu: Amid accusations that it has been repeatedly influencing investors, Sebon on Monday requested investors for calm and not to lose confidence.
“Keeping in mind the publication of financial statements by listed companies and fair profit posted, investors are requested to conduct fundamental and technical analyses and take rational investment decisions,” Sebon said in a statement.
It, however, downplayed the accusations regarding influencing the securities market, saying that the board has always performed its duties while letting the market philosophy guide the market.
“The board has always suggested the investors to base their decisions after undergoing a study of market condition, reforms and various aspects of the listed companies,” the statement added. (PR)
Prahlad Rijal is a business reporter at The Kathmandu Post, focusing on the energy sector. Before joining the Post, Rijal was an online reporter at The Himalayan Times.
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