Nepal Stock Exchange (Nepse) index plunged 58.46 points on Sunday to close at below 1,600 points, thanks to excessive selling pressure at the secondary market and cash shortage felt by those holding banned Indian bank notes.

This was biggest one-day fall witnessed by the stock market since August 9, when the index had nosedived 84.51 points.

The free fall at Nepse began soon after the market opened for trading at 11 am. By 12:37 pm, the index had slumped by 4 percent. This prompted Nepse to halt stock trading for 30 minutes till 1:07 pm. The circuit breaker helped the market to recoup some losses and the index closed 3.53 percent lower at 1,599.62 points.

This was the first time the secondary market had closed below 1,600 points since June 12. On Sunday, almost every sector ended up in red, with insurance sector emerging as the biggest loser. The insurance sub-index lost 400.67 points to close at 8,240.52 points. This was probably the biggest one-day fall witnessed by the sector.

The second biggest loser was the hydropower sector, as it shed 86.07 points. This was followed by banking sector, which lost 58.88 points. Other losers were: development banks, down 53.83 points and hotels, down 35.88 points. Finance companies and manufacturing sector also suffered losses of 30.77 points and 20.45 points, respectively.

Sunday’s losses erased Rs63.12 billion off the stock market, prompting market capitalisation to drop to Rs1,779.52 billion.

The market booked heavy losses after most of the investors offloaded shares to book profit, according to Narendra Raj Sijapati, managing director of Kalika Securities. Also, Indian government’s decision to pull IRs500 and IRs1,000 out of circulation has affected the stock market, Sijapati said.

“Many big investors, who have not been able to exchange large stock of IC they are holding, have stopped purchasing shares,” he added. “Instead, these investors are now offloading shares to meet other liabilities, raising the supply of stocks on the market.”

As supply of stocks has outstripped demand, investors have started losing confidence in the market, triggering a selling spree, which is exerting pressure on share prices, Aatma Ram Ghimire, president of Nepal Investors’ Forum, said.

“In addition, the government has been defaulting on many of its promises,

which has hit investor confidence,” Ghimire said, giving example of delay made by the government to introduce a regulation that would pave

the way for Non Resident Nepalis to enter the domestic stock market.

“Likewise, plans to allow more banks to conduct works related to clearing and provide licences to new companies to operate from outside the Kathmandu Valley

have not taken off. These factors are also hitting investor sentiment.”

On Sunday, 1.5 million units of shares were traded, generating a turnover of Rs1.24 billion.