Panic at the stock market as monetary policy dents investor confidenceInvestors remain skeptical over the policy’s effectiveness in improving the market.
The stock market plunged 14.15 points on Thursday, a day after the Nepal Rastra Bank released the Monetary Policy for the current fiscal year as investors remained skeptical over the policy’s effectiveness in improving the market.
The Monetary Policy has targeted to improve the banks’ liquidity position by enforcing a number of measures such as permitting the banks to take loans from a hedge fund and pension fund based abroad. In addition, the policy has made it mandatory for banks to issue 25 percent of the paid-up capital in debentures by mid-July 2020.
Banks have been allowed to collect fixed deposits from foreign citizens and non-resident Nepalis with a minimum maturity period of two years. According to stockbrokers, these measures could help improve the banks’ position in extending credit even to the secondary market investors.
“Investors are still not convinced that the provisions could bring down the interest rate. They fear that the provision of debenture in particular could create a shortage in funds,” said Bharat Ranabhat, president of Stockbrokers’ Association of Nepal.
On Thursday, indices of all the sub-groups landed in the red. However, the transaction amount stood firm at Rs550.53 million, which the stockbrokers said was due to investors rushing to sell their stocks. According to them, the central bank adopting a lenient policy in getting banks to merge also affected investor sentiment.
“Investors who were expecting the central bank to force banks to merge were not happy with the monetary policy, said Pralhad Kumar Oli, a stockbroker at Pragyan Securities. This caused many investors to flee from banks’ shares and the market index of commercial banks fell by 12.56 points, according to the Nepal Stock Exchange.
The central bank has targeted to reduce the number of commercial banks to almost half from the existing 28 banks. “Investors fear that their money invested in shares of these banks might get held for a long time if the regulator delays in making a decision on their merger,” said Oli. He cited an incident a few years back when the regulator delayed releasing the book close date for banks going into merger. “As a result, investors had to wait for a long time to sell their shares.”
Oli added that the lack of confidence in the monetary policy led to panic selling in the market.
Nepal’s stock exchange has been experiencing a bearish trend on the backdrop of the high interest rate charged by the banks. Although the authority has expressed its commitment to enforce the measures to reform the secondary market, delay in implementation has also been affecting the market.
Tulsi Ram Dhakal, vice president of Nepal Investors’ Forum, said the monetary policy has fairly addressed the underlying problems in the country’s stock exchange. “As the policy has adopted long-term measures to address the liquidity and interest rate issues, investors have reacted negatively,” said Dhakal.
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