The Nepal Stock Exchange (NEPSE) index declined sharply this week, hit by profit-booking and growing uncertainty following recent political developments.

The benchmark index closed at 2,738.72 points, down 49.98 points (1.79 percent) over a four-day trading week shortened by the International Labour Day holiday on Friday.

The market showed a steady downward trend throughout the week, eroding investor confidence and portfolios. Total market capitalisation fell to Rs4.67 trillion from Rs4.75 trillion a week earlier, wiping out around Rs80 billion in investor wealth in just four sessions.

The hydropower sector led the losses, followed by declines in hotels and tourism, and manufacturing. Market participation also declined. Total weekly turnover dropped to Rs21.18 billion, down 27.9 percent from Rs29.38 billion the previous week. The daily average turnover fell to Rs5.29 billion from Rs5.87 billion.

Analysts said the combination of falling prices and lower turnover suggests that while sellers remained active, institutional buyers stayed on the sidelines. Investors appear to be waiting for clearer signals from upcoming third-quarter earnings and developments related to the arrest of high-profile individuals linked to listed companies.

Among individual stocks, Shikhar Power Development Limited was the top gainer, rising 5.86 percent to Rs974. In contrast, Mai Khola Hydropower plunged 22.84 percent to Rs559, marking one of the steepest declines of the week.

Reliance Spinning Mills Limited (RSML) recorded the highest turnover at Rs1.16 billion, despite its share price falling 8.76 percent. National Hydro Power Company (NHPC) led in trading volume, with more than 2.44 million shares exchanged, indicating continued retail activity.

Market analyst Shakti Koirala said the decline, coupled with lower volume, points to weakening selling pressure and a potential entry opportunity for investors. He said many traders remain in a wait-and-see mode due to uncertainty surrounding recent high-profile arrests and market performance.

Koirala added that the correction is partly driven by sharp falls in stocks that had previously surged without strong fundamentals. In contrast, fundamentally stronger sectors such as banking and insurance have shown relative stability, which he said could be a positive signal for the market.

He expects the market to consolidate in the near term unless new developments shift investor sentiment.