The Nepal Stock Exchange (Nepse) posted its strongest weekly performance in months, with the benchmark index rising 76.76 points, or 2.95 percent, to close at 2,677.54 on Friday, as trading activity and investor confidence rebounded.

The rally was accompanied by a sharp increase in liquidity. Weekly turnover surged 48.5 percent to Rs29.19 billion from Rs19.65 billion a week earlier, lifting the average daily turnover to Rs5.84 billion from Rs3.93 billion.

The market's total capitalisation increased by Rs140 billion to Rs4.60 trillion from Rs4.46 trillion, boosting investors' wealth by Rs 140 billion.

All sectoral indices ended higher, reflecting broad-based buying.

The Non-Life Insurance sub-index led gains, rising 3.76 percent to 11,043.12. Manufacturing and Processing advanced 3.47 percent to 10,612.86, while the Investment sub-index gained 3.41 percent to 99.06. The Banking sub-index, the market's largest by weight, climbed 3.21 percent to 1,460.60.

Ankhu Khola Jalvidhyut Company was the week's most actively traded stock, with shares worth Rs737.7 million changing hands. It also led trading volume with 2.12 million shares exchanged. NRN Infrastructure and Development followed with a turnover of Rs560.6 million, while Reliance Spinning Mills recorded Rs519.7 million.

Among individual stocks, Three Star Hydropower was the top gainer, jumping 19.12 percent to Rs405. Pure Energy rose 16.94 percent to Rs870.

Upakar Laghubitta Bittiya Sanstha was the biggest loser, falling 11.09 percent to Rs2,845, while Kutheli Bukhari Small Hydropower dropped 9.48 percent to Rs1,194.

Market analyst Shakti Koirala said the rally was driven by optimism following discussions by the prime minister, finance minister, the Securities Board of Nepal (SEBON) and parliamentary committees on measures to support the stock market. He also described the advance as a technical rebound after a prolonged decline.

However, Koirala said the market has yet to show signs of a sustainable short-term uptrend. The benchmark remains below its 200-day exponential moving average (EMA) and continues to form a pattern of higher lows and lower highs, indicating that the broader trend remains weak.

He is more optimistic about the longer-term outlook, saying many fundamentally strong stocks are trading at attractive valuations and that planned economic reforms and measures to develop the capital market could support sustained growth.

Market analyst Manish Aryal shared a similar view, saying recent active efforts by SEBON to facilitate greater investment from institutional funds, including the Employees Provident Fund, Social Security Fund and Citizen Investment Trust, could provide additional liquidity to the market.

He noted that while these funds already invest in the stock market, SEBON’s latest efforts to facilitate and encourage increased participation from such institutional investors could help support the recent market rally.

A sustained rise in trading turnover will be crucial if the current rally is to continue, he said.