When the Bhotekoshi river surged through Rasuwa, Nuwakot and Dhading districts on August 26, it did more than tear down roads, bridges and hydropower infrastructure.

It sent a wave of anxiety through Nepal’s stock market.

Shares of hydropower companies came under pressure as investors assessed what the floods could mean for an industry that holds one of the largest shares of the country’s equity market. Insurance companies were also caught up in the selloff as investors anticipated potentially large claims from damaged hydropower projects.

Yet the physical damage is concentrated in a relatively small number of projects.

Around a dozen hydropower projects and related infrastructure in Rasuwa, Nuwakot and Dhading were affected by flooding along the Bhotekoshi and Trishuli rivers. Only about half a dozen are owned by companies listed on the Nepal Stock Exchange, or NEPSE. Among the listed companies with directly affected projects are Rasuwagadhi Hydropower, Chilime Hydropower, Mailung Khola Hydropower and Trishuli 3B Hydropower.

Yet, since the floods, the hydropower sub-index has fallen by about 65 points. The decline has spread beyond companies whose projects were directly affected, suggesting that investors are responding not only to known losses but also to uncertainty over what comes next.

“The flood was unprecedented, so it was natural for investors to panic initially,” said Bharat Ranabhat, a former president of the Stock Brokers Association of Nepal. “But the damage to a few projects does not mean the entire hydropower sector is at risk.”

Hydropower occupies an unusually large place in Nepal’s stock market.

As of July 16, 302 companies were listed on NEPSE, including 111 hydropower companies. Banking, financial services and insurance accounted for another 133 companies.

Hydropower companies make up about 17.5 percent of total market capitalisation. Banking, financial and insurance companies together account for 51.8 percent.

That concentration means a shock to either group can quickly affect the broader market.

Since August 26, the hydropower sub-index has shed about 65 points, while the overall NEPSE index has declined by around 16 points. Non-life insurance, life insurance and the “other” category have also weakened.

But most listed hydropower companies have suffered no direct physical damage.

That has left investors trying to separate two risks: losses at individual projects and the possibility of a broader shock to the sector.

Niranjan Phuyal, chief executive of NRN Infrastructure and Development Limited, said available information suggested that only around half a dozen listed hydropower projects in Rasuwa and Nuwakot had been directly affected.

The financial consequences will depend on what was damaged and how quickly it can be repaired.

Dams, headworks, powerhouses, access roads and transmission infrastructure can face very different levels of damage. A project that resumes generation quickly could absorb the disruption. A plant forced to remain offline for months or years could lose substantial revenue.

“Only after details emerge about what was damaged, how much insurance money will be received and how much will be needed for reconstruction can we determine the impact on the share prices of the affected companies,” Phuyal said.

That information is still emerging, leaving investors to price risk before the final cost is known.

The performance of hydropower shares since the flood shows that investors are not simply abandoning the sector.

Seven of the 10 companies whose share prices have risen the most since August 26 concern hydropower. Seven of the 10 biggest losers are also hydropower companies.

The apparently contradictory performance reflects company-specific conditions and expectations as much as the flood itself.

Still, the first reports of destroyed infrastructure raised immediate questions over generation losses, repair costs, insurance claims and the ability of projects to return to operation. Those concerns quickly spread beyond the companies directly exposed to the disaster.

Ranabhat described the initial reaction as panic selling.

But that reaction may not persist once investors have better information.

Ramchandra Bhattarai, a stockbroker and director of Aryatara Securities, said investors who initially sold shares in response to flood reports were beginning to distinguish between affected and unaffected projects.

“Investors are now gradually understanding the actual situation,” he said.

The broader weakness in the market also predates the flood. Bhattarai said sluggish economic activity and weak private-sector confidence remained important constraints on the market’s recovery.

The flood has also exposed the close relationship between hydropower and insurance.

Hydropower companies insure their physical infrastructure through non-life insurers.

But insurers generally do not retain the entire risk. They reinsure part of their exposure, spreading potential losses through the insurance system.

That means a large hydropower claim could affect an insurer, while part of the eventual cost could fall on reinsurers.

Nepal’s insurers have previously dealt with major losses following events such as the 2015 earthquake and the Covid pandemic. The immediate concern is therefore less about the industry’s survival than the size and timing of flood-related claims.

The total damage is not yet known, nor is it clear how much will be covered by insurance or which companies will bear the largest liabilities.

Investors have nevertheless begun pricing in that uncertainty.

The “other” sub-index, which includes Nepal Reinsurance Company and Himalayan Reinsurance, has fallen by about 63 points since the flood.

Whether those declines will correspond to actual losses remains unclear. For now, the market is trading ahead of the final claims.

The flood’s effects extend beyond hydropower and insurance.

Telecommunications infrastructure in Rasuwa, Nuwakot and Dhading was also damaged, with initial estimates putting physical losses at around Rs450 million. Restoring networks will require additional investment and could affect earnings.

The broader market is therefore absorbing a chain of potential costs: lost electricity generation, damaged roads, reconstruction bills, insurance claims, and new spending on telecommunications infrastructure.

But reconstruction could also create opportunities.

Ranabhat said rebuilding damaged infrastructure could increase demand for cement, steel rods, paint and other construction materials, potentially benefiting manufacturing and processing companies.

The disaster may therefore produce both winners and losers rather than simply dragging down the entire market.

“The effect of the flood will be visible for a few days and then subside,” Ranabhat said. “What will have a long-term impact on the market is the inability to restore confidence among the private sector and investors.”

Liquidity could provide some support as the market absorbs the shock.

Santosh Koirala, president of the Nepal Bankers’ Association, said banks continue to lend against shares as liquidity remains adequate and interest rates are low.

That does not guarantee a quick recovery. Investors still need clearer information before they can distinguish temporary disruption from lasting financial damage.

Four numbers will matter most: the extent of physical damage, the time required to restore generation, the cost of reconstruction and the amount insurers ultimately pay.

Until those figures emerge, the market is likely to remain sensitive to headlines and incomplete assessments.

That helps explain why the market reaction may appear disproportionate to the damage confirmed so far.

Only a small share of Nepal’s 111 listed hydropower companies have projects directly affected by the floods. Yet the entire sector has weakened, while insurers and reinsurers have also come under pressure.

The immediate impact is sentiment. The lasting impact will be financial.

If damaged projects resume operations without prolonged interruptions and insurance covers much of the reconstruction cost, some of the current pressure could prove temporary. But if repairs take years, revenue losses mount and claims exceed expectations, the affected companies could face sustained pressure.

For now, the Bhotekoshi flood has created a genuine financial risk for some companies, but there is little evidence yet that it has fundamentally changed the outlook for Nepal’s entire hydropower industry.

The market is waiting for the flood to recede from the balance sheets as well as from the rivers.