The Nepal Stock Exchange (Nepse) entered the Dashain holiday after seven consecutive sessions of gains, with banking and insurance shares leading the five-session rally over the week. Rising turnover points to improving investor confidence, but analysts say the rally will need stronger trading activity and broader participation to sustain its momentum after the holiday.

The benchmark index gained 42.37 points, or 1.63 percent, over five trading sessions from October 12 to 16, closing at 2,634.17 points. Market capitalisation rose by Rs70 billion to Rs4.53 trillion from Rs4.46 trillion a week earlier.

Total turnover increased 22.18 percent to Rs22.53 billion from Rs18.44 billion in the previous week, averaging Rs4.51 billion a day. It peaked at Rs4.88 billion on the final trading day before Dashain.

The rise in both prices and turnover suggests the rally is attracting more trading activity. But daily turnover remains below the Rs6 billion level that market analyst Jagannath Dhungel considers necessary to sustain growth. Whether trading picks up after the holiday will be a key test of the rally’s strength.

Banking shares led sectoral gains, with the subindex rising 3.77 percent, or 57.22 points. Life insurance gained 2.82 percent, development banks 2.60 percent and non-life insurance 2.04 percent. The Sensitive Index, which tracks selected large and liquid companies, rose 2.60 percent.

The sectoral pattern points to strong demand for financial stocks, potentially driven by expectations of stronger first-quarter bank earnings, upcoming dividend announcements and access to margin lending. Hotel and tourism, other, and manufacturing and processing stocks, however, saw some profit-taking. This suggests that the advance was not uniform across the market, with investors favouring financial shares over some other sectors.

Individual stocks also showed contrasting patterns. Kumari Bank was among the most actively traded companies, recording Rs1.18 billion in turnover. Beni Hydropower Project, meanwhile, gained 29.3 percent to close at Rs353 per share. While Kumari Bank attracted substantial trading value, Beni Hydropower recorded a sharp price rise. The figures alone do not establish whether the hydropower stock’s gains were supported by comparable trading depth.

Chartered accountant and market analyst Manish Aryal said the gradual increase in the index and turnover reflected improving market sentiment. He expects margin lending by brokers to expand after Dashain, potentially giving investors additional purchasing power and supporting demand.

Only 13 of Nepse’s 92 brokers currently provide margin loans, and lending remains limited, Aryal said. Investors have been reluctant to borrow before the holiday because interest would accrue while the market is closed. An increase in margin lending after Dashain could provide further support, although it would not guarantee a sustained rally.

Aryal sees potential in banking, insurance and manufacturing stocks, citing the fundamentals of some companies in these sectors. He said banks and financial institutions were also interested in insurance shares, which they are permitted to hold and sell after 45 days under the applicable rules.

Dhungel said the market’s ability to maintain investor participation and turnover before Dashain was encouraging, as trading activity has typically fallen sharply during the festival in previous years. Companies that have yet to announce dividends could provide another catalyst after the holiday, he said. Expectations of stronger first-quarter financial results from banks may also be drawing investors towards banking shares.

However, both analysts warned that the Securities Board of Nepal’s requirement for brokers to provide transaction details for trades worth Rs1 million or more could affect investor confidence. Aryal said the provision raised concerns about the privacy of investors and traders, while Dhungel also cautioned that it could weaken market sentiment.

Technical indicators support a positive short-term outlook, with Nepse trading above its 20-day exponential moving average (EMA), while its 14-day relative strength index stands at 59.85, below the conventional overbought threshold of 70. The indicators suggest upward momentum without an overbought reading, but do not guarantee further gains.