Investors reached the breakeven level after shares of Reliance Spinning Mills Limited (RSML) surged for 12 days, closing at Rs 893.30 per unit on Thursday.

The stock traded near circuit levels for most of the period, except on Monday, when its price dropped by Rs 10.20 (1.49%) to close at Rs 675.30 per unit.

On Monday, the Nepal Stock Exchange (NEPSE) index climbed by six percent, triggering the final circuit breaker and halting trading for the day. This huge movement was connected to positive investor sentiment and expectations of political and economic stability, given the likelihood of a stable government following the successful conclusion of the March 5 parliamentary elections.

RSML’s shares debuted at Rs 300 per unit on the first day of trading, far below the IPO purchase price of Rs 820.80 per unit, under a revised NEPSE rule.

According to the new practice, the opening price range for a newly listed security should be up to three times the face value of a share. However, if a company’s net worth per share is generally below the face value of Rs 100, the opening range is determined at up to 3 times its net worth per share.

The new rule deviates from the earlier established practice that the opening price range for a newly listed security should be at up to three times its net worth per share.

The revised provision drew criticism from market participants, while RSML expressed serious concerns over the change. It called the move a deviation from the long-established market practices.

Market participants argued that the new rule has adversely affected investors as a whole. In the case of RSML, under the revised rule, investors were forced to trade shares at prices far below their initial investment of Rs 820.80 per unit.

NEPSE’s Information Officer, Murahari Parajuli, said that the revision follows a decision originally taken in 2068 BS.

However, a member of NEPSE’s board of directors said the earlier decision was made when IPOs at a premium or through the book-building method were not commonplace. “So, a new rule should be adopted regarding the listing of companies’ shares offered at a premium or through the book building method.”

He said the international practices generally allow shares to open at the issued price. “Investors have already agreed to buy shares at the issued price. So, the opening price range could reasonably begin from the issued price,” he said.

Investors and market participants have cautioned that this new rule could discourage IPOs via the book-building method, which is considered a highly effective and dominant system globally because it enables more accurate price discovery and better demand assessment.

RSML was the second company to issue an IPO through the book-building method after Sarbottam Cement Limited.

Chartered accountant and stock market analyst Manish Aryal said the revised rule has both positive and negative aspects. The NEPSE’s rule contradicts the practice of issuing IPOs at a premium or through the book building method, and affects investors the most. According to him, in RSML’s case, investors bought shares at Rs 820.80 per share, well above the opening price of Rs 300.

He said the rule could also indicate that the market remains free and the initial listing price may not determine subsequent price movements.

Stock market analyst Ramhari Nepal termed the new rule a regulatory negligence. “The rule stipulates that the opening price range for a newly listedsecurity should be at up to three times its net worth per share. When it comes to RSML, general people bought shares at Rs 820 per unit and qualified institutional investors at Rs 912 per share. It means the stock should hit the upper circuit for more than 10 consecutive days to reach a breakeven level. This reflects negligence on the part of regulatory bodies,” he said. 

He observed that the newly revised rule penalises the growth-oriented companies.

Stock analyst Ajay Singh Thapa said that although NEPSE’s intention to control price manipulation after listing may be reasonable, the method adopted is flawed. “NEPSE’s initiative to curb excessive price surge may be good. However, this new method is not appropriate. It should seek alternative methods,” he said.