Daily transaction at Nepal Stock Exchange (Nepse) for the last 19 days has been hitting over Rs 1 billion mark, forcing the Securities Board of Nepal (Sebon), the regulator, to ask investors to be cautious and think twice before investing.

The bullish run at the domestic secondary market at a time when the country’s macro-economic fundamentals are not in good position has baffled many. On Sunday, transaction at Nepse almost reached Rs 2 billion mark.

Despite the Sebon warning, investors have been making a beeline for the country’s sole stock market, largely in the wake of announcements of right share issuances of financial institutions and capital increment plan of insurance and micro-finance companies.

Investors have been buying stocks of insurance companies, micro-finance companies and commercial banks, leading to a surge in the stock market.

Over the said period, the Nepse index also surged 113.81 points to close at a record high 1,609.59 points on Monday.

Along with the rise in index and transaction volume, the number of traded shares has also gone up. During this period, average daily traded shares stood at 2.15 million units in an indication that people are aggressively selling and buying stocks.

The capital increment plan of the financial institutions and insurance companies is one of the reasons for the bullish run at Nepse.

With one year left to boost their paid-up capital to Rs 8 billion as per Nepal Rastra Bank (NRB) directives, commercial banks have been issuing right shares to increase their capital.

Similarly, the Insurance Board has already asked life insurance companies to increase their capital base to Rs 5 billion from the existing Rs 500 million and non-life insurance companies to Rs 4 billion from the present Rs 250 million. This too has resulted in surge of stock price of insurance companies as well as their demand. Currently, investors’ priority is stocks of insurance companies, micro-finance and commercial banks.  

Stock analysts said lucrative returns offered by stock market at a time when other sectors are performing

poorly, along with low interest rates offered by the banks, have pulled the investors towards the domestic secondary market.

“The rise in number of risk takers has led to increasing transaction volume in the secondary market,” said stock analyst Rabindra Bhattarai.

Stockbrokers echoed Bhattarai.

Pralhad Kumar Oli, managing director of Pragyan Securities, said new investors are coming into the capital market.

“Apart from individual investors and mutual funds, institutional investors too are coming into the capital market. Besides, traders and entrepreneurs are also investing,” he added.

Sebon Spokesperson Niraj Giri, however, said, “Investors should be cautious when the index alone continues to see a dramatic surge without any backup of transaction amount.”