By Bikram Chitrakar

March 15, 2011 proved a fateful day for the Nepal Stock Exchange (NEPSE) Index as it touched 376.75 which is the lowest point for over four years and eight months. NEPSE was 376.77 on July 2, 2006. Though the index recovered a bit and reached 377.6 on March 20, it is still not clear whether the revival is going to hold steady.

The reason for the latest decline in the NEPSE is the amendment proposed by some Maoist-affiliated Members of Parliament in the Bill presented to the parliament by the government to amend the Bank and Financial Institutions Act (BAFIA). The issue came out to the light after the bankers held a press conference and made the details public. The most important point objected by the bankers is the proposal by the MPs to replace the words ‘liberal economy’ by ‘self-reliant mixed economy. That is interpreted as an attempt towards curtailing economic freedom in the country.

As a result, the benchmark NEPSE index receded 27.60 points or 7.31% during the review period to settle at 377.6. The highest point during the review period was on 20 February when it was 405.2.

Among the other proposals of the MPs objected by the bankers is one from industrialist MP Padma Jyoti. It wants to restrict the banks from asking any collateral security except the project properties for which the loan is being extended. But more important point that sent jitters across the market triggering a frenzy of sales is the proposal to restrict businesspersons from holding more than 5 percent of the shares in a bank or financial institution. As most of the listed companies are banks and financial institutions and such companies at present are majority-held by businesspersons, the proposed amendment is likely to force them to sell their holdings, thus increasing supply of shares in the market.

Nepal Rastra Bank (NRB) and Securities Board of Nepal (SEBON) came forward to calm the market. The central bank decided to allow banks to operate mutual fund. It also relaxed a bit its restrictions on banks extending loan against the security of shares. The banks can now renew such loan for this year if the borrowers pay the interest. Moreover, the banks are directed not to make the margin call if the market price of the share held as security falls less than 10 percent.

Meanwhile, the Central Depository System (CDS) is set to start from next month, according to the Central Depository System and Clearing Company formed by Nepal Stock Exchange to set up and operate such system. The company has informed that the required software for CDS has already been prepared and necessary hardware system is being installed. It can be hoped that the Nepali capital market will have CDS system in place by April. 

Performance by Sector

Commercial banking sector that dominates the largest volume of trade in Nepal Stock Exchange lost 33.32 points or 9.95% to settle at 334.89 during the review period. Hydropower sector shed 66.51 points or 10.14% to rest on 655.88. Development bank descended 21.20 points while other sectors skid 18.79 points to arrive at 334.43 and 524.03 respectively. Insurance sector declined 14.97 points or 3.20% to settle at 467.43. Similarly, hotel sector reduced 2.46 points followed by 1.46 points in the trading sector. However manufacturing sector gained 3.61 providing as the sole survivor in the market mayhem in the review period.

Sensitive index that measures the performance of 117 blue chips at the secondary market descended 7.98 points or 8.61% to arrive at 92.7 while the float index calculated on the basis of real transaction plummeted 2.64 points to 31.81. Total of Rs. 385442296 was realized during the review period from 1741938 units of share traded via 31558 transactions.

The accompanying figure illustrates the sector-wise distribution based on the total volume of trade. As usual, the banking sector dominated the volume of trade covering 40.75%. Finance sector and development bank shared 22.33% and 22.13% respectively. Hydropower accounted for 7.28% while remaining sectors held the rest.

Technically, Simple Moving Average (SMA) is commanding the NEPSE index which is below both 200 days SMA and 30 days SMA signifying further weakness in both short and long term. However, as the NEPSE index is flat, it is likely to gain back towards 390 while the further downward journey will lead towards 350.

(The writer is a stock analyst with Jamb Technologies Pvt Ltd)

 Movement in Indices (20 Feb - 20 Mar 2011)