April 1: NEPSE Index seems to taking a decline, after an advisory warning from the regulatory body Securities Board of Nepal (SEBON). After reaching record high on Sunday at 1377 points, the benchmark index of the country’s capital market began a downhill journey. Over the last four days, the index has dropped by 21.85 points. The decline that started from Monday is becoming wider per day which also indicates that there is further possibility of downfall.

Previously, SEBON had cautioned investors while investing in the capital market. However, Aatma Ram Ghimire, Chairman of Nepal Investors’ Forum (NIF) sees no further corrections or higher rate of decline in the stock market in the present context. “There is still excess liquidity in the banking system. Until the interest rates are in lower levels, it is unlikely that the capital market will come down.”

Commercial banks are still providing margin lending at a rate of 6 percent, whereas development banks are charging 10 percent. The interest rates offered by commercial banks for deposits are still as low as 4 percent. Similarly, most of the large banks have lowered their interest rate as low as 1 percent in savings account. Availability of cheap money is attributed to the rise in stock investments, analysts say.  

Psychological impact
Share investor Purushottam Khatiwada views that steps taken by SEBON over the last few months to improve capital market has boosted confidence of investors. NIF Chairman Ghimire also agrees with Khatiwada. “Morale of investors is high due to the corrective measures taken by SEBON, in a bid to encourage good governance, transparency and social justice in capital market,” he says.

As the effect of Tarai unrest and border blockade has gradually faded over the past few months, the government’s prioritisation of economic issues in foreign policy has also boosted investors’ confidence, according to analysts.

Share liquidity and increased velocity 
Demat trading of shares have specifically contributed in excess liquidity in the securities market. “Compareed to the materialize share transaction, Demat trading has increased the velocity of trading by 10 times.  Previously, ownership transfer of shares used to take three months. With the new trading system in place, the clearance time has reduced to five days which has resulted in investors activities to secure short term profit and ‘rapid’ turnovers.”  

In the past, such ‘rapid’ turnovers were carried out through Blank Transfer (BT), but it also used to take three months to get ownership of such shares. On the other side, issuance of new shares and stock dividend distributed by the companies has also contributed the excess share liquidity in the market, as per the investors.

As investors can now settle their Demat transaction from outside Kathmandu valley, capital market has further widen with the entry of new investors, experts says. “It will improve the demand side of share market and support participation,” says investor and analyst Purushottam Chamouriya. “It has reduced the possibility of NEPSE index declining in huge margin,” he adds. 

Meanwhile, NEPSE index declined by 7.5 points (0.55 percent) to settle at 1355.48 points on Thursday, the last day of trading for the week ending on March 31. Trading of 127 companies were carried out in 3,113 transactions with1.07 million units of shares changed hands worth Rs 637.85 million.