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Budget Hopes (july 2011)

  30 min 43 sec to read

By Bikram Chitrakar

 
Nepal's stock market has started showing some hopeful signs in recent days though during the month till mid-June it was falling down a precipice. The benchmark Nepse index plummeted 43.38 points or 14.29% to settle at 303.53 on June 16. The highest points in the review period was on 18 May (346.91) and the lowest was on 15 June at 292.32, which is lower that what it was on 25 Jun, 2005 (292.47).

 
Nepse plummeted after a panic spread across the banking and financial institutions due to liquidity crunch and bad governance. The governance crisis which had started from Nepal Development Bank two years ago and spread to Samjhana Finance Company gripped Gurkha Development Bank and Nepal Share Markets as well. Recently, most of the banks and finance companies are suffering liquidty crisis and they are turning to Nepal Rastra Bank (NRB) for help. NRB has opened refinancing facility to address the problem. Under this facility, there is a provision to provide refinance up to 60 percent of the core capital of the banks and financial institutions.

 
During the review period, the Securities Board of Nepal (SEBON) introduced the mutual fund regulation, CDS regulation and Credit Rating Agency regulation. However, all these failed to uplift the market which fell to six years low. Therefroe, the government has urged cash rich public sector instituions namely Employees Provident Fund, Citizens Investment Trust (CIT), Rastriya Beema Sansthan and Nepal Telecom to invest in the secondary market and create demand for shares so as to boost up the market confidence.

 
The result has been that the market surged 60.87 points during the week 16-23 June. Also the hope that the government’s budget for the coming fiscal year that starts on mid-July will be presented to the parliament in time has helpd in the latest surge in the market.

 
Delay in presenting the budget for fiscal year 2010/11 is cited as the prime reason for the liquidity crunch. Due to that delay, a massive sum of Rs 30 billion in the government budget is likley to freeze as the government is not able to speed up expenditure. The delay in the current year’s budget was due to obstruction of the parliamentary proceedings by the then main opposition party UCPN-UML. But the present main opposition party Nepali Congress has indicated that it will not cause obstruction in the parliamentary proceedings related to budget approval.

 
Performance by Sector

During the review period, the banking sector which holds the major share in the volume of trade in Nepal Stock Exchange plummeted 57.20 points or 23.02% to close at 248.44. Hydropower sector lost 178.81 points or 36.85% to settle at 485.3. Insurance sub-indices descended 25.25 points along with 23.96 points decline in the trading companies group. Similarly, development banks declined 20.89 points or 7.52% to 277.8. Hotel sector receded 14.70 points or 3.67% to rest at 400.35. Finance sector slumped 9.58 points to close at 295.

 
Sensitive index that measured the performance of 117 blue chips scrip at the secondary market lost 11.03 points or 14.75% to 74.8 while, the float index calculated on the basis of real transaction lost 4.10 points to arrive at 25.15. Total of Rs. 426328626 was realized during review period from 1987186 units of share traded via 25826 transactions.

 
The accompanying figure depicts the sector-wise distribution based on the total volume of trade. Commercial bank has occupied the highest share of trade - 48.90% while Development Bank group accounted for 16.52% and hydropower sector 14.97%. Similarly, finance sector’s share was 8.32% while the remaining sectors covered the rest.

 
Technically, Simple Moving Average (SMA) is dominating the market in the short term as well as in the long term as both 30 days SMA and 200 days SMA are performing poor. Similarly, the Nepse index is bending which will suggest further fall if it fails to stabilize near 300. But since the June 16-23 week has pulled the index up to 364.4, the market has become optimistic again.


(Chitrakar is a Stock Analyst with Jamb Technologies Pvt Ltd.)

 
Movement in Indices (18 May - 16 June 2011)


Indices
Open
High
Low
Close
Change
% Change
Nepse
346.91
346.91
292.32
303.53
-43.38
-14.29
Bank
305.64
305.88
234.01
248.44
-57.20
-23.02
Sensitive
85.83
85.98
71.7
74.8
-11.03
-14.75
Development Bank
298.69
299.37
277.7
277.8
-20.89
-7.52
Hydro
664.11
664.11
473
485.3
-178.81
-36.85
Finance
304.58
304.58
295
295
-9.58
-3.25
Insurance
426.05
426.05
398.1
400.8
-25.25
-6.30
Hotel
415.05
415.05
398.66
400.35
-14.70
-3.67
Manufacturing
504.17
504.17
483.25
501.8
-2.37
-0.47
Tradings
265.96
265.96
241.97
242
-23.96
-9.90
Others
477.04
486.44
430.1
460.6
-16.44
-3.57
Float
29.25
29.25
24.3
25.15
-4.10
-16.30

 

 

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