By Bikram Chitrakar

Market still waiting for the breach of 380

(Nepal Stock Market Review for 26 June to 24 July, 2011) Despite moving more than 18 points up during 26 June-24 July period settling at 329, Nepal's stock market is still in an indecisive stage. Technical analysis indicates that Nepse Index should cross 380 mark before the investors can be confident to commit good money in the bourse.

 

The major influencing factor of the review period was the government budget for the fiscal year 2011-12. This is the first time since the Constituent Assembly election of 2008 that the government budget was announced in time, i.e. before the fiscal year started. As a result, the planned government expenditure is expected to be spent this year which will help ease the liquidity crunch in the banking system and boost economic activities around these expenditures. Moreover, the budget has also announced some direct measures that are expected to boost the market. One major announcement was the reduction in the capital gains tax in share investment from 15 percent to 10 percent for institutional investors and from 10 to five percent for the individual investors. Also announced was relaxation in the deadline for the merger of banks and financial institutions by one more year till mid-November 2012. Banks that notify the authorities by that time that they have decided to merge will get a number of concessions including the tax as was announced in the last
year's budget.

 

Therefore, the benchmark Nepse index started moving up even before the budget was announced and gained 18.66 points or 5.11% during the review month to settle at 365.43. The highest point during the month was on 20 July at 380.23 and lowest on 27 June
at 329.49.

 

Even a couple of days before the budget announcement, the Central Bank relaxed its strictures on loans to the real estate and housing sectors as well as on loans against the security of publicly traded share certificates. Similarly, the market is hoping for the banks and financial institutions to announce healthy financial positions when they make public their fourth quarterly financial reports.

 

Bulk trading of Friday, 15 July gained a proportion of a scandal of a sort as Friday is fixed for odd lots (smaller than 10 units of shares) transaction only. That bulk transaction distorted the NEPSE index on following Sunday, but Nepal Stock Exchange says that anomaly was fixed immediately. Securities Board has been asking the Stock Exchange to explain the discrepancy.

 

During the review period Securities Board of Nepal (SEBON) announced programs for coming fiscal year including Central Depository System, Credit Rating Agency and Mutual Funds. Likewise Monetary Policy for the year 2068/69 was released on 21 July affirming the pre-budget and budget announcements.

 

Performance by Sector

Commercial banking sector was dominating the volume of trade in Nepal Stock Exchange also during this review month. This sector accelerated 27.23 points or 8.08% to close at 365.43. Manufacturing sector gained hefty 50.44 points to reach 587.34 while hydropower sector moved up 19.57 points to rest at 608.36. Others sector surged by 15.27 points along with 9.04 points up in hotel sector to reach 487.61 and 408.07 respectively. However insurance sub-index skidded 17.26 points or 4.15% to rest at 415.81. Development bank lost 0.05 points or 0.02% to
close at 296.4.

 

Sensitive index that measured the performance of 117 blue chips scrip went up 4.08 points or 4.54% to 89.85 while the float index calculated on the basis of real transaction increased 1.62 points to 31.07. Total of Rs. 1689316916 was realized during review period from 4457556 units of share trade via 19340 transactions.

 

The accompanying figure illustrates the sector wise distribution based on the total volume of trade. As usual commercial bank sector covered the highest volume holding 46.69% of total trade followed by manufacturing and processing sector (43.57%). Hydropower sector occupied 3.62% and development bank sector 2.68% while other sectors made up for the rest.

 

Technically, Simple Moving Average (SMA) is performing higher in the short term as Nepse index is higher than 30 days SMA forming M pattern which may result into correction. In the long run it is still weak. Only breaching the level of 380 will create some acceleration.

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