Stock Taking

Stagnating Signals

 The fourth quarterly reports of the companies failed to boost the market

While the fourth quarterly reports of the previous fiscal year were coming in, it looked like that the share market of Nepal was going to get another boost. Almost all the banks and financial institutions (a sector that dominates this market) were reporting increased profit for the previous year. But that did not happen. The benchmark Nepse index lost 11.53 points or 2.91% to rest at 396.83 at the end of the review month. The session’s high was on 23 July (408.36) and the low was on 15 August (392.03).

The reason was however obvious. The investors ignored the satisfactory reports as pessimistic sentiments (about dividend yield) ruled the environment. Shares of major blue chip companies fell down despite the companies showing healthy performance in the last year.  However the hydropower companies were exceptions as they registered straight growth stoking expectations of attractive dividends. Three out of the four listed hydropower companies reported grown in their income pushing the group index up.

Also the monetary policy for the fiscal year 2069/70 failed to drive the stock market. The policy has increases Cash Reserve Ratio (CRR) for the Banking and Financial institutions. This is sure to push up the lending rates causing restraint in borrowing and thus in the business volume and profits of the banking companies. In the review period, the Securities Board of Nepal (SEBON) has suggested Citizen Investment Trust CIT) to mobilize Rs 5 billion in the secondary market to boost up the sagging sentiments in the market. CIT says it is evaluating the feasibility to undertake the role of a market maker. If CIT really takes up this role, it will be a milestone for the betterment of capital market in Nepal.

Performance by Sector

 Banking sector which occupies the major volume of trade in the exchange plummeted 26.68 points or 7.52% to 354.7. Finance sector descended 12.74 points or 5.05% to 252.21 while development bank lost 6.92 points to close at 246.18. Trading sector receded 4.23 points to come to 187.74. However hydropower sector gained hefty 65.69 points of 8.53% to settle at 770.53. Manufacturing sector too went up 42.06 points to 728.8 while there was 17.62 points increase in others to 635.62.

Sensitive index that measures the performance of 133 blue chips plunged 1.78 points or 1.74% to 102.11 while the float index calculated on the basis of real transaction went down 1.41 points or 4.64% to 30.37. The turnover was of Rs. 1,362,406,374 during the review period from 4,572,497 units of share traded via 27,297 transactions.

The accompanying figure shows the sector-wise distribution based on the total volume of trade. Commercial bank has accounted for 63.31% of total volume of trade. Hydropower sector occupied 20.49% while remaining sector covered the rest.

Technically, the Simple Moving Average (SMA) indicates to stagnation in the short term as both Nepse index and 30 days SMA are moving flat. In the long term analysis, the index has already crossed the 200 days SMA indicating that an absence of strong fundamentals will lead to correction.

 Chitrakar is a Stock Analyst with Jamb Technologies Pvt Ltd.