Analysis by Sagar Ghimire
Jan 3: Amid euphoria among investors who are feeling more optimistic about the prospects of a more comfortable environment for investment, the upward journey of the Nepal Stock Exchange (Nepse) Index is expected to continue and surpass 2013´s record of 806.82 points.
They hope to benefit from a rallying secondary stock market this year against the backdrop of improvement in the political situation of the country.
The Nepse Index -- which measures the investors´ confidence in the capital market -- reached a five-year high on December 18 to close at 806.82 points. Daily turnover also touched an all-time high of Rs 810 million the following day.
Investors seem to be ready to put more money on shares backed by the strong gains enjoyed over the last year.
They are hopeful that 2014 will be a year of highs and good reward for them. "The market has promised big returns for us this year which is reflected in the impressive surge of the benchmark index in recent days. The bullish trend is set to stay put in the coming days," Balaram Phuyal, a migrant returnee who has poured his hard-earned overseas earnings into shares, told Republica on Thursday.
Phuyal, a frequent visitor to Vision Securities -- a broker agency in Putalisadak -- predicted that unlike in 2013, when the market started climbing up only in the final months, the market this year will surge in leaps and bounds throughout the year. "The new year will bring rejuvenation for investors. Growth will rock the capital market," he added.
Enticed by the growth after a five-year slowdown, investors have a couple of reasons that has restored their confidence in a market revival.
The sweeping victory of parties advocating free market policy in the Constituent Assembly (CA) election has shored up the confidence of the investors. Investors are feeling more secure following an agreement among the parties pledging to move ahead with the constitution drafting process.
However, others view the surge in the secondary market with caution.
For them, the abrupt growth in the market could prove to be a disaster waiting to happen at some point.
They maintain that the market has been rallying largely on sentiments, speculation and the whim of a handful of vested-interest investors rather than proper evaluation of the companies´ financial positions.
An investor requesting anonymity told Republica that investors should be careful while investing, especially at a time when a roller coaster like situation exists in the market.
"A handful of big investors are taking the share market into their hands creating the situation to trade shares as per their benefits. This will bring the existing rally in stock market back to the position of earlier disasters," said the investor, recalling the slowdown toward the end of 2008 after the markets hit new heights early on.
The investor is cautious that the market will be manipulated by them as they take advantage of the positive political development and other favorable developments.
In response to the unusual trend seen in the market, regulatory bodies employ control measures to secure the interest of investors. Nepal Rastra Bank (NRB), the central bank, though it is not the capital market regulator, has expressed its concerns over ´impressive´ growth in the stock market and demanded details from banks about the status of margin lending with them.
NRB´s move worked as a speed breaker on the soaring market to bring down the upsurge of the benchmark index.
The Securities Board of Nepal (Sebon) Spokesperson Niraj Giri said the securities market regulator was closely watching the capital market activities and conducting the necessary surveillance.
"We regulate and systematize the market as and when required to prevent any undue manipulation by anyone," said Giri.
Stock analyst Bikram Chitrakar, however, argued that the rising trend would be sustained by strong backing by some factors.
"The relatively swelling daily turnover, investment diversification rather than concentrating in a particular sub-group and the increasing entrance of new investors to secondary market are the key reasons that have been supporting share market to maintain sustainable growth," he said.
He also said modernization in trading at the stock market, increase in newcomers and hope of a positive political course held by investors will support further gains in the share market in the coming days.
Stock Brokers´ Association of Nepal President Narendra Raj Sijapati told Republica that the market will see higher growth this year ruling out chances of a freefall.
"The market has already headed toward a bullish trend. We are entering a year which has been greeted with better macro economic prospects that has upheld investors´ sentiments," he added.