After a long time, the country’s sole secondary market started making strong recovery since last month, fuelled by investor optimism, easy availability of loans from banks and financial institutions and other seasonal factors. While share investors have become more mature compared to the initial days of Nepal Stock Exchange, the market movement continues to swing wildly based on the comments of prominent personalities. In this context, Umesh Poudel of The Himalayan Times spoke to Prakash Rajhaure, an independent stock analyst, to get his views on the current situation and future trends of Nepse. Excerpts:
What is your overview on the current status of the secondary market?
After slumping to nearly 1,100 points, Nepse has recently become bullish. Every stock market undergoes the cycle of bull and bear, it’s a universal phenomenon.While the trading volume, turnover and number of transactions had dropped in recent months, investors had started to panic. But the recovery since the last month is positive news for share investors.
In the context of Nepal, our stock market is driven by the grand supercycle or Elliott wave theory, where five major elements come into play — impulse, correction, impulse, correction and another impulse. This creates a five-wave pattern, whether the market is bullish or bearish. Since last month, the number of share transactions, turnover amount and trading volume have gained massively, which has made share investors optimistic and is likely to propel the growth of Nepse in the coming days.
It is said that the share market mirrors the economy. But this does not seem to hold true for Nepal. What is your view?
Actually, I think the statement holds true for our secondary market as well. Nepse always reflects the scope for investment and returns in our economy. But it mostly depends on the capacity of the leadership. At the same time, we have to realise that the share of real sector companies in the share market needs to go up for it to really reflect the real picture of the economy, which is lacking in our case. Hence, the government should provide incentives to real sector firms to enter the share market. Even if the provision requiring any company with paid-up capital of over Rs 500 million to issue shares to the public were to be implemented, the share market will actually give a clear picture of the economy. When the benchmark index had peaked at 1,881 points in July of 2016, the total market capitalisation and our gross domestic product (GDP) were similar. While the grand supercycle’s fifth wave was working at that time, the new grand bearish trend followed. As per my analysis, the recent cycle will end around fiscal year 2024-25, when the market capitalisation will be similar to the GDP of the country at that time. So, this is a prime time to invest in the share market. The returns from investing in shares are quite good. For example, some of the projects of the energy ministry are being financed by share investors’ money.
But our share investors’ sentiment seems to be mostly guided by comments of one person or the other. Why is this so?
I don’t think that someone’s statement alone can significantly influence the market movement. However, in some instances, this has happened. In the present context of our stock market, rookie investors sometimes say that the market has been driven by the statement of the finance minister or the chairperson of the Securities Board of Nepal or other prominent persons, which is wrong. Their statements may have caused a slight fluctuation at best. To prove my point, I would like to recall the Hrithik Roshan incident back in 2000, when there were massive riots following his negative comments about Nepal. Subsequently, Nepse index, which was at around 1,100 points plummeted to below 300 points. So, what was the relation between the Indian actor and the share market? None. The market only moved as per its cycle and turned bearish after reaching a saturation point. So, what actually influences the market movement is the government policies that affect the share market. The sway in the market movement based on someone’s comment just means that our share market has not yet matured.
Earlier, the government announced it planned to issue a stock market dealer licence. Do you think this is necessary?
A stock dealer is needed when the secondary market is undergoing a turbulent time. For instance, if the market crashes and banks and financial intuitions are unwilling to issue share loans, the stock dealer comes into play. In our case, as the market has already entered a bullish phase, a stock dealer is not necessary at present. Having said that, issuing a stock dealer licence may be prudent as a contingency plan, but strict measures need to be in place to ensure it does not engage in monopoly.
The government has floated the idea of establishing another stock market. What is your opinion on this?
Looking at the size of our economy, another stock exchange is quite unnecessary. I think Nepse needs to be modernised as per the international standards. The government should introduce provisions whereby even international investors will be able to invest in our share market. Another stock exchange will be necessary if the size of our economy expands massively or a large number of listed companies express desire to list at another share market, which has not happened yet. If you look at our southern neighbour, they have only two stock exchanges despite the massive size of its economy. The reason for two stock exchanges in India is because some Indian firms are unwilling to list their shares in one of the exchanges. I personally suggest the government to provide broker licence to commercial banks to increase the access of the general public as well as for trading transparency.
What do you think are the measures that should be taken for the overall development of Nepse?
Among others, the secondary market primarily needs introduction of timely policies. The government should amend the existing provision that bars international investors from investing in our share market. The government should also allow investment in dollars and refrain from putting a ceiling on investment, which would make Nepse more attractive for foreign investors. Similarly, the government should bring incentives that encourage blue chip companies like Ncell, Surya Nepal, Dabur Nepal, among others, that are currently not listed in the stock market to float their shares. Moreover, our share market continues to be bogged down by technical glitches and the market regulator needs to look into it seriously.
Although we have come a long way compared to the initial days, a large number of share investors lack maturity. So, the government should conduct awareness programmes for share investors. Also, some large investors continue to influence the market. For this, the market regulator needs to be stringent and take action against anyone found to be engaging in such illicit behaviour. At other times, the government should let the market run its course without making any interference.