Kathmandu, January 28

The Nepal Stock Exchange (Nepse) index plunged by 87.42 points or 5.98 per cent in the week of January 22 to 26, even as the weekly turnover was slightly better than the past two weeks.

Here is a breakdown of the various factors affecting the market movement and trading amount in recent days:

Liquidity crunch

The prime reason for the muted trading in the secondary market is attributed to the lack of loanable funds with the banks.

"Banks are having a hard time maintaining CCD (credit to core-capital-cum-deposit) ratio at present and have pretty much halted margin lending," said Prakash Rajaure, general secretary of Nepal Stock Investors' Association, explaining the drop in transactions in Nepse in recent months.

Altogether, 6.67 million shares of 155 companies worth Rs 2.23 billion were traded through 19,360 transactions during the week. The traded amount was 19.94 per cent higher than the preceding week when 14,785 transactions of 11.32 million shares of 153 firms that amounted to Rs 1.86 billion had been undertaken.

Even then, the daily transaction amount in Nepse, which hovered over Rs one billion until September has dropped to an average of Rs 399.57 million this month. The market capitalisation has also fallen to Rs 1.55 trillion now from as high as over Rs two trillion just four months ago.

At the same time, banks have been offering impressive rates on fixed deposits at present. With the market facing downward pressure, investors are said to be offloading stocks and transferring funds to the primary market in hopes of better returns.

IPOs, FPOs and rights

The initial public offerings (IPOs), follow-on public offers (FPOs) and issuance of rights shares of the listed companies have also been attributed to the fall in daily turnover in recent weeks.

Recently, the FPO of Nepal SBI Bank was oversubscribed by nearly 25 times the offered amount, while that of Nepal Life Insurance Company (NLIC) was oversubscribed by over three times.

Shikhar Insurance has also already informed Nepse that it will be issuing FPO shortly. Others in the pipeline for FPO include Standard Chartered Bank, Mahakali Bikas Bank and Premier Insurance Company.

IPOs of a few hydropower companies like Aankhu Khola and Rairang Hydropower are also in the pipeline, while a number of listed companies will be issuing rights shares in the coming weeks.

"Investors have also been diverted towards IPOs, FPOs and rights issuance," said Rajaure.

After the allotment of FPO of NLIC, around Rs 55 billion of those who did not get the FPO is expected to return to the banking system. While it had been reported that some BFIs were mulling over offering even higher rates to lure depositors, bankers recently decided not to hike the rates to over 12 per cent — the rates currently being offered by two commercial banks on fixed deposits.

Demonetisation impact

Analysts say the sudden move by the Indian government to demonetise high value banknotes in November last year has also affected the domestic share market.

As India is Nepal’s largest trading partner, the high value Indian currency was widely used after it was accepted as legal tender in the country following the ban on them being lifted in 2015. While the central bank has said that the banking sector holds Rs 33.6 million of the now banned notes, it is believed that a large volume of such banknotes are outside the formal channel.

"Traders who might have a large volume of such notes either had to take loan from banks or sell shares to run their day-to-day business," Rajaure said, explaining the selling pressure witnessed in the secondary market recently.

Measures adopted

The Securities Board of Nepal (SEBON) has issued a media release announcing termination of a provision in a directive of the board requiring deposit amount collected from IPOs and FPOs in Nepal Rastra Bank. The earlier provision required that the amount collected through IPOs and FPOs had to be deposited at the central bank within six working days. The collected amount could be withdrawn from the central bank only after the board’s permission.

The board terminated the provision pointing at its impact on liquidity in the market and said that the decision was aimed at minimising the liquidity problem.

The central bank has also been floating various instruments to ease the situation. Moreover, the National Reconstruction Authority also recently authorised disbursement of funds for distribution of second instalment of housing grant, which is expected to increase liquidity in the market.

"The current situation is the consequence of shortcomings in our system," said Rajaure, adding that both the regulators and the government seem to be taking the current liquidity crisis seriously and have also started taking necessary measures to ease the situation.

Weekly review

Main indices

Opening at 1,462.56 points on Sunday, the benchmark index had edged up by 3.28 points by the day's closing. The local bourse, however, moved on the downward trajectory for the remainder of the week. Nepse index dipped by 7.96 points on Monday, fell by 24.89 points on Tuesday, dropped by 36.38 points on Wednesday and retreated by 21.47 points on Thursday. The benchmark index settled at 1,375.14 points for the week — over a nine-month low. The last time Nepse was at this level was on April 5, when it had closed at 1,375.26 points.

The sensitive index, which gauges the performance of class 'A' stocks, dropped by 18.84 points or 5.94 per cent to 298.48 points. Similarly, the float index that measures the performance of shares actually traded also dropped by 6.81 points or 6.27 per cent to 101.73 points.

Terming the slight correction as a 'natural process', Rajaure believes there is still no reason to panic just yet. "While small investors seem to have been spooked due to downward pressure in the market, large investors are having a hard time managing liquidity to invest in shares at present," he said. "But, as liquidity situation improves, Nepse will also recover."

Subgroups

Among the subgroups, trading remained constant at 206.16 points and manufacturing was the only sub-index to witness any gain in the week. The manufacturing sub-index rose by 68.71 points or 3.31 per cent to 2,145.53 points on the back of Unilever Nepal’s share price going up by 6.11 per cent to Rs 28,651, even as Bottlers Nepal (Tarai)'s stock price slumped by 5.84 per cent to Rs 3,902.

Insurance subgroup recorded the biggest dive of 572.64 points or 8.35 per cent to 6,283.79 points. The sub-index was weighed down by insurance companies like NLIC slumping by 8.72 per cent to Rs 2,500 and National Life down 6.73 per cent to Rs 1,870.

Finance slumped by 49.4 points or 7.01 per cent to 655.22 points, primarily  because of share price of Citizen Investment Trust plunging by 10.52 per cent to Rs 3,445.

Banking plunged by 88.63 points or 6.34 per cent to 1,308.54 points. Hydropower lost 100.85 points or 5.86 per cent to 1,620.92 points. Close on its heels, development banks descended by 76.75 points or 5.06 per cent to 1,438.56 points. Hotels retreated by 85.65 points or 4.6 per cent to 1,775.32 points and others fell by 24 points or 3.3 per cent to 703.67 points.

Chart toppers

Meanwhile, Prabhu Bank (Promoter Share) topped the chart in terms of trading volume and weekly turnover with 1.86 million of its shares changing hands that amounted to Rs 363.08 million. The other listed firms to make it to the list of top-five in terms of weekly transaction were Prabhu Bank with Rs 121.64 million, Nepal Investment Bank with Rs 82.16 million, Siddhartha Bank with Rs 79.88 million and Nepal Life Insurance Co with Rs 77.07 million.

Pertaining to the number of transactions, Prabhu Bank was the forerunner with 1,650 transactions.