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Market Analysis
Investing amidst flux: The test for Stock dealers

By R.K.Regmee

R.K.RegmeeThe Nepal Stock Exchange enters the second decade of the 21st century amidst serious challenges for survival and growth in an economy which has been victimized by prolonged political instability and not friendly investment policies. A flash-back at NEPSE would be in order for putting stock trade in perspective as it opens the first trading day of 2011 on Monday January 3.

The one factor highly essential for smooth running of stock market - STABILITY - may also be simply missing in the New Year as in the past. The secondary market has no option but to learn investment techniques amidst instability. Various factors leading to disturbance in the country's economy cannot be wished away that easily in short term.

A number of issues capable of troubling economy are about to emerge through the window of politics. Some examples could be found in the vacuum to be created by UNMIN-departure in a fortnight, subsequent complications for integrating Maoist combatants, misunderstanding about picking up new Premier and sharing power and the road-map to follow when the Constituent Assembly completes extra-tenure on May 28 with job of finalizing Constitution unfinished.

The art of investment in instability

Financial experts might dismiss in theory the possibility of making stock trade survive in unstable atmosphere. But the experience of NEPSE stores a lesson for them. Stock dealers made it survive through several ups and downs over the past two years when NEPSE saw a decline from promising state - 1175.38 points of August-end 2008 - to dismal performance - 404.06 points - of December 29, 2010. Market capitalization also went down to Rs. 350.28 billion - a great fall from 2008 capitalization of Rs. 612.54 billion.

Very recently, as the capital market closed the final year of the first decade it recorded loss for the second year to the tune of 142.82 points. None of the 227 days in which NEPSE yard witnessed activities in 2010 appeared comfortable for investors.

There was always either one or the other non-investment factor actively engaged to disturb their stock decisions. The secondary market witnessed a six-day-stoppage towards end of February when investors had to put political pressure on government not to neglect stock trade. It remained completely locked-up during May 2-7 Maoist general strike.

Financial measures have also been hitting the market on occasions. It was the hiking of capital gain tax by government that punched it unnecessarily some two years ago. Banks and financial institutions made upward revision of interest rate on loans which stole the source of investors' finance. Both measures affected the sensitivity of stock trade very badly.

As a result, stock-friendly policies followed later could not respond properly to boost investment in NEPSE. Provisions such as Central Depository Services, Mutual Fund Regulations, portfolio guidelines and opening gates of NEPSE for nonresident Nepalis (NRNs) have been worked out rightly and professionally. Their impact, however, does not look encouraging.

Had they been effective, NEPSE performance in 2010 would not have been this disappointing. Its yard had opened business for the year with 546.88 points on January 3, 2010 and ended it with 404.06 points on December-end. Nepalnews.com Jan 2, 2011

The writer can be reached at [email protected]

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