Rumors Led the Market
By Rabindra Bhattarai
Agreements, one after another between the Seven Party Alliance (SPA) and the Maoists, added fuel to the market during November. It has continued to increase from the October-end also because of the announcements by the commercial banks and finance companies to distribute bonus shares at very high rates.
The NEPSE index rose to 492.46 on November 29, gaining 84.08 points within a month. It was only 408.38 at the end of October. A similar bullish trend was observed in the stock exchange after the reinstatement of the Parliament on April 24 and the revision of monetary policy in July.
However, the latest bullish trend was not sustained for long. The market turned bearish from early December, losing over 15 points in a few days. This is attributed to the news that the price actions on the market were not based on strong fundamentals.
The agreement signed between the SPA and the Maoists on November 8 sent the NEPSE index jumping by over 11 points on the following day. A similar phenomenon was observed after the peace accord was signed on November 21 which caused the NEPSE index to increase by 45.98 points within the following week.
This phenomenon is attributed to the new confidence of receiving better returns in the future from investments in the market. The regular market speculators were trying to cash in on the political agreement by spreading rumours of a better economy in the future.
Similarly, speculators spread propaganda about NB Bank's future prospects after its management was taken over by the Nepal Rastra Bank (NRB). NB Bank's shares gained over Rs. 100 reaching Rs. 335 after the NRB took over NBB’s management. This was quite unjustified on the basis of the bank's fundamentals. The book value of the bank at the end of the fiscal year 2004/05 was only Rs. 65 per share. Just before NRB's takeover, depositors had withdrawn over Rs. 3.5 billion from the bank drastically reducing its business capacity.
Similar negative information had dragged the market price of the Nepal Credit and Commerce Bank down to Rs 189. The bank's deteriorating performance and the decreasing creditworthiness of its promoters had led it into a liquidity crunch in recent days. But a rumour that a Japanese company would invest in the bank pushed the market price up by almost Rs. 90 per share between late November and early December. Though the net worth per share was only three paisa at the end of the fiscal year 2004/05, investors were blindly attracted to buy the bank's shares because of this rumour. NEPSE had to halt the transactions of the shares as the price rose by over 10 per cent in a single day in early December.
