Increase in Height not in Breadth
By Rabindra Bhattarai
The Nepal Stock Exchange (NEPSE) Ltd., a government owned monopoly, was happy to announce that 10 new companies were listed in its floor during the fiscal year 2005-2006. With this, it earned a handsome listing fees in addition to the renewal fees from the already listed companies, though many of them are technically insolvent and rarely traded in the stock exchange.
Similarly, the market capitalisation has gone up to Rs 96 billion in the year 2005-06 from Rs. 61 billion. This 57 per cent growth is enough to show to the public that the market is growing even in the politically unstable situation when all the macroeconomic indicators were dismal. Likewise, the number of securities listed, average daily turnover, number of traded companies increased by 16.37, 26.49 and 16.39 per cent respectively over the previous fiscal year 2004-05.
These figures show a healthy growth of Nepal 's stock market. But the authorities concerned are not thinking about the breadth and efficiency of the market. The number of listed companies increased, but nine out of the 10 new companies listed were from bank, insurance and finance companies with the tenth a hydropower company. As a result, the market was dominated by commercial banks occupying over 70 per cent of the trading volume. This is not a healthy sign as the number of profitable companies from manufacturing sector (sometimes rightly called the real sector) is abysmally low in the exchange.
Listed companies, their number, share traded and turnover |
|
Listed companies |
No. of Share Traded (000) |
Turnover (Rs. In million) |
|
2005-06 |
2004-05 |
% change |
2005-06 |
2004-05 |
% change |
2005-06 |
2004-05 |
% change |
Commercial Banks |
15 |
14 |
7.14 |
5534.72 |
6416.57 |
13.74 |
2696.28 |
4221.83 |
(32.96) |
Development Banks |
8 |
7 |
14.23 |
386.44 |
135.62 |
184.94 |
82.76 |
22.01 |
276 |
Insurance Cos |
15 |
14 |
6.67 |
574.93 |
328.13 |
75.21 |
129.90 |
67.62 |
92.10 |
Finance Cos |
50 |
44 |
12 |
1957.46 |
1443.34 |
35.62 |
305.85 |
216.37 |
41.36 |
Manufacturing and processing Cos |
29 |
29 |
0 |
59.80 |
7602.89 |
(99.21) |
17.19 |
114.90 |
(85.04) |
Hotel Cos |
4 |
4 |
0 |
392.18 |
98.17 |
299.49 |
19.77 |
4.48 |
341.29 |
Trading Cos |
8 |
8 |
0 |
15.22 |
10.42 |
46.07 |
19.80 |
7.99 |
147.81 |
Other Cos |
6 |
5 |
20 |
3301.15 |
2398.42 |
37.64 |
183.88 |
52.48 |
250.38 |
Source: NEPSE Trading Report 2005-06
Summary Statistics of NEPSE in Fiscal Year 2005-06 |
|
2005-06 |
2004-05 |
% Change |
Turnover (Rs. In million) |
3451.43 |
4507.68 |
(23.43) |
Market Capitalization (Rs. In million) |
96763.74 |
61365.89 |
57.68 |
Average Daily Turnover (Rs. In million) |
19.10 |
15.10 |
26.49 |
Market Days |
228 |
236 |
(3.39) |
Number of Transactions |
97374 |
106246 |
(8.35) |
Number of Company Traded |
110 |
102 |
7.84 |
Number of Shares Traded (000) |
12221.93 |
18433.55 |
(33.70) |
Number of Listed Securities (000) |
226540 |
194673 |
16.37 |
Number of Companies Listed |
135 |
125 |
8 |
Market Index |
386.83 |
286.67 |
34.94 |
Source: NEPSE Trading Report 2005-06
In fact, the market's efficiency is decreasing day by day. The market is guided not by the fundamentals (balance sheet figures or professionally forecast future), but by rumours. The movement of the market after the monetary policy for the current year was first announced is a glaring example. Neither the government nor NEPSE nor the Securities Board is serious about improving the performance and efficiency of the market.
The increase in the number of companies traded in 2005-6 is due to new listing, not by trading in the previously listed companies. Similarly, the daily turnover increased because the number of transaction days decreased. Thus in reality, the daily turnover has not increased. The number of transactions decreased because of the number of brokers is decreasing every year. The decrease in the number of brokers is not a good indicator for market efficiency. It hinders the principle of fair and competitive market.
While the bourses elsewhere are adopting newer technology, NEPSE unabashedly prides itself for having a unique trading system (primitive open-out-cry system). The high officials of the government some times visit the NEPSE to show that they are still around but they remain silent on the issue of modernising it.
To improve the breadth and efficiency of the market, the authorities concerned must focus on modernising the market and expanding it into different cities. If Sri Lanka, a much smaller country than Nepal, has a number different trading centres outside the capital, why can't Nepal do the same? The exchange should also increase the number of brokers and the market itself to increase the number of listed companies from the real sectors, and control rumour-mongering by the speculators.
