Support
at 616
By Matrika Babu Pokhrel & Pratistha Bhurtel
T he Nepali stock market in March was characterized by
the following remarks: Market dropped, major indexes
plunged, trading chart dipped in red pool and transactions became skinny. The market was under the bear regime as the political obscurity, which has always dampened the local market, continued to mop the hope. The bourse was witnessing continued downturn with a few insignificant revivals for three weeks, but got a swift surge in the last week of the month after Finance Minister Dr. Baburam Bhattarai visited the stock exchange and gave some positive remarks about the stock market in an effort to correct the wrongs he had inflicted some time back when he had termed the stock market as a casino.
The market reaction was overwhelming with the benchmark Nepse index growing to 683.50 (the month’s high) in the first trading day after the Finance Minister’s remark. However, the effect faded the next day as the central bank disseminated a gloomy economic outlook. The Nepse index at the end of March was 664.13. On March 1, it was 676.3.
Another special feature of the month was the sudden news of Bank of Kathmandu CEO Radesh Pant relieved of his duty.
The market contraction in the month was led by greasy slump in development bank (down -6.53%) followed by a loss in insurance (down 5.35%) and finance (down 2.96%) sector. Also the other groups lost the ground as the NTC sellers grew active. Among the gainers were banking (0.16%), hydropower (6.23%), hotel (1.81%) and manufacturing (3.90%) groups though their gain could not offset the loss in the other sectors. The intense selling pressure of the blue chip stocks brought also the sensitive index down. The “A” grade company barometer lost 0.87 points or 0.48% to close at 177.73 from 178.60. Moreover, float index - calculated on the basis of real transactions – lost 0.34 points or -0.51% to end at 65.54.
Clean Energy Development Bank Ltd. (CEDBL), Triveni Bikash Bank Ltd. (TBBL), Merchant Finance Co. Ltd. (MFCL) and Purwanchal Grameen Bikas Bank Ltd. (PGBL) were listed in the secondary market this month. The trading floor got swamped by 114 companies with the gainers far outnumbering the losers. However, the index dropped due to hefty slump in some giant companies. Merely 26 companies melted down while 34 scrips bolstered their performance. In general, 1980296 shares changed hands via 20700 transactions. Turnover of, Rs. 1276469848 was realized by the end of the trading hour of the month.
The market price was dominated by the 200 day’s Simple Moving Average (SMA) price, which indicated that the investors had oversold the stocks. The benchmark’s preeminence has been losing its grip for last four months as the swelling supply pressure has hit the market hard. The short-term traders remained active all through the month. Few upturns that were realized were the result of the series of short-covering rather than the full-fledged buying.
The figure accompanying this article shows sector-wise distribution based on the total amount of trades. Of the total amount transacted this month, commercial banks accounted for 42%, indicating that the share of this group is reducing in the transaction volume. The share of the development bank (27%) and the finance (19%) in transaction increased. Meanwhile, the share of the insurance group stood at 7% and that of hydroelectricity and others group was 3% each.
Market Outlook
Fundamentally, the market is in a panic mood backed by dynamic trading pattern. Market psyche is abnormal. Investors are showing the most chaotic behaviour since the inception of the Nepali capital market. Market confidence level is down and future outlook is much more uncertain. It is observed that the market is not only experiencing political pressure but is also afraid of global economic disaster which is slowly hitting the sectors like remittance, foreign investment, real estate and so on. The so-called ‘double-digit growth’ dream shared by Maoist-led government has failed as the Asian Development Bank has forecasted Nepal’s GDP growth this year to be contained at 3%. Perhaps, we’ll see a crash in real estate sector backed by gloom in the economy with poor confidence level of investors, industrialists and the, general people. There is still possibility that quarterly earnings of FIs may miss expert forecast in their earnings this time. Analyzing these chaotic scenarios, we should expect some miracle in o ur economy before our stock market takes flight to the bullish territory. The table illustrates the fundamental health of major companies.
Fundamental Health of Major Companies
On the other hand, technically the market is experiencing accumulation pressure in which most of the astute investors are collecting scrips that are at their lowest low. Analyzing the past trends of Relative Strength Index (RSI), the market is sharply trading on neutral zone (see chart). Relative Strength Index experienced its lowest high at 37th scale on the week of December 01, 2008. Recently RSI got reversal at the level of 51, which indicates that NEPSE got resistance on 676 making ‘M’ pattern utilizing RSI at the week of December 01, 2008 and the week of Feb 16, 2009. Hence, the technical analysis indicates that NEPSE should go down from this reversed trend and may get support at the point of 616.
