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Speculative Boom
Following the change in the political environment from February 1 the share market has turned bullish with the Nepse index reaching 265.97 on February 28 from the 247.41 on 31 January. A gain of 18.56 points in a month is perhaps a record high growth. The index stepped up by 5.68 point in a single day (February 16).
However, there wasn’t any fundamental reason behind the increase in the market price of the shares this time. Logically, the market should be bearish at this time because many companies have already held AGMs and distributed dividend to their shareholders. The price of the shares after the distribution of the dividend should fall because the buyer should wait one whole year to take the next prospective benefits from the company. For example, the share price of Nabil Bank should have decreased after the distribution of 65% dividend, by almost Rs.65. Similarly the price of Standard Chartered Bank, Nepal should also have fallen by Rs 110. But that is not what is happening.
Therefore, the existing bullish trend seems to be guided by a gambling instinct. Investors are pouring their funds into the share market due to rumours rather than due to change in the fundamentals. The change in the political environment may have improved the investors’ confidence.
Gainers of February Boom
| Name of Companies |
Market Price (Rs.) |
Difference |
Percentage change |
28 Feb 2005 |
31 Jan 2005 |
| Laxmi Bank Ltd. |
295 |
215 |
80 |
37.21 |
Machhapuchhre Bank Ltd. |
217 |
173 |
44 |
25.43 |
Bank of Kathmandu Ltd. |
380 |
305 |
75 |
24.59 |
NIC Bank Ltd. |
280 |
236 |
44 |
18.64 |
Lumbini Bank Ltd. |
166 |
142 |
24 |
16.9 |
Kumari Bank Ltd. |
307 |
265 |
42 |
15.84 |
Nepal SBI Bank Ltd. |
379 |
339 |
40 |
11.80 |
Everest Bank Ltd. |
745 |
674 |
71 |
10.53 |
Nabil Bank Ltd. |
1280 |
1170 |
110 |
9.4 |
Nepal Bangladesh Bank Ltd. |
235 |
217 |
18 |
8.29 |
| Standard Chartered Bank Nepal Ltd. |
1861 |
1733 |
128 |
7.39 |
Nepal Investment Bank Ltd. |
1208 |
1170 |
38 |
3.25 |
Himalayan Bank Ltd. |
987 |
976 |
11 |
1.13 |
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Looking at the figures closely, it can be noticed that the market is totally dominated by the banking sector and the Nepse index is pushed up by the increase in the prices of bank shares. The share prices of all the banks have increased. Among them the prices of the new banks have increased by higher percentages than the prices of old banks. This could be because the prices of the old banks were already high making them unaffordable to small investors. Investing in the shares of new banks requires small amounts because of their low prices. In the other sectors very few shares are transacted and the prices have changed only marginally.
Since the prices have gone up due to speculative buying, some speculators will very soon start encashing the profit. If the market holds steady when such profit taking phase starts, then only can we be sure that the present surge in the market is not simple speculation.
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