Situation of stock market in Nepal

The history of securities exchange in Nepal has started with the first amendment in Securities
Exchange Act (1983) in 1993 which paved the way to establish Securities Board of Nepal
(SEBON).The act also provided the way to convert Securities Exchange Centre (SEC) into Nepal
Stock Exchange (NEPSE) on January 13th, 1994. After the establishment of NEPSE, banking and
finance, insurance, manufacturing and service, and hydropower companies have gradually
started to list their common stocks for trading.

Nepal stock exchange has a history of more than two decades. In the period of 2 decade , the
number of listed companies at NEPSE has increased from 79 in 1995 to 196 in 2018. During the
same period the market capitalization has increased from 5.9% to 52.2% percent of GDP.

Table 1: Scenario of Nepalese Stock Market (1995 to 2018)

Year(AD) No. of listed Market Index Annual Market

companies Capitalization Turnover(in capitalization
(Rs. in millions) millions) to GDP
1995 79 12963 195.48 1054.27 5.9
2000 110 43123 360.70 1157.03 11.4
2005 125 61366 286.67 4507.7 10.4
2010 176 376871 362.85 11,851.11 31.6
2015 237 1057166 1718.15 16395 54.8
2018 196 1856829 1194.8 204787 52.2

Source: http://www.sebon.gov.np

The above table shows the fluctuation in the stock market index, turnover and market
capitalization. Ups and downs in the indicators of the stock market are a regular phenomenon.
The market cannot remain still as there are a huge number of investors interacting to buy and sell
their shares. They have different capacity and different mood and differ in analysis of
information. These differences are the causes for the demand and supply of shares and create ups
and downs in the market. When the market index is high, it is a bullish market where the demand
is high while supply is low as in year 2000, 2007 and 2015. This market is only suitable for the
sale of share. Similarly the low index shows that the market is bearish, which is because of the
high supply but low demand. And this is the market for buyer rather than share. To be a
successful investor and financial consultant, investor should be able to analyze the bearish and
bullish market properly.

Furthermore, table shows that despite of fluctuation in the listed companies of the NEPSE, the
turnover, market capitalization is increasing gradually. The turnover has increased from Rs.
1054.27 million in year 1995 to Rs. 204787 million in year 2018. Turnover in secondary market
is one of the important indicators of an economy. When compared with GDP, it shows the
liquidity situation in the capital market this shows that, there is more liquid cash in the market
and less volatility. Market capitalization is also as an important secondary market indicator as it
is compared with the indicators of the economy. With other indicators, the market capitalization
has also increased from Rs. 12963 million in year 1995 to Rs. 1856829 million in year 2018.
Increase in number of listed shares as well as price per share are the main cause for the increase
in market capitalization. Market capitalization-GDP ratio has increased to 52.5% year 2018 .It
shows that the number of traded shares hence the liquidity in the market is being increased.

The reason for decrease in the listed companies of NEPSE in year 2018 is because of merger and
acquisitions of BFIs. As the number of listed companies was 210 a year ago and 237 five year
ago. Despite of decrease in market index, the market capitalization and turnover is increasing
gradually. This shows that, the number of the investors is increasing in the stock market, which
resulted in the increase in the market capitalization.
Table 2: Sectorial situation of stock market for year 2018 (October)

Type of Institution Indices Turnover (%) Market Capitalization

(%)
Commercial Banks 1347.51 35.05 52.57

Development Banks 1900.44 23.35 11.70

Finance 781.48 3.15 2.86

Insurance companies 8496.88 22.43 16.63

Manufacturing and 2550.97 0.38 2.50

Processing
Hotel 2418.38 1.33 1.77

Hydro Power 1859.73 4.91 4.43

Trading 222.13 0.10 0.07

Others 9.3 7.47

782.03
Total - 100 100
Source: http://www.sebon.gov.np

So, from the above data and calculation, on an average, secondary market of Nepal is highly
concentrated on bank and financial institutions. The market is mainly dominated by banking and
financial institutions. As the share of commercial bank on market capitalization is highest i.e.
52.57 followed by insurance and development banks. Where, there is minimum contribution by
trading, manufacturing industries in Nepal. This may cause problem to construct efficient
portfolio in the market and could be the main barrier for the institutional investors. These are the
problems in capital market which must be corrected for the future growth. For this companies
from real sectors should be encouraged to list in secondary market and all potential investors
should be provided with the facility to trade in the market. Bond market should be facilitated and
investors should be provided with added facilities like margin trading, online trading, depository
services etc. Further efforts to bring additional foreign capital from NRNs or foreign institutional
investors will also help the smooth development of the market

To sum up the situation of stock market in Nepal, stock market in recent years has become an
integral part of economic development and a healthy capital market mirrors the state of economic
development of the country. For a healthy capital market there should be increase in supply of
tradable securities, encourage institutional investors to invest in the capital market, and create a
favorable legal environment to minimize the costs associated for companies to go public and list
on the stock exchange. Besides that, policymakers should seek to increase the number of
professional intermediaries and investors, both individuals as well as institutional and regulatory
environment needs to be strengthened with adequate autonomy to the regulator.

Submitted by

Dipika Uprety

Roll no: 6