--By Bikram Chitrakar

 

The Stock market of Nepal witnessed a strong unusual movement after completion of the second elections for Constitutional Assembly (CA) and announcement of the results. Investors’ sentiment was purely bullish  and Nepse registered high trade volumes and frequent circuit breaks in the trading platform. The benchmark Nepse index skyrocketed by 150.07 points or 18.60% taking the secondary market to a 5-year high of 806.82 on December 18, 2013. The index was hovering around the same level in November 11, 2008. The final results of the CA elections further stimulated the stock market which had already leaped after the elections were over. Besides hope of political sustainability has improved the bullish sentiment leading the market to gain nothing like before.  

 

The gaining momentum has been supported by excess liquidity in the banking system despite the central banks several rounds of reverse repo operations with an aim of absorbing the excess liquidity from the market. Liquidity available with the investors at this time has also helped to boost the market as average daily turnover in Nepal Stock Exchange has now crossed Rs. 500 million. Likewise lack of potential investment opportunities in the real sectors has flooded fresh additional investments in the stock market.  

 

Following the excess liquidity in the financial system, cut in interest rates for deposit as well as lending by Banks and Financial Institutions (BFIs) and relative flexibility in share margin loan have also underpinned the recent growth in the country’s stock market. However informally it has been heard that Nepal Rastra Bank, the regulator of the country’s banking industry, is mooting introduction of some rigid measures on loan against share certificate. If so is the case, there may be some corrections in the market.  

 

Performance by Sector

Following the previous trend, insurance sub-index topped the gaining chart with increase of 280.11 points for the period to rest at 1997.51. Hydropower sub-index added 248.03 points or 13.55% to settle at 1831.09. In the mean time, Hotel sub-index moved higher by 195.02 points to rest at 1100.64 on December 18, 2013. The Banking sub-index stepped up 192.84 points or 23.19 % to close at 831.66 while the sub-index of Development Banks registered a gain of 97.25 points for the period. The ‘Others’ sub-index accumulating the heavy scrip of Nepal Telecom surged 54.03 points to settle at 822.38.

 

Sensitive index that measures the performance of 120 ‘A’ class companies listed at the secondary market moved higher by 28.78 points or 15.70% to settle at 183.28 while the float index calculated on the basis of real transaction of listed securities went uphill by 8.71 points or 16.37% to close at 53.21. Total of Rs. 7390 million turnover was realized during the review period from the business of 21.16 million units of share via 48,940 transactions.

 

During the period of November 24 to December 18, 2013, commercial banks accounted the most of the turnover covering 70.84% of the total. In the mean time, Insurance sector covered 11.04% and development bank 7.71% followed by hydropower sector with 7.06% and the rest of the sectors made up the remaining portion. 

Technically, the Simple Moving Average (SMA) has dominated both 30 days SMA and 200 days SMA. Unusual strong growth in index has invited correction at this level. Hence cautious observation is required at this level to determine support and resistance regions.  

(Chitrakar is a Stock Analyst with Jamb Technologies Pvt Ltd.)