--By Bikram Chitrakar

 

Secondary market of Nepal spurted to new high after six years helped by partial settlement of political uncertainty. The Nepse, benchmark index of country's capital market, surged 37.20 points or 4.52 % to rest at 822.67 on February 20 as the highest of the review period while the lowest was 769.51 on February 03, 2014. On November 09, 2008 stock market index of Nepal had hovered around 810.81, and that has been surpassed by this review period’s closing. The prime factor for this gear up has been pointed to the latest political developments which includes coming of the Constituent Assembly into function and the formation of Sushil Koirala-led Nepali Congress-CPN-UML coalition government. This tipped off the market with optimism and pushed the index to a new high after nearly six years. 

 

The growth in benchmark index has been primarily contributed by insurance and hydropower sectors. Insurance sector has been the new hot cake of investors since the middle of previous fiscal year. Likewise investors have preferred most of the hydropower companies. During the review period, the sub-index of insurance sector has gone up by 652.17 points and hydropower sub-index jumped 344.22 points. 

 

Market capitalization for this period has been fueled up by 5% as compared to the preceding month. Flexible margin lending (loan against share certificates as security) by different financial institutions, excess liquidity in the banking system, narrow down of market interest rates and lack of better investment alternative have underpinned the recent growth in the capital market.  

 

Nepal Stock Exchange (NEPSE) has revised its list of category “A” stocks. The new list has 130 companies compared to 120 in the last year. As per the bylaws, companies with minimum of Rs 20 million paid-up capital with at least 1000 equity holders can be categorized in this group. Besides, the company should also post profit for three straight years and its book value must be above paid-up value. 

 

The momentum of this "A Class" category stocks has been reflected by the sensitive index. With the inclusion of new 10 companies in this category, the ratio of 'A' graded companies with total listed companies now stands at 57%. Thus, the movements of the sensitive index and Nepse index show similar pattern. This indicates the need for introducing more categories and classification.    

 

Performance by Sector

Following the positive trend of previous weeks, most of the sub-indices under Nepse registered growth during this review period too in addition to banking and ‘others’ sub-indices. Insurance sub-index turned to be the highest gainer of the review period with a growth of 652.17 points followed by hydropower sub-index, which increased by 344.22 points. Hotel sub-index also added 245.11 points to rest at 1402.23. Development bank sub-index went up the hill to 54.52 points while trading sub-index registered a growth of 15.04 points. However, banking sub-index faced the losing session with downfall of 14.40 points to rest at 765.85 while 'Others' sub-index settled at 793.02 down by 3.52 points during the review period.  Meanwhile, Sensitive index that reflects the movement of “A Category” stocks of Nepal Stock Exchange ascended 4.09 points or 2.29% to settle at 178.64 points while float index went up 2.55 points to 55.19.  During the review period, total of Rs. 5.98 billion turnover was realized from 16.67 units of share traded through 53,942 transactions.

 

During the period, 44.51 percent of the total turnover was captured by commercial banks. Insurance sector grabbed the second position with 20.79 percent while 18.23 percent was occupied by hydropower sector. Rest of the portions of total turnover were covered by remaining sectors. 

 

Technically, the Simple Moving Average (SMA) of Nepse index is aggressive when SMA of these 30 days and the past 200 days are compared. Despite the positive expectations, chances of correction at this level seem prominent. However, Nepse index may further rise to test some psychological levels and perhaps next resistance. As per the pivot analysis, the next resistance of Nepse range is at 840.39 and 858.11, while the support levels stand at 787.23 and 751.79 at lowest.

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