--By Bikram Chitrakar

 

The secondary market of Nepal's stocks rallied in a quest to break its historic high levels and establish bull sessions during the review period of May 19 to June 18, 2014. The benchmark Nepse index gained 87.73 points or 10.39 percent to settle at 932.22 for the review period. During the period, the index registered the highest at 938.85 on June 16 while the lowest was at 844.42 on May 20, 2014.

 

Previously, on August 31, 2008 the benchmark index had scaled historic high of 1175.38.  The recent developments of Nepal's stock market encouraged the share analyst, market participants as well as the investors to be bullish in quest to break the previous high within this fiscal year. 

 

After the second constituent assembly elections in November 2013, the growth of the stock market was primarily supported by growth in insurance and hydropower sectors. However, changes in key indicators of the secondary market during the period of last 2 months have suggested that focus has now shifted to banking and financial sector.

 

Most of the Nepse’s influential sectoral indices have presented healthy growth during last two months, which has resulted in the significant growth of the country's secondary market. During the period, banking – the dominant sector of Nepse  –  has posted the growth of 16.38 percent while insurance and hydropower sectors geared up by 14.85 percent and 14.37 percent respectively. Investors’ focus on the banking sector was also motivated by a speculation that the central bank is planning to force the commercial banks to increase their capital base through its upcoming monetary policy. However, central bank has clarified that it has no such plan. 

 

Optimism of investors that the coming fiscal policy that can support the capital market has fueled in recent upshot of Nepse. Hope of drafting of the new constitution in time, stable economic agenda, political clarity and increased private sector participation were some of the reasons that boosted the investor's confidence in stocks. Meanwhile, as the current fiscal year is approaching the end, investors are expecting good financial results from the listed companies. Similarly, low interest rates accompanied by excess liquidity in the banking system have contributed in the recent skyrocketing rise in stock prices. 

 

 

Performance by Sector

During the review period, sub-index of commercial banking added 120.38 points or 16.27 percent to close at 860.33. Hydropower sub-index accelerated 343.37 points or 14.84 percent to rest at 2656.51. Similarly, sub-index of finance gained 41.24 points or 10.19 percent to settle at 445.97 followed by hotel sub-index that went up by 6.78 percent to rest at 1892.56. Similarly, development bank sub-index increased by 6.44 per cent to close at 585.04 followed by insurance sub-index which gained 123.06 points or 3.45 percent to close at 3692.59. However 'Others' sub-index plummeted by 42.29 points or 5.53 percent to rest at 722.53. Similarly 'trading' and manufacturing sub-indices skidded by 0.56 percent and 0.07 percent respectively.

 

Sensitive index, which measures the performance of 'Class-A' listed securities added 21.62 points or 12.05 percent to close at 200.97 while float index moved higher by 7.30 points or 12.63 percent to 65.09. During the period, a total of 26.287 units of shares have been traded through 73,266 transactions amounting to Rs 10532.25 millions.

 

During the review period, commercial bank sector occupied the dominated share trading volume with 51.71 percent of total amount. Insurance sector became the second, which captured 16.01 percent while hydropower sector booked 14.46 percent of the total trade amount. Development bank grabbed 9.99 percent and the rest made up the remaining portion. 

 

Technically, the Simple Moving Average (SMA) of Nepse index has outcast both long term and short term averages, which indicates a possibility of minor correction in the market. However, other indicators suggested that the downward tendency was temporary lasting for few sessions. As indicated by pivot analysis, Nepse index will face resistances respectively at the level of 965.9 and 999.59 while supports level have been seen at 871.47 and 810.73 respectively.

 

 

Chitrakar is a freelance Stock Analyst.