--By Bikram Chitrakar

 

Nepali stock market, which has been on a record-breaking spree for some months now, reached a single day turnover of above a billion rupees on July 21, 2014. The benchmark Nepse index escalated 163.93 points (15.16 per cent) during June 23 to July 23, 2014 to settle at 1081.51 points. High for the session was 1083.55 recorded on July 21, 2014, which is also 6 years high. 

 

On July 21, 2014, Nepal Stock Exchange limited (Nepse) recorded the historic daily turnover of Rs 1.2 billion. Investors' confidence was boosted with the announcement of monetary policy that insisted the banks and financial institutions (BFIs) to raise their capital base through bonus share offerings. However, investors were disappointed with the government’s fiscal policy, which was expected to introduce capital market reforms through the introduction of transaction tax, full fledged online trading system and other micro reforms.

 

Nepse had allowed broker companies to conduct trading through multiple login system around two months before. This facilitation has also helped brokers to address the uprising demand from the retail investors. Overwhelming expectations from the investors that market will break the previous high level of 1175.38 has also been bringing in extraordinary demands on each successive day. 

 

Persistent excess liquidity and lower interest rates in the banking system have also been currently accelerating stock market. Investors are hoping the bull market to remain high and in this speculation are pumping in more investments. During the review period, of the 23 trading days 20 days registered gain in the index. This also indicates that investors are more bullish with the stocks to speculate for high profit as prices of majority of the listed companies were in green. 

 

 After a sharp fall to 290 in 2011 from a record high of 1175.38 in 2008, the index now is nearing the same height in around six years. The earlier lesson points to an unavoidable fact that market might rebound due to persistent speculation. According to analysts, the annual financial report of listed companies will bulldoze market further high in the near future. Along with the high Bull Run, associated risks in the market have increased, as almost all shares have been already overvalued.   

 

The total market capitalization for the period stood at Rs 1104.37 billion, a 17.97 per cent high from the previous period while the total turnover reported a significant growth of 41.21 per cent.

 

Performance by Sector

During the review period, development bank sub-index gained 23.80 per cent (182.57 points) to rest at 766.99 followed by finance sub-index, which went up by 16.65 per cent. Insurance sub-index, which was the highest gainer in the previous periods, increased by 16.13 per cent during this period. The sub-index of commercial banks added 15.85 per cent to close at 997.63 while hydropower sub-index surged by 14.61 per cent to settle at 3049.62 points. Similarly, sub-indices of hotel and 'others' went up by 7.01 per cent and 6.54 per cent respectively. 

 

Sensitive index, which measures the performance of “A class” listed companies added 35.27 points or 15.16 per cent to 232.58 while the float index went up by 12.60 points or 16.43 per cent to settle at 76.67 points.

 

Based on sectorial contribution on total turnover, commercial banks attained 48.52 per cent of the total followed by the hydropower sector, which occupied 17.45 per cent. Similarly, insurance sector grabbed 15.89 per cent, followed by development banks, which accumulated 12.89 per cent. The remaining sectors made up the rest portion of total turnover. 

 

Technically, the simple moving average (SMA) has aggressively breached the previous resistance. Hence, during the course of corrections the previous resistance can serve as the support level of bullish pattern.  As suggested by pivot point, the next target for Nepse index is seen at 1128 and 1165.51 while low range has been suggested at 1001.58 and 918.6 respectively.

 

Chitrakar is a freelance Stock Analyst.