During the review period of July 21 to August 22, the Nepal Stock Exchange (NEPSE) index went down by 59.42 points (-4.67%) to close at 1213.07 points. Cautious trading due to new provisions in the monetary policy issued by Nepal Rastra Bank (NRB) for the current fiscal year 2019/2020 attributed as the major reason behind the bearish sentiment in the market. Investors fear further credit tightening as the new provision requires all commercial banks to issue debentures whereas new spread rate policy is going to dampen future earnings of listed Banks and Financial Institutions (BFIS).
On a positive note, despite the market downfall, the total market turnover during the period fell only by 1.21% and stood at Rs 9.60 billion.
During the review period, contrary to the previous period, nine sub-indices landed in the red zone and only one sub-index landed in the green zone. The Mirofinance sub-index (+3.86%) was the biggest gainer as share value of Samudayik Microfinance (+Rs 203) and Samata Microfinance (+Rs 153) went up.
On the losing side, Hydropower sub-index (-13.86%) faced the biggest drop as the share value of Chilime Hydropower (-Rs 70) and Sanima Mai (-Rs 30) went down. Finance sub-index (-7.23%) was second in line with decrease in the share value of Progressive Finance (-Rs 14) and Guheshwori Merchant (-Rs 10). The Non-life insurance (-6.76%) also fell down with significant decrease in the share value of United Insurance (-Rs 556) and Rastriya Beema Company (-Rs 200). Similarly, Manufacturing & Processing sub-index (-5.77%) decreased as the share value of Himalayan Distillery (-Rs 74) and Shivam Cements (-Rs 53) went down. Likewise, Life insurance sub-index (-5.59%) decreased with the fall in the share value of Life Insurance Company (-492) and Surya Life Insurance (-Rs 170). The Commercial Bank sub-index (-4.39%) also saw a downfall with the fall in the share value of Nepal Investment Bank (-Rs 54) and Nepal Credit and Commerce Bank (-Rs 46). Others sub-index (-3.39%) followed suit with the slump in the share value of Citizen Investment Trust (-Rs 50) and Nepal Telecom (-Rs 19). Development Bank sub-index (-2.93%) also shed value with the decrease in the share value of Muktinath Bikas Bank (-Rs 60) and Lumbini Bikas Bank (-Rs 24). Hotels sub-index (-2.31%) also went down; top losers in this sub-index were Oriental Hotels (-Rs 22) and Taragon Regency (-Rs 14).
News and Highlights
The Securities Exchange Board of Nepal (SEBON) has recently unveiled a 72-point policy and programs for FY 2019/20 in order to uplift the secondary market. The list has given major focus on commitment to license commodities exchange markets and operate them effectively. In addition to this, the list also includes a book building system for premium pricing of public offering of companies and its effective implementation as well as monitoring of the ‘one citizen, one demat account’; continuation with the process of establishing and operating another stock exchange company as well as reforming NEPSE.
Following this, SEBON has also promulgated to publicly release policy and program for every fiscal year for the development of the secondary market. Moving on, SEBON has also instructed the listed companies in NEPSE to submit their annual report in a standardised format along with their audited financial report and has endorsed a uniform corporate governance reporting format.
Regarding the market trend, since disputes regarding the method of calculating capital gains tax (CGT) on share transactions have been arising, the Securities Exchange Board of Nepal (SEBON) summoned concerned officials of Nepal Stock Exchange (NEPSE) and CDS and Clearing Ltd to come up with a solution.
In the public issue front, proposed Initial Public Offerings (IPOs) of NRN Infrastructure and Development Limited (3,398,046 shares worth Rs 1.6 billion) were issued. Sanima Capital Limited has been appointed as the issue manager for the proposed IPO issuance. Similarly, SEBON has also approved IPO worth Rs 5.3 million of Sabaiko Microfinance for general public. Meanwhile, CEDB Hydropower also issued IPO worth Rs 251.8 million. Both of these issues were assigned IPO Grade 4 by ICRA Nepal indicating below-average fundamentals.
Likewise, three mutual funds were also offered to the general public, namely, Siddhartha Investment Growth Scheme-2, NMB 50 and NIC Asia Balance Fund worth 140,000,000 units, 120,000,000 units and 125,000,000 units respectively.
Outlook
There was no silver lining for the market as numerous regulatory provisions and lack of clarity dampened investors’ confidence. Staring from confusion over treatment of Capital Gain Tax (CGT) to NRB’s new provision for spread rate and counter cyclical buffer capital amongst others. On a positive note, the structural reforms and new regulations included in SEBON’s policy and program for the current fiscal year is expected to improve the investor confidence, market outreach and depth substantially, which is a key ingredient for the development and expansion of the secondary market.
This is an analysis from Beed Management Pvt. Ltd. No expressed or implied warrant is made for usefulness or completeness of this information and no liability will be accepted for consequences of actions taken on the basis of this analysis.
