The bullish trend in the market continued scaling new heights and setting new records surging the market capitalisation to almost NPR two trillion, and sailing the Nepal Stock Exchange (NEPSE) index above 1,800 mark, up by 10.88% to close at 1,798 points during the review period (19 June to 22 July, 2016). The country‘s only index – NEPSE, which felt no heat from the Brexit event unlike other stock exchanges, faced a jolt on withdraw of the Maoist party from the ruling coalition, however Monetary Policy limiting the loans against shares, capping spread of Micro Financial Institutions (MFIs) etc. left the market unaffected, though the scrips of MFIs nose-dived for initial few days but eventually the index bounced back from the hit.
During the review period all the sub-indices ended in the green zone except a marginal fall of the Insurance sub-index (-1.51%). The Manufacturing and Processing sub-index (+18.06%) led the pack of gainers with the appreciation in the share value of Bottlers Nepal (Terai) (+NPR 6,321) and Unilever Nepal (+ NPR 20). The Commercial banks sub-index (+16.46%) followed suit as share value of all the Commercial Banks went up, the top five gainers were Everest Bank (+ NPR 310), Standard Chartered Bank(+ NPR 305), Nepal SBI Bank (+ NPR 255), Sunrise Bank (+ NPR 204) and Citizen Bank International (+ NPR 162).
Similarly, the Finance sub-index (+ 15.05%) moved up with appreciation in share value of all the Finance companies such as Sagarmatha Finance (+ NPR 151), ICFC Finance (+ NPR 86) and Pokhara Finance (+ NPR 72). Likewise, the Development sub-index (+8.05%) appreciated with the increment in the share values of NMB Microfinance (+NPR 1,062), Mithila Laghubitta (+ NPR 259), Mission Development Bank (+ NPR 184), Purnima Bikas Bank (+NPR 175) and Sewa Bikas Bank (+ NPR 168).
The Other Sub-index (+5.29%) climbed as share value of Nepal Telecom (+ NPR 14) went up. The Hydropower sub-index (+ 4.69%) rose with increment in the share value of Sanima Mai Hydropower (+ NPR 158), Butwal Power (+NPR 61) and Api Power (+ NPR 35). Also, the Hotel sub-index (+ 2.35%) went up as share value of Taragoan Regency (+ NPR 12) and Soaltee Hotels (+ NPR 10). Nonetheless, the Insurance sub-index declined marginally with deprecation in share value of Surya Life Insurance (-NPR 221), Everest Insurance (- NPR 150), Sagarmatha Insurance (- NPR 150), Nepal insurance (- NPR 125) and NLG Insurance (- NPR 125).
News and Highlights
Nepal Rastra Bank (NRB) has released the Monetary Policy for the fiscal year 2016/17. The budget has not announced any stringent policies as speculated to leash the capital market nor the capital hike of the MFIs except for the wholesale MFIs. The wholesale MFIs will have to increase their paid up capital to NPR 600 million by Mid-July 2018 from existing NPR 100 million. The MFIs currently involved in wholesale lending are; Rural Micro Finance Development Centre, Sana Kisan Bikash Bank, RSDC Microfinance and First Microfinance. Similarly, NRB has also introduced 7% interest spread cap on cost of the microfinance institutions thus limiting the earning capacity of MFIs.
However to tighten the flow of finance to the stock market from the banking sector, NRB has announced the revision of valuation of shares to 50% which BFIs accept as collateral for lending. Accordingly, BFIs will be able to float only 50% loans on the valuation of average trading price of the shares of the last 180 days or the latest market price of the share, whichever is lower.
On a positive note, the Finance Ministry gave approval to the Securities Board of Nepal (SEBON) to reduce the stockbrokers‘ commission by around 40%. The decision has been made pursuant to the drastic increase in volume of share transactions. The revised commission rates are between 0.40-0.60% on the total trading amount which is significantly less than the existing rate of 0.710-1%.
On the public issue front, SEBON has approved right share issuance of Prime Commercial Bank (3:1) and Century Commercial Bank (10:3). Similarly, other BFIs awaiting approval of right shares are namely Lalitpur Finance, Nagbeli Laghubitta Bikas Bank, Saptakoshi Development Bank, Sewa Bikas Bank and Muktinath Bikas Bank.
After the Monetary Policy introduced the interest spread cap lowering the potential profit of microfinance institutions, the share prices of MFIs have seen a brief correction and may likely to continue as most of the MFIs shares prices are overvalued. The market is likely to continue with its upward momentum as investors‘ confidence remains high as indicated by the strong market turnover.
The demand for the banking sector scrips is likely to go up in anticipation of higher stock dividends as Banks and Financial Intuitions (BFIs) have started to roll out fourth quarterly results of the fiscal year 2015/16. The BFIs need to meet new capital requirement stipulated by the central bank by the end of FY 2016-17. Nonetheless, some corrections cannot be denied amidst current political developments.
This is an analysis from beed invest 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.