beed’s take on the market – August Issue

During the review period (June 20 to July 20), the Nepal Stock Exchange (NEPSE) index went up by 84.68 points (+5.46%) and closed at 1,635.75 points. Despite various impediments; the monetary policy failing to address high interest rate and credit crunch, unresolved issue on Value Added Tax (VAT) on share transaction, excessive supply of new shares in the form of bonus and right shares and pressure on investors to settle loan with borrowed funds, secondary market still managed to push itself uphill. In the review period, majority of the sub-indices landed in the green zone, while the Hydropower and the Finance sub-index plunged in the red zone. The Insurance sub-index (+9.80%) led the pack of gainers with the increase in share price of Rastriya Beema Company (+NPR 795), Life Insurance Company (+NPR 348), Shikhar Insurance (+NPR 210) and Nepal Life Insurance (+NPR 200). Likewise, the Commercial Bank sub-index (+5.88%) increased with the increase in share value of key banks including Nabil Bank (+NPR 208), Standard Chartered Bank (+NPR 107) and Nepal Investment Bank (+NPR 64). Similarly, the Hotels sub-index (+5.39%) went up with the increase in share price of Oriental Hotels (+NPR 30), Soaltee Hotel (+NPR 19) and Taragaon Regency Hotel (+NPR 13). The Development bank sub-index (+4.62%) followed the suit as the share price of RSDC Microfinance (+NPR 301), NMB Microfinance (+NPR 240), Janautthan Samudayic Microfinance (+NPR 200) and Nirdhan Utthan Bank (+NPR 177) went up. Likewise, the Manufacturing and Processing sub-index (+1.87%) increased with the increase in share price of Bottlers Nepal (Terai) (+NPR 299) and Himalayan Distillery (+NPR 194). Also, the Others sub-index (+1.01%) inclined with the appreciation in share price of Nepal Telecom (+NPR 10) and Hydroelectricity Investment and Development Company (+NPR 5). Meanwhile, the Hydropower sub-index (-0.43%) declined with the decrease in share value of Barun Hydropower (-NPR 14), Dibyashwori Hydropower (-NPR 11) and Khanikhola Hydropower (-NPR 10). Likewise, the Finance sub-index (-0.09%) also decreased marginally with the decrease in share price of Reliance Finance (-NPR 217), Goodwill Finance (-NPR 8) and ICFC Finance (-NPR 8).

News and Highlights

During the review period, Securities Board of Nepal (SEBON) introduced a new Merchant Banker Regulation, 2074 amending the Merchant Banker Regulation, 2064. The amended regulation has increased the scope of work of merchant bankers along with increase in their paid up capital by three folds. The board has increase d the minimum paid up capital of Issue and Sales Manager from NPR 30 million to NPR 50 million and the paid up capital of Securities underwriter from NPR 40 million to NPR 70 million. Likewise, the paid up capital requirement of Share Registrar and Investment manager has increased to NPR 30 million and NPR 50 million respectively. Merchant bankers are now allowed to provide advisory services related to corporate restructuring, valuation, corporate plan, loan syndication, working capital financing, venture capital, private equity, hedge fund and asset management. Meanwhile, in order to provide cushion against losses, the amended regulation restricts the Securities Underwriter and Investment Manager to perform their underwriting and portfolio management services up-to five times and ten times their net worth respectively. Similarly, the new monetary policy for 2074/75 has made a provision to cap the BFIs margin lending portfolio up to 40% of the core capital, and the margin for keeping shares of a single company as collateral can be maximum of 10% of core capital. Likewise, the fully automated online trading system is scheduled to be implemented from the third week of Kartik 2074 while the preliminary testing will start from Bhadra. Further, ASBA (Applications Supported by Blocked Amount) has been made compulsory by SEBON from Shrawan 1, 2074. The time taken for share allotment has now been reduced to 20 days from 70 days after this provision. In the review period, brokerage companies were instructed by the Inland Revenue Department to pay VAT on stockbrokers’ commission since last 5 years i.e. starting from the year 2069 B.S. However, this has not yet been implemented as the Ministry of Finance (MoF) has not been able to come with clear and concise instructions. The stockbrokers have shown resistance towards VAT stating that they have been sharing a certain portion of the commission with NEPSE and SEBON. They also argued that such enforcement of VAT will increase their operating cost which is ultimately passed on to the investors that in turn affects the transactions in the stock market. As due date to meet the increased paid-up capital requirement stipulated by Nepal Rastra Bank to the Banks and Financial Institutions (BFIs) is coming to an end, Everest Bank and Machhapuchre Bank have issued 15,088,087 units right share at 3:1 ratio and 7,918,440 units right share at 10:1.2 respectively to its shareholders. After the issue, the paid-up capital of respective banks will reach NPR 6.03 billion and NPR 7.39 billion.

Outlook

The regulator’s move to increase the paid-up capital of merchant bankers is a welcome step to make the capital market more robust and competitive. Similarly, other series of development such as compulsory ASBA application, implementation of online trading and soon to be published annual financials of BFIs which is anticipated to show good performance, is likely to drive the market positively. Moreover, the successful completion of local level election has provided optimistic outlook on bringing significant improvement in economic activities.

Disclaimer

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.