beed’s take on the market – July Issue

The Nepal Stock Exchange (NEPSE) index went down by 91.93 points (-5.60%) to close at 1,551.07 points during the review period (May 19 to June 20).Even though listed companies have published good third quarter financial results along with accelerated economic growth, no synchronizing upward momentum was showcased by the secondary market. The investors seem to adopt wait-and-watch strategy due to looming political uncertainty and ongoing high interest rate disparity. Banking and Financial Institutions (BFIs) are offering high interest rates on deposit while curtailing loans. During the review period, majority of the sub-indices plunged in the red zone, while the Manufacturing & Processing sub-index and Others sub-index were able to survive in the green zone. The Insurance sub-index (-7.84%) led the pack of losers with the decrease in share price of Rastriya Beema Company (- NPR 1,431), Life Insurance Co. (- NPR 820), Shikhar Insurance Company (-NPR 249), Sagarmatha Insurance Company (- NPR 200) and Nepal Life Insurance (- NPR 192). Similarly, the Hydropower sub-index (- 6.72%) decreased with the decrease in share value of Sanima Mai Hydropower (- NPR 98), Arun Kabeli Power (- NPR 85) and Chilime Hydropower (- NPR 55). This was followed by the Commercial Bank sub-index (-6.55%) with the slump in prices of key banks; Nepal SBI Bank (- NPR 107), Nabil Bank (- NPR 104) and Everest Bank (- NPR 85). Likewise, the Hotel sub-index (-5.05%) declined as the share price of all the hotels, Oriental Hotels (- NPR 51), Taragaon Regency Hotel (- NPR 19) and Soaltee Hotel (- NPR 15) went down. The Development Bank sub-index (-3.68%) followed suit as share value of Naya Nepal Microfinance (- NPR 270), NMB Microfinance (- NPR 259), Janautthan Community Microfinance (-NPR 240) and Swabalamban Development Bank (-NPR 172) declined. Similarly, Finance sub-index (-3.57 %) dropped as share value of Goodwill Finance (- NPR 107), Lalitpur Finance (- NPR 36) and ICFC Finance (- NPR 23) decreased. Nonetheless, the Manufacturing & Processing sub-index and Others sub-index managed to impress investors. The Manufacturing and Processing sub-index (+2.29%), appreciated with the increase in share price of Himalayan Distillery (+ NPR 248) and Bottlers Nepal (Terai) (+NPR 61). Similarly, Others sub-index (+ 0.25%) also increased marginally with the appreciation of share value of Nepal Telecom (+ NPR 10).

News and Highlights

In the review period, Securities Exchange Board of Nepal (SEBON) endorsed new directive namely, ‘Securities Issue and Allotment Directive 2017’. It provides operational guidelines including premium pricing for IPOs, pricing mechanism for Further Public Offerings (FPOs) and new allotment model. The new allotment model has laid down several provisions including each investors to be allotted a minimum of 10 units of share and the allotment to be done within 20 days from the date of offer closure. Furthermore, directive also provides operational clarity for real sector companies to issue initial offering to the general public at premium. Likewise, ‘Securities Businessperson (stock brokers, security dealers and market maker) regulation 2008’ has been amended by SEBON which requires stock brokers to increase their paid-up capital to NPR 20 million from existing NPR 2 million. Similarly, the government has recently amended Company Act, 2006 stating the mandatory requirement for all telecommunications and internet service providers (ISPs) to issue shares to the general public within the next two years. All telecommunication companies having a capital of NPR 50 million will now be required to go public. Currently, out of the six telecom companies including: Nepal Telecom, Ncell, United Telecom, STM Telecom, Smart Telecom and Nepal Satellite, only Nepal Telecom has issued shares to the general public. In the public issue front, market witnessed two IPOs during the review period where both the issues were of hydropower companies. Chhyangdi Hydropower had issued IPO of 540,000 unit shares worth NPR 54 million. It was oversubscribed by more than 74.13 times till last day. Likewise, Himalayan Power Partner issued IPO of 2,130,834 unit shares worth NPR 213 million which was oversubscribed by 40.36 times. ICRA Nepal has assigned ‘IPO Grade 4’ indicating below average fundamentals to both the IPOs.

Budget 2017-18 Highlights

In order to have more real sectors companies listed in the stock exchange, budget 2017-18 has committed to encourage manufacturing companies to enter the capital market. Similarly, the budget has also provisioned to arrange for policy and institutional arrangements for development and stability of capital markets. The budget also mentions to make the stock exchange market transparent and fully automated. Further, it has also been announced to obtain the membership of the international regulatory institution on securities market.

Outlook

The successful completion of first phase of local level election and announcements made in the fiscal budget has failed to excite investors. As a result, secondary market has remained volatile with low market volumes. However, on a positive note, SEBON has been continuously coming out with new and updated regulations to accommodate and facilitate new changes in the securities market. The new ‘Securities Issue and Allotment Directive 2017’ is likely to attract larger participation of investors in the primary market as it ensures every applicant a minimum of 10 units whenever possible. Likewise, the directive also provides operational clarity for real sector companies to issue initial offering to the general public at premium. The directive is likely to attract real sector companies interested to collect long-term capital from the primary market. Further, the increment of stock brokers’ presence outside Kathmandu is expected to increase market size and demand for scrip in the coming days. 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.

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.