beed’s take on the market – June issue 2017

The Nepal Stock Exchange (NEPSE) benchmark index went down by 14.47 points (-0.87%) to close at 1,643.87 points during the review period (April 20 to May 18). Even though a series of positive events unfolded; good financial results of Banking and Financial Institutions (BFIs) in third quarter, upward revision on economic growth projections by government and multilateral bodies, and successful completion of first phase of local level election, the market remained volatile and did not showcase any positive movement. During the review period, the benchmark index fell primarily due decline of Commercial Bank sub-index (-3.79%), as all other sub-indices ended on a positive note. The Commercial Bank sub-index (-3.79%) slumped as share prices of key commercial banks such as Nepal SBI Bank (- NPR 395), Everest Bank (- NPR 121), Himalayan Bank. (- NPR 45) and Nepal Investment (- NPR 33) declined. Nonetheless, other sub-sectors managed to impress investors. The Manufacturing and Processing sub-index (+7.67%), led the pack of gainers as share price of Bottlers Nepal (Terai) (+NPR 2,120) and Unilever Nepal (+ NPR 580) went up. Similarly, the Hydropower sub-index (+ 5.90%) increased as share value of Sanima Mai Hydropower (+ NPR 145), Api Power Company (+ NPR 16) and Chilime Hydropower Company (+ NPR 15) went up. The Hotel sub-index (+ 4.71%) followed suit as share value of Oriental Hotels (+ NPR 86) and Taragoan Regency Hotel (+ NPR 22) increased. Likewise, the Insurance sub-index (+ 2.29%) increased as share value of Prime Life Insurance (+ NPR 141), Himalayan General Insurance (+ NPR 100) and Life Insurance Company Nepal (+ NPR 44) went up. Further, the Development Bank sub-index (+ 1.89%) appreciated as share value of Naya Nepal Microfinance (+ NPR 675), NMB Microfinance (+ NPR 510), Reliable Microfinance (+ NPR 310), Nagbeli Microfinance (+ NPR 280) and Womi Microfinance (+ NPR 255) inclined upward. The Finance sub-index (+ 1.71%) also went up as share value of Progressive Finance (+ NPR 67) and Arun Finance (+ NPR 27) increased. Likewise, the Others sub-index (+ 1.49%) witnessed marginal increment as share price Nepal Telecom (+ NPR 11) appreciated.

News and Highlights

In order to ensure transparency in stock market transactions, the Securities Board of Nepal (SEBON) is considering to make Permanent Account Number (PAN) mandatory for all investors. This will prevent investors from evasion of capital gain tax as well as control other malpractices. According to the current SEBON’s regulation, PAN number is mandatory only for those investors who trade shares worth more than NPR 1 million. SEBON has made ASBA (Applications Supported by Blocked Amount) process mandatory for all the public issues i.e. Initial Public offering (IPO), Further Public Offering (FPO) and mutual fund from Shrawan 1, 2074, after which the timeframe for the allotment of share will be reduced to 20 days. Meanwhile, many Banks and Financial Institutions (BFIs) have reduced ASBA fees while a few of them have been providing the service free of cost. Further, to make this ASBA process more effective and organised, SEBON has directed CDS and Clearing (CDSC) and Nepal Merchant Banker Association (NMBA) representatives to make the system online. The board has also given recommendations such as modifying the ASBA charges, simplifying the application forms and online data transfer from ASBA bank members to the merchant bankers. The Remote Work Station (RWS) have now been opened in additional 18 different cities. 42 brokers had already started operating in different locations outside the Kathmandu valley through their RWS. Pokhara has the second largest number of brokering outlets after Kathmandu. The brokering companies have opened RWS either at their branch offices or by appointing local partners to operate their new outlets. In the public issue front, the market witnessed an IPO of one mutual fund; Laxmi Equity Fund, a close ended 7-year equity oriented scheme managed by Laxmi Capital Market. The equity fund had issued100 million units worth NPR 1 billion with a face value of NPR 10 per unit, out of which 15 million units was allocated for Laxmi Bank, the fund sponsor and the rest was allocated for general public. The mutual fund issue was assigned AMC Quality 3 by ICRA Nepal indicating adequate assurance and management quality.

Outlook

Despite successful completion of first phase of local election and ongoing preparation for second phase of election, both trading volume and number of transactions has decreased in the secondary market, indicating low investors’ confidence on account of political uncertainty. The market is likely to be dicey in coming days as investors seem to have adopted ‘wait and watch’ strategy, until successful completion of second phase of local elections and budget announcement for FY 2017/18. Meanwhile, on a positive note, as the government expedites capital expenditure in the last quarter of the fiscal year, the liquidity in the banking system is expected to ease further thus increasing supply of funds in the secondary market. Further, the increment of stock broker’s presence outside Kathmandu is likely to increase market size and demand for scrip’s in the days to come.

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.