beeds take on the market – February Issue

During the review period of 25 December 2016 to 21 January 2017, the Nepal Stock Exchange (NEPSE) index continued in a downward spiral as the index declined by 12.85 points (-0.87%) to close at 1,462.52 points. The secondary market witnessed a turbulent month; the index started on a negative note and plunged to 1407.53 points, lowest in the recent period however, starting from 27 December 2016, the market welcomed the New Year with a steady recovery and reached 1482.85 points on 2 January. Nonetheless, the market has been volatile since then with lower volumes. During the review period, all sub-indices landed in the red zone except Hotels sub-index which managed to be in the green zone marginally. The other sub-index (-2.89%) led the pack of losers with decrease in share value of Nepal Telecom (- NPR 13) and Hydroelectricity Investment and Development Company (- NPR 18). This was followed by the Manufacturing and Processing sub-index (-2.81%) that went down as share value of Unilever Nepal (-NPR 550) and Bottlers Nepal (Terai) (- NPR 177) declined. Likewise, the Development Bank sub-index (-1.89%) continued to decline as share prices of key micro-insurance companies such as Nagbeli Laghubitta Bikas Bank (- NPR 1,360), Sana Kisan Bikas Bank (- NPR 285), Nerude Laghubitta Bikas Bank (- NPR 134) and Laxmi Laghubitta Bittiya Sansthan (- NPR 130) shed the share value. Following suit, the Insurance sub-index (- 1.66%) also decreased as share values of Neco insurance (- NPR 951), Siddhartha Insurance Ltd. (+ NPR 541), NLG Insurance (- NPR 340) and Himalayan General Insurance (- NPR 240) went down. The Hydropower sub-index continued its downward trend with decrease in share values of Chilime Hydropower (- NPR 83), Ridi Hydropower Development (- NPR 13) and Arun Valley Hydropower (- NPR 10). Similarly, the Finance sub-index (-0.33%) declined marginally as the share values of Manjushree Financial institution (- NPR 179), Jebils Finance (- NPR 54), Guheshowori Merchant Bank & Finance (- NPR 18) and Sagarmatha Finance (- NPR 11) declined. The Commercial Bank sub-index (-0.11%) also declined marginally with decrease in share values of Prime Bank (- NPR 79), Mega Bank (- NPR 32), Nepal Bank (- NPR 30) and Nepal Investment Bank Ltd. (- NPR 19). Amongst the sub-indices, Hotels sub-index (+0.88%) was the only sub-index that managed to remain in the green zone with increase in share value of Soaltee Hotel (+ NPR 2) and Taragaon Regency Hotel (+ NPR 2).

News and Highlights

With an aim to increase the participation of the real sector companies in the capital market, Securities Board of Nepal (SEBON) after coming out with the amendment of the Securities Registration and Issue Regulation is preparing to introduce directives shortly. For this, SEBON has also sought input from the private sector who has suggested to enforce premium pricing as free pricing of Initial Public Offering (IPO) as provisioned by the regulation. Further, the private sector has also suggested to reduce time taken to get securities listed in the stock market. NEPSE is preparing to make available Remote Work Station (RWS) to stockbrokers enabling them to trade stocks electronically. Currently there are eight work stations outside the Kathmandu valley and now NEPSE has asked SEBON’s permission to allow additional 41 stock brokers who had applied to operate RWS to conduct transactions from outside the Valley. However, SEBON has asked NEPSE to initiate the process only after considering the risk settlement measures that stockbrokers will adopt after expanding beyond the valley. Likewise, NEPSE has also issued a press statement asking SEBON to coordinate with Nepal Rastra Bank (NRB) to provide broker license to commercial banks as the directive issued by NRB bars subsidiaries of commercial banks to perform stock brokerage transactions. In the public issue front, the market witnessed issuance of both FPO and IPO. The most awaited FPO (Further Public Offering) of Nepal Life Insurance Company Limited (NLIC) hit the record of highest public issue collection in the history of Nepal by collecting NPR 52 billion, oversubscribed by nearly 12 times which was an issue worth of NPR 4.41 billion at NPR 1,425 per unit (NPR 1325 premium per unit). After the issuance of the FPO, its paid up capital will reach to NPR 2.47 billion and reserve will grow by NPR 4.1 billion. ICRA Nepal has assigned grade 3+ rating to this issue indicating average fundamentals to the FPO. Similarly, Samata Microfinance Bittiya Sanstha (SAMATA) issued IPO (Initial Public Offering) worth NPR 9.48 million at NPR 100 per share. After the IPO, the paid up will reach NPR 31.6 million from the current NPR 22.1 million. The promoter-public ratio of the company will be 70 % to 30% after the IPO. Likewise, The IPO of Forward Community Microfinance is in the pipeline, the offering will be the first after the implementation of ASBA system, which is worth of NPR 60 million issued at NPR 100 per unit. ICRA Nepal has assigned grade 4+ rating to this issue indicating a below average fundamentals to the IPO.

Outlook

At the moment, most of investors seems to be in ‘wait and see’ mode and it seems correction of index is likely with significant decline in average daily market turnover. The decline in turnover is primarily due to influx of issuances in the primary market, most BFIs are coming out with Right Shares and FPO’s to meet their capital requirement stipulated by the central bank. Moreover, the tightening of margin lending amidst liquidity crunch in the banking system seems to be directly impacting the secondary market. The recent historic collection by an FPO has further decreased money supply into the secondary market. Nonetheless, the higher supply of shares amidst dwindling earning per share is likely to propel selling pressure in 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.