beeds take on the market – January Issue

During the review period of November 27 to December 25, the Nepal Stock Exchange (NEPSE) index witnessed a slight improvement of 5.93 points (-0.40%) and closed at 1,475.41 points. The index at the beginning of this review period rebounded to 1,608.66 points (December 1). However since then the market has witnessed a continuous downward trend, plunging below 1500 threshold. The downward spiral in the secondary market showcasing lower investors’ confidence can primarily be attributed to decreasing liquidity in the banking channel; the interest rates on margin loans by Bank and Financial institutions (BFIs) has gone up while BFIs have started offering higher interest rates on their deposit schemes. As the due date to meet the capital requirement as stipulated by Nepal Rastra Bank (NRB) is nearing, there is increasing supply of shares amid the announcement of right share issue and bonus shares distribution by BFIs. During the review period, half of the sub-indices landed in the red zone while the other half managed to close on a positive note. The Other sub-index (+2.05%) led the pack of gainer with the increase in share value of Nepal Telecom (+ NPR 30) while the Development Bank sub-index (+1.83%) managed to remain on gaining side as share values of key microfinance institutions such as; Laxmi Laghubitta Bittiya Sanstha (+ NPR 258), Deprosc Development Bank (+ NPR 254), Nirdhan Utthan Bank (+ NPR 71) and Sana Kisan Bikas Bank (+ NPR 71) went up. Likewise, the Commercial Bank sub-index (+0.66%) managed to increase marginally as share values of Laxmi Bank (+ NPR 55), Mega Bank (+ NPR 48), Nepal SBI Bank (+ NPR 33) and Sunrise Bank (+ NPR 31) went up. Also, the Insurance sub-index (+ 0.66%) increased as the share prices of Rastriya Beema Company (+ NPR 1,033), Neco insurance (+ NPR 168), Himalayan General Insurance (+ NPR 155) and NLG Insurance (+ NPR 140) went up. Amongst the sub-indices that landed in red zone, the Hydropower sub-index (-5.73%) led the pack of losers with the decrease in share values of Chilime Hydropower (- NPR 100), Api power (- NPR 52) and Barun hydropower (- NPR 40). This was followed by the Manufacturing and Processing sub-index (-4.10%) as share value of Uniliver Nepal (- NPR 2,550) declined. Likewise, the Finance sub-index (-2.61%) declined as the share values of Sagarmatha Finance (- NPR 73), Goodwill Finance (- NPR 25) and Guheshowori Merchant Bank & Finance (- NPR 18) went down. Finally, the Hotel sub-index (-1.83%) shed value with the decrease in share values of Oriental Hotel (- NPR 44) and Soaltee Hotel (- NPR 32).

News and Highlights

With an aim to increase the participation of the real sector companies in the capital market, the government has come up with the amendment of the Securities Registration and Issue Regulation that offers companies free pricing of Initial Public Offering (IPO). In addition, to create diversification through maximum participation of real sector companies, the threshold of minimum requirement of shares issuance to go public has been reduced to 10% from 30%. Also, as per the current fiscal policy for the year 2016-17, the real sector companies will be offered 15% income tax exemption if they float shares to the public. Securities Board of Nepal (SEBON) has published a circular applicable to all companies other than BFIs and Insurance companies stating to get approval of its plans and strategies from the company’s annual general meeting regarding the implementation of funds raised through issuance of rights shares and Further Public Offerings (FPO). Likewise, SEBON has decided to grant initial consent to Credit Analysis and Research Limited (CARL), a Mumbai based company to work as a credit rating agency in Nepal along with other Nepali partners. This would promote competitiveness and offer services choice in the market where there is a monopoly of a single credit rating agency, ICRA Nepal Ltd. In the public issue front, market witnessed both IPO and FPO during the review period. Synergy Power Development Limited issued IPO worth NPR 21 crore at NPR 100 per share. The credit rating agency, ICRA Nepal, has assigned grade 4 rating to this issue, indicating below average fundamentals of the company. Similarly, Nepal SBI Bank Limited (NSBI) has issued FPO worth NPR 6.58 crore at NPR 971 per share. The issue is being made to maintain the promoter and public shareholding ratio at 70:30 as directed by the central bank. After the issue, the paid-up capital of the company will reach NPR 3.89 billion from the current NPR 3.88 billion. ICRA Nepal has assigned grade 2 rating to this issue, indicating above average fundamentals.

Outlook

The average daily market turnover in recent days has gone down significantly indicating lower participation of investors and liquidity. The trend of NEPSE index indicates the market is in a bearish mode and there is a lower possibility of upward surge amidst weak investors’ confidence and liquidity crunch in the banking system. Moreover, since Nepal’s secondary market is dominated by small retail investors, the market is prone to witness panic selling fuelled by rumors and anticipations. At large, the invertors seems to be opting for ‘wait and watch’ strategy, with expectation of some correction in the market. The future course of index is likely to be determined by some positive events in the market, such as ease of liquidity in the banking system propelling to easy access to margin lending that would add confidence to retail investors’ which are currently weak.

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.