Because of political uncertainty, the Nepalese capital market has gone through fluctuations in recent days. The secondary market has declined once again after the dissolution of the Constituent Assembly (CA). However, with the progress in the peace and constitution writing processes earlier, the share market had witnessed a bullish trend.
Laxman Kafle of The Rising Nepal caught up with Anjan Raj Poudyal, President of the Stock Brokers’ Association Nepal, to talk about the recent fluctuations of the Nepalese secondary market and some other issues.
What is the present status of the Nepalese secondary market?
With the new political development, our secondary market has been fluctuating significantly. When there was progress in the peace process and the writing of the new constitution, the NEPSE index had improved suddenly. It suddenly grew and exceeded 400 points. This was hovering at around 300 points. The investors’ confidence level had boosted up with the progress in the peace process. But now their level of confidence has declined. The dissolution of the CA has dashed the investors’ hopes. At present, the investors want to sell their shares because they think that the share market could further decline in the days ahead.
We do not have enough institutional investors in the market. This is a major drawback. We have more individual investors in the market. When there are minor changes in the political sphere and rumours that the price of shares could fall, the individual investors become ready to sell their shares. However, the share market is not in a critical situation; it has just gone down.
What are the main factors affecting the NEPSE index?
Basically, the share market is closely linked with the political system. So, the political situation is one of the main factors to affect the capital market. We can now see the reflection of the new political development in the share market. Similarly, as our market is mainly based on individual investors, the general rumors and minor political changes affect their minds. If we had more institutional investors, the market would not have been fluctuated widely.
Lack of knowledge among investors is another factor to hit the share market. Investors are found making investments in the secondary market without analyzing the future.
How do you find the psychology of investors at present?
As the secondary market depends on political situation, the investors are in a ‘wait and see’ position. They watch out the political development and this drives the market track. In other countries, politics does not affect the share market significantly.
In Nepal, the continued political unrest and the dissolution of the CA has panicked the investors. Despite such a panic, investors invest in institutions having good performance.
Investors often blame the government for failing to come up with proper policies targeting the share market. What do you say about this?
This is true that the successive governments have failed to introduce effective policies for the development of the share market. It has also been unable to bring the manufacturing and trading companies into the NEPSE. The government should offer lucrative schemes to include them in stock market. We are confident that our market will grow once we include them in the NEPSE. Although the banks and financial institutions account for about 85 per cent of the share market, the government has yet to coordinate with the concerned authorities. The government has introduced some policies and laws. But it has not implemented them properly.
The Ministry of Finance, the Nepal Rastra Bank, the Security Board Nepal, Stock Exchange Limited, Insurance Board and Beema Samiti should go ahead jointly for the development of the share market.
The capital market is one of the major indicators of the national economy. What are your suggestions for the government to enhance it?
The government should be privatize the stock market to develop the share market in long-term. We have raised voices for privatization of the stock market, but the government has thought of opening a new capital market. It is better to privatize the market rather than opening new ones.
Besides, there should be good coordination among the government and the concerned bodies for introducing more effective policies and implementing them. The Central Depository System (CDS) and the concept of mutual funds need to be enforced immediately as they are the basic factors to lead the market towards a positive direction. The CDS and the mutual funds could not be implemented despite the government’s plan during the last two years because of lack of cooperation among the concerned authorities.
Similarly, the government should impose a transaction tax by removing the capital gain tax. The investors are forced to pay the capital gain tax in some transactions even after they face a loss in other investments. At present, the government has imposed a 5 per cent capital gain tax on individual investors and 10 per cent capital gain tax on institutional investors.
The government should charge only about 0.1 per cent transaction cost. It could fix the transaction cost by holding discussions with the concerned bodies.
Improved software of the stock market is essential because the software frequently creates problems.
CDS and mutual funds are in the offing. How will they help improve the capital market?
Definitely, the share market will be improved with the implementation of the CDS and mutual funds. Currently, the investors are facing hurdles while making transactions. With the implementation of CDS, the investors will be able to sell their shares by splitting them. Now it is very difficult to divide the shares. After the implementation of the mutual funds, the investments will be increased and the market will be expanded significantly.
The general people started standing in long queues for purchasing primary shares for the last two years.
Really, most of the general people, who apply for the IPO shares, do not have enough knowledge about the share market. They invest without any analysis of the share market, but they think of earning money from shares. They begin thinking of selling their shares when they get some more amounts than their cost prices. Such investors are attracted towards short-term gains. If an institution has to get registered with the NEPSE, its transactions will start from minimum three times to maximum five times of the net value of the companies.
The investment in the IPO is profitable. Although the secondary market is potential for investment, most of the individuals involved in the IPO do not get involved in the secondary market due to lack of knowledge.
When there are rumours in the market, some big investors and brokers play games and control the share market. What is your opinion?
This statement is often raised by the media and the general people. But in reality, big investors and the brokers cannot fluctuate the market in long-term. The investors could control the market and they could make artificial increments in the NEPSE index as per their wish in the past when our capital market was very narrow and limited investors were involved in the market. Now our market has become wider and many investors are joining it. Such a situation, they cannot control the market.
Sometimes big investors control the market for one or two days, but they fail to control market in long-term. There is no possibility of the share market being controlled by big investors. When the number of listed companies has been increasing, the number of investors and the turnovers also are also on the rise. The regulatory bodies should also be involved actively in monitoring for improving the market.
How is the future of the Nepalese stock market?
Although the share market could not develop as per its need, its future is good. This market will grow with the development of the country’s economic condition. In terms of the share market, we have lagged behind other countries in the SAARC. However, we see a golden future of the stock market if the country does not fall into a war and the political uncertainty does not last longer.