The NEPSE Trap: Why Your Stock Market 'Plan A' is Failing and Why You Need an Urgent 'Plan B'

The Nepali stock market has recently experienced a significant slowdown, with daily trading volumes plummeting from 10-15 billion rupees to an average of just 3 billion rupees. Investors have largely adopted a 'wait and see' approach, influenced by ongoing money laundering investigations into prominent businessmen and stricter credit limits imposed by brokers. Analyst Samir Jung Khadka suggests that the government must introduce supportive policies to restore investor morale.

According to Khadka, the market is currently gripped by uncertainty. Large-scale investors are hesitant to move capital while influential figures are under investigation. Additionally, liquidity that should be circulating in the secondary market is being absorbed by a surge in IPOs and Right Share issuances. The expiration of 'locking periods' for promoter shares in various hydropower companies has also increased the supply of stocks without a corresponding increase in demand, further unbalancing the market.

Interestingly, the market is not responding to falling interest rates, which usually signals a bullish trend. Khadka explains this as a psychological trap; investors fear sudden policy changes from the central bank, which keeps them from utilizing low-interest loans. Furthermore, he points out that the NEPSE index is somewhat deceptive. While the index appears high, this is largely due to the addition of new large-cap companies. If these were excluded, the portfolios of many long-term investors would still show significant losses.

To stabilize the market, Khadka recommends that the government remove share locking periods to prevent artificial scarcity and manipulation. He also advocates for clearer capital gains tax policies and incentives for institutional investors like banks to enter the secondary market. For individual investors, he advises focusing on a company's cash flow rather than just earnings per share (EPS). He emphasizes that 'Plan B'—maintaining cash reserves and diversifying portfolios—is essential for surviving the current market volatility.