What is NEPSE Index? How to Calculate NEPSE Index?

What is NEPSE?

NEPSE (Nepal Stock Exchange Limited) is the only stock exchange in Nepal. NEPSE was established on 13 January 1994 with an aim to impart free marketability and liquidity to the government and corporate securities by facilitating transactions in its trading floor through member, market intermediaries, such as brokers, market makers, etc. As of March 16, 2021, the number of listed companies is 285, which includes Commercial Banks, Hydro Power Companies, Insurance Companies, and Finance Companies among others. It is regulated by the Securities Board of Nepal (SEBON).

What is NEPSE Index?

The NEPSE index is the primary equity market index of NEPSE. It is calculated to measure the capitalization of the stock market. The Nepal Stock Exchange calculates this type of indicator on each trading day that indicates the capitalization of all the companies listed on the NEPSE has either decreased or increased. A drop in the index means investors are frustrated or unwilling to invest and the country’s economic situation is deteriorating.

How to Calculate NEPSE Index?

The market indicator is the ratio between the total market price of the securities listed in NEPSE on the day of trading and the total market price of the base year.

Base Nepse Index (IB)= [ Total Market Capitalization/Total Amount Of share Issued (face value)]*100%

So Nepse Index at Magh 30,2050 BS(IB)=[(18000)/(18000)]*100% = 100

NEPSE Index on Falgun 1

Nepse Index on Falgun 1 = 20600/18000 * 100

= 114.11 Point

Nepse Index on Falgun 2 = 22000/18000 * 100

= 122.11 Point

Nepse Index on Falgun 3 = 17200/18000 * 100

= 95.55 Point

Added Cap. = 500×10 = 5000

Adjusted Mkt. Cap. = 17200+5000/17200*18000

New Base Mkt. Cap. = 23232.55

Nepse Index on Falgun 4 = 24100/ 23232.55* 100

= 103.73 Point ⬆️

What is Sensitive Index?

The sensitive index is the index calculated from the market capitalization of companies classified under group “A”. It was introduced by NEPSE on January 01, 2007, and that date is the base market capitalization. Unlike NEPSE index, the sensitive index considers only selected companies that fulfill the following criteria:

Minimum paid-up capital of Rs 2 crore
More than 1000 ordinary shareholders
At least three consecutive years of profitability
Book value of share higher than its par values
Publication of annual report within 6 months of completion of the fiscal year

The sensitive index is particularly important because it shows the movement in high-performing stocks of the market.

How to Calculate Sensitive Index?

Sensitive Index =[ Current MV of all shares listed in NEPSE under Group “A”/ MV of shares in a Base year ] *100

Base year is 26th Bhadra, 2065, or 11th September 2008.

What is Float Index?

Float refers to the regular shares a company has issued to the public that are available for investors to trade. The float is calculated by taking a company’s outstanding shares and subtracting any restricted stock. It is important for the investors to know the float status of a stock market as it shows the actual supply of any share in the market.

In the case of Nepal, the companies have both promoters as well as public shares. Both the shares are listed in NEPSE but promoter shares are rarely traded in the comparison of public shares. There are some exceptions but usually, public shares are traded in NEPSE. The investors with public shares also tend to hold the shares for the longer term which decreases the float of the share market.

Float in the stock market is a crucial factor but unfortunately, NEPSE hasn’t identified any mechanism to determine the float in public shares yet. Thus, the float index considers ordinary shares of all listed companies instead of float shares to determine its index value. NEPSE introduced the float index on September 15, 2008, which is the base market capitalization date for this index.

Sensitive Float Index

The sensitive float index represents the market capitalization of securities of companies listed under group “A” which are floated to the public. The sensitive float index was also introduced on September 15, 2008. The float sensitive index takes into account the public/ordinary shares of companies that are eligible for the sensitive index.

Usually in many of the big companies present on sensitive index lists has the public ownership ratio heavier towards the promoter side. The promoter shares are rarely traded in the stock market which stabilizes the index more than what it actually is.

Thus, the sensitive float index only takes into account the ordinary shares of high-performing stocks and helps investors to analyze the real market status of big companies.

How to Calculate?

Sensitive Float Index = [Current MV of all shares listed in NEPSE under Group “A” Floated to public / MV of shares in Base year] *100

Base year is 26th Bhadra, 2065, or 11th September 2008.

Sub-Indices

Sub indices are trade indexes based on the performance of a particular group or type of stock. The sub-indices provide information regarding each sector that is identified by NEPSE.

Basically, the stock market is an information-sensitive market. However, not all information impacts all companies in the same way. Thus, the sub-index of each sector shows the investor how the market is responding towards the information disseminated.

History has shown that in every bear and bull, some sectors pull or push the market and there is a significant role of sub-index to identify on which those sectors are.

The various sub-indices that NEPSE has are:

Commercial banks
Development banks
Finance
Life Insurance
Non-life insurance
Microfinance
Mutual fund
Manufacturing & processing
Others
Hotels
Hydropower

However, NEPSE has one major flaw with the division of the sub-indices. Prior to 2018, both the life insurance and non-life insurance companies were analyzed under Insurance. But on July 16, 2018, the insurance was divided into life insurance and non-life insurance sector which was not necessary and provides unrealistic data.

The index distribution should have been based on the number of companies under each sector and the respective market capitalization, which could have altered the weight each sector contributed to the Insurance heading.

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