The road of Nepali Share Market after lockdown

Share market is the backbone of the economy. Development of share market is very important for the development of the economy as it is the platform for capital formation.

In developed countries share transactions are conducted through online platform where very minimum physical interaction is required. In Nepal, primary market is online (applied through ASBA) whereas secondary market is not still online. Still more than 50% people are doing transaction by physical interaction.

Due to non-availability of online platform share trading is halted from March 23 due to lock-down. Main reason for it was settlement issues as physical interaction was needed for delivering money for the purchased shares which was not possible due to lock-down. 

However, from May 12 share market is resuming my some change in “Trading Rules” which is very good for the investors. People have invested in securities thinking that it is an investment platform and it is very liquid. Even if they need money they can easily liquidate their investment. In other words, it is equivalent to cash. But due to NEPSE decision to stop trading, it has hurt investor’s sentiments. In other hand opening stock exchange was not possible due to ban in movement of people as our stock exchange in physically driven and opening market in such situation doesn’t give the true picture of market. 

All the sectors are affected by COVID-19 pandemic. Profitability of banking sector for this fiscal year is obviously going to get affected. Banks are not able to recover their principal and interest for this third quarter as instructed by Nepal Rastra Bank (NRB). COVID-19 is still not finding its way out so this scenario may occur in fourth quarter too. Most of the business are not operational so even if NRB allow bank to recover their loans there is very less chance that all the loans from every sector is recovered. And NRB is also imposing various rules regarding interest rate for banking sector which directly hampers profit. We have seen the balance sheet of few banks which is not satisfactorily and such scenario may come in fourth quarter too.  Major players in the stock market is the banking sector so banking index can be affected until banks don’t find their way out. 

Second is the insurance sector which is unlikely getting affected. This pandemic is also the marketing for the insurance sector. People who are not insured are most likely going to buy different medical as well as life insurance policies post lock-down which will help insurance companies tap the new market. So, even if the insurance sector profitability drop in the fiscal year, I think in the long run insurance sector is going to create new market.

Hydro power is not performing well. In normal condition too due to various reasons profitability of the hydro powers are convincingly so hydro power is also possibly getting affected.There are very few real sector listed in the stock exchange whose profit might decline in this fiscal year but will recover once the economy goes into normal.

Things SEBON and NEPSE should do after lock-down:

1. Fully automate online trading

2. Encourage other sector company to be listed by providing different facility. This will increase company’s “good governance” and company can also easily prove its track record to raise more capital which will benefit them. Books of account is maintained well which reduces tax evasion. It benefits the investors as they will find new sector to invest. This activity also promotes stability of stock exchange as there will be various sector and degradation of a single sector will not affect stock index in a whole.

3. Facilitate investor living in remote locations for involvement of stock market. People living in remote areas are able to purchase IPO but they are restricted to sell those IPO in the secondary market. NEPSE should address this issue as soon as possible. 

4. Decrease the broker commission. If there is increase in transaction volume broker can still make a handsome amount even by working in less commission. 

5. This type of uncertainty may arise in future too. NEPSE should make sure that trading activities should not be halted. They have time and again said they will bring NRN for investment. NRN’s are not interested in investing in physical market. They want a very robust market.  

6. Capital gain tax for long term investment and short term investment should be different. They should seriously suggest finance ministry regarding it.