At the end of
2018 Nepal Rastra Bank (NRB) enforced some flexible rules to perk up the
slumbering stock market. But going into the New Year, stock investors
are still not interested in buying. The flexible rules were prescribed
by a panel led by deputy NRB governor Shiva Raj Shrestha following a
steep fall of the Nepal Stock Exchange (Nepse) index. Yet the benchmark
index retreated below the 1,200 threshold on Jan 3. This despite the new
rules allowing banks to raise total loan amount from 25 percent to 40
percent of core capital, and to give 65 percent of the value of
collateral stocks against loans, up from 50 percent earlier.
Another reason for depression in stock market is change in capital gain tax calculation
The central bank has also minimized the weightage of risk in margin
lending—loan against collateral of stocks. Earlier, on Dec 5, Nepse
index had nosedived to 1118.13 points. Increased supply of stocks,
tightening margin lending, high lending rates and the government’s view
of stock-market as ‘a risky business’ have all contributed to the
bearish mood.
The benchmark index was bullish just before the government had
presented its fiscal budget in May. Nepse index had on April 21
witnessed its yearly high of 1438.49 points.
The index was widely expected to go up following the introduction of
the automated share trading earlier this year. However, increased
supply of shares because of right issue and further public offering of
the BFIs for the increment of their capital resulted in plummeting
stock prices in the secondary market. Commercial banks have issued right
shares worth Rs 50.09 billion for increment of their paid up capital,
as instructed by the NRB. “When there is increased supply the stock
prices are bound to go down,” says Prakash Rajaure, a stock market
analyst.
Market capitalization has dropped by Rs 212.65 billion in a year’s
time, according to the Nepal Stock Exchange, indicating a steep drop in
stock prices.
Another reason for depression in stock market is change in capital
gain tax calculation. The fiscal budget 2018-19 provisioned 7.5 percent
capital gain tax when the bonus or right shares are traded. Earlier,
the government used to enforce 5 percent CGT on trade of bonus and
rights share in the secondary market. Along with the increase in the CGT
to 7.5 percent on May 29, the CGT calculation method has changed too.
To protest this move, stock investors had halted share trading on June
5.
After continuous slide of the benchmark index, a few investors had
even staged a fast-to-death, demanding the resignation of the finance
minister.
Stock analysts say the market’s future trajectory depends on whether
the central bank changes the lending rates again and whether the supply
of shares slows down.
