People seem to be investing without realising that the market has to crash, once high.
--BY DWAIPAYAN REGMI
Who doesn’t want to make money without much effort? Perhaps the stock market is seen in that way by many Nepalis, seemingly emphasised by its sudden growing attraction. After all, someone investing Rs 1,000 for 10 units of shares makes around Rs 8,000 through it within five years. That probably was a small example, but somewhat practical too. Or maybe the mass has turned out to be calculative enough. Banks provide three percent interest annually on an average savings account. That will make Rs 30 annually, and around Rs 160 in five years. Maybe these figures show why interest in the share market is growing. The present liquidity crisis faced by banks has also probably had a direct influence on the craze for the stock market as well.
The oversubscription rates of the Initial Public Offerings (IPO), Further Public Offerings (FPO) and Mutual Funds in recent times make the picture quite clear. Hydropower projects and micro finances are the major IPO issuers at this moment, but it’s nowhere near discriminatory.
FPO has no less attraction in today's market. For example, the craze over Nepal SBI Bank FPO was immense. For that limited number of units, the application was huge. Investors understand that FPO can be the best way to make a purchase, rather than directly diving into the secondary market. Maybe investors perceived FPO as a secure means of trading.
The case is no different when compared to mutual funds as well. Although lower, they are also oversubscribed. Although, the capital gain seems very low in comparison to shares- as the maximum amount is 200 percent more than the par value- they are still seen as a better choice than storing the cash in banks.
For example, we can see the oversubscription rate in Synergy, Samanta along with Nepal SBI Bank Ltd and Nepal Life Insurance, indicating that people don't want their money to stay in banks, and are rather highly interested in share markets.
It has to be remembered, that these shares were applied for after queuing up for around a couple of hours in different regions, and another couple of hours spent collecting refunds. The increased attraction of Nepal's share market has given an opportunity for investors to think about a new stock market as well.
Share market trading outside Kathmandu is needed; online trading system is the present need. Similarly, granting brokers the license for commercial banking will increase the trade geographically. Their demand calling for the creation of a clear policy for bonuses, rights and merger swaps has logic too. Welcoming Non Resident Nepali (NRN) will energize the share market also. If NEPSE is not moving towards the changing needs of the market, then, the market needs an alternative for sure.
Application Supported by Blocked Amount (ASBA) was already brought to light in our neighboring country back in 2009. There remains a light at the end of the tunnel yet. Nepal is finally implementing this system after seven years. For years, share trading was centralised within the capital itself. It was difficult for someone to purchase or sell off shares outside the capital. Discussions are going on to expand the area. 17 districts have been taken into consideration for the initial phase. Granting permission to commercial banks has been discussed.
The idea of increasing the number of clearing has dropped down, which will ultimately benefit the investors. Online trading through mobile apps and internet has also caught the attention. NEPSE seems to be working hard to implement online trading as quickly as possible. The public flow of shares of Upper Tamakoshi has further fuelled the excitement of investors.
Maybe the ASBA system will remove the queues, so that one need not leave the office when applying for IPO/FPO or getting back the refund- making things comparatively easy and quick. But it is yet to be seen if the share market will remain attractive once blood is spilled on the trading floor, so to speak. People seem to be investing without realising that the market has to crash, once high.
The Nepal Stock Exchange has a major challenge to adopt an online trading system. There also lies the challenge of reaching outside the capital as well. Operational challenges exist.
Regmi is a freelance writer and a blogger. He is currently a part time faculty member at Kathford International College, Kathmandu and can be reached at [email protected]