May 26: While Nepal's investment options maybe limited, it is important to recognize that investing remains the most reliable approach to outpacing inflation, creating capital, and generating substantial wealth.
Although depositing money in bank accounts can yield modest returns, it falls short in terms of multiplying capital and enabling the creation of significant wealth.
Nepal has primarily three areas available for investment- real estate, business and stock market. Once upon a time, investing in real estate was widely regarded as one of the most lucrative endeavors.
If you had invested Rs 1 to 3 million in the early 2000s, the potential for exponential returns was immense, with the possibility of multiplying your capital by up to tenfold. Savvy investors who entered the real estate market in Kathmandu and other major cities during that era reaped massive wealth within a decade.
However, the tides have turned in the realm of real estate. Land sizes have diminished, and the value of land has skyrocketed to exorbitant levels. Presently, even the farthest outskirts of the Kathmandu valley have per anna land prices ranging from 25 to 30 lakhs.
As a result, individuals with limited capital shy away from investing in real estate due to the lack of sufficient funds. Additionally, the Nepal Rastra Bank has imposed stringent lending regulations on real estate, allowing only 30 percent loan against the total collateral valuation for homes and land. This not only makes it challenging for small-scale investors but also poses difficulties for larger investors looking to venture into the real estate market.
Moreover, the government has introduced new legislation that classifies land into ten categories based on various features and geographic considerations. These categories include agricultural, residential, commercial, industrial, mines, forests, public use, and cultural-archeological designations, among others.
Furthermore, land plotting has been prohibited unless the land has been appropriately classified, further complicating and diminishing the viability of real estate investments.
Engaging in business endeavors within Nepal presents significant challenges, particularly for newcomers and those lacking experience. The country boasts several well-established business conglomerates with a global presence, including the likes of Chaudhary Group, Golchha Organization, Murarak Group, Chachan Group, Golyan Group, Kedia Organization, Khetan Group, Vishal Group, Vaidya Organization of Industries and Trading Houses (VOITH), Prabhu Group, Laxmi Group, Shanker Group, Universal Group, IME Group, and Jyoti Group.
These influential entities exert control over a wide range of sectors encompassing manufacturing, trade, banking, insurance, healthcare, agriculture, hydropower, tourism, real estate, food and beverage, as well as vehicle import and sales.
For individuals entering the business arena with limited capital and lacking political and bureaucratic connections, competing with these established business houses proves immensely challenging. Newcomers and aspiring entrepreneurs rarely manage to establish themselves successfully in the business world due to these barriers.
Furthermore, the majority of people in Nepal tend to be risk-averse and lack the courage to venture into entrepreneurial pursuits. Additionally, the insufficient capital resources further hinder their ability to start their own businesses.
Although a nascent startup culture has begun to emerge in Nepal, the government is yet to formulate comprehensive laws and regulations to promote and support such initiatives. All these factors contribute to the prevailing perception that doing business in Nepal is a daunting and arduous task.
Investing in Nepal's stock market offers a comprehensive and wide-ranging avenue for investment. While there are stories of individuals losing their assets and even resorting to extreme measures due to stock market investments, many people remain hesitant to participate in the secondary market due to perceived risks. These cautionary tales serve as warnings, deterring others from venturing into the stock market.
Undoubtedly, investing entails risks, and the stock market is no exception. However, a careful study and analysis of the stock market reveal that it is not as perilous as commonly portrayed.
Despite inherent risks, stock market presents ample benefits. One of the advantages is the ability to start investing with any amount of surplus funds, whether it's Rs 50,000, Rs 5,000,000, or even higher. Unlike other ventures like businesses or real estate, which often require substantial capital, the stock market allows individuals to embark on their investment journey with any available surplus fund.
Unlike real estate, which typically maintains its value even during bearish periods, the secondary market, NEPSE, moves in cycles of bullish and bearish trends. This presents an opportunity to purchase shares of favored companies at low prices during downward trends.
In contrast, it is rare to find heavily discounted land or properties in the real estate market during downturns. In the stock market, one is never left behind, always having the chance to acquire shares of top-performing companies at unimaginably low prices.
Another advantage of the stock market is its liquidity. Life's uncertainties may require immediate financial solutions, such as medical emergencies, funding for education, or urgent travel expenses.
In such cases, selling shares can provide the necessary cash. Real estate investments may not provide the same level of flexibility in addressing immediate and urgent financial needs, especially during downturns when selling property becomes challenging.
The stock market offers a wide range of options to choose from, with numerous real and manufacturing sectors, banks, and insurance companies listed on NEPSE. These listed companies operate real businesses in the tangible world.
By conducting thorough analyses and investing in companies with growth and expansion potential, there is a significant opportunity to multiply investments. A company valued at Rs 10 million can grow into a billion-dollar enterprise, resulting in an unimaginable expansion of one's portfolio. In contrast, the size of land remains fixed, limiting its growth potential.
The stock market experiences cycles of bears and bulls. By studying technical charts, indicators, and keeping an eye on fundamental factors such as the country's economy, interest rates, liquidity in the banking system, and political conditions, investors have a chance to multiply their capital within a short period. Such rapid growth opportunities are not as readily available in real estate or start-up businesses.
Investing in the stock market offers transparency and convenience. While buying real estate often involves inspecting numerous plots before making a decision, studying and researching companies listed on NEPSE can be done from the comfort of one's home.
Transaction costs, including broker commissions, taxes, and regulatory fees, are fixed and transparent, ensuring fair dealings without any hidden agendas. Stock markets are regulated and operate under strict rules, providing transparency and investor protection. Access to company information, financial reports, and market trends empowers investors to make informed decisions.
Diversification is another bright side of investing in NEPSE. It allows investors to spread their investment across different sectors, such as banking, insurance, manufacturing, hotels and tourism, and investments, among others.
This diversification helps to reduce overall risk and potentially increase overall portfolio returns. Even if losses occur in one company, they can be offset by profits from another, minimizing the impact of individual setbacks.
Nepal's stock market holds significant promise as an emerging market, indicating considerable potential for growth. Emerging markets, being in the early stages of economic development, often offer higher returns compared to established markets.
Investing in NEPSE can be particularly advantageous for long-term investors who are willing to hold their investments over an extended period. As Nepal's economy continues to progress and mature, the stock market has the potential to deliver substantial returns for patient investors.
Another benefit of investing in NEPSE is the opportunity to earn dividend income. Many companies distribute a portion of their profits to shareholders in the form of dividends. This practice provides a reliable and steady stream of income, making dividend-paying stocks attractive for income-oriented investors seeking regular cash flow.
By investing in such stocks, investors can benefit from both potential capital appreciation and recurring dividend payments, enhancing their overall investment returns.
After analyzing the four bullish and bearish trends in the NEPSE, it becomes evident that newcomers tend to enter the stock market when the bull run is at its peak. Their decision is often influenced by hearing about their friends and neighbors making substantial profits.
Conversely, experienced and savvy investors choose to exit their positions during the mid to peak points of a bullish trend. Unfortunately, newbies enter the market at this juncture, experiencing initial gains and a sense of elation.
However, as the market eventually shifts into a bearish mode, their hopes of quick and easy profits are shattered. This unfavorable turn of events often leads to significant financial losses, feelings of despair, and even cases of suicide, thereby spreading negative sentiments about the stock market.
Ultimately, the success of investing in the NEPSE stock market relies on taking certain precautions and adopting a strategic approach. By considering the following guidelines, individuals can enhance their chances of making informed investment decisions and creating wealth:
1. Study the bullish and bearish trends in the stock market to understand the market dynamics and identify favorable entry and exit points.
2. Develop a basic understanding of technical charts, which can provide insights into price patterns and trends.
3. Conduct thorough research on companies, analyzing their past performance, current situation, and potential for future growth.
4. Capitalize on opportunities when the market is in a bearish trend, as this may present favorable prices for acquiring stocks.
5. Take advantage of bullish trends by selling stocks and patiently waiting for opportune moments to reinvest your money.
6. Avoid being swayed by rumors and hearsay, as they can often mislead investors.
7. Stay informed about the state of liquidity in banks, interest rates, and the overall financial condition of the country, as these factors can impact stock market performance.
8. Consider the effects of major calamities, pandemics, and unforeseen disasters, as the NEPSE has historically experienced growth following such events.
9. Select a few top-performing companies with growth prospects from various sectors and focus your investments on them.
By following these precautions and guidelines, investors can approach the stock market with a more informed and calculated approach, increasing their chances of success and wealth creation.