Stock Taking December 2012

By Bikram Chitrakar

When NEPSE Reached 33 Months High

 (Review for 30 October to 27 November, 2012)

 The main reason for the sudden revival in Nepse in November is the decrease in the interest rate offered by the commercial banks on deposits as they are experiencing rising deposits.

November 2012 was an exciting month for the Nepali bourse. The market witnessed a wild upward movement after cooling for a long period. Majority sectors were supported by a straight gain while the volume was also significantly high. The benchmark Nepse index gained 45.33 points or 9.19 percent to settle at 493.16, whereas the session’s high was 501.51 on November 20 and the low was 447.83 on October 30.

Initially, the acceleration in the benchmark index was supported by hydropower and ‘others’ sectors. Then there was a rapid movement and the index reached a 33-month high. Nepse index’s previous high was 501.4 on February 4, 2010. 
 

 The main reason for the sudden revival in Nepse in November is the decrease in the interest rate offered by the commercial banks on deposits as they are experiencing rising deposits. As a result, many investors saw an opportunity at market low that unleashed a buying spree.  

Meanwhile, the Central Depository and Clearing system officially started its services during the review period, promising an accelerated settlement and clearing process. The system promises to finalise the settlements within 3 days of each transaction. However, in the dematarialsation of the securities, the progress has not been fast because only a few securities have been dematerialised so far.  

Another historic development during the review period was the issuance of a mutual fund by Siddhartha Capital. The Siddhartha Investment Growth Scheme-I proposed by the company has 40 million units at Rs 10 per unit. This makes available a new investment area in the Nepali market that helps the investors to diversify their portfolio.

The Nepali market has always been a victim of “Animal Spirit”, a term used by Prof. JM Keynes to refer to the spontaneous urge to action without considering about the possible consequences of such action. Volatility has been experienced in the Nepali stock market even in such a short period of time that is not sufficient to determine where the possible support and resistance points are. Recent developments in the market provide enough proof to claim that the investors’ sentiment here is based either on greed or on fear. Such unnatural movements can last only a short span of time.

 

Performance by Sector

 

The commercial banks sector that occupies a heavy volume of trade in Nepal Stock Exchange gained 76.52 points or 16.67 percent to rest at 458.95. The hotel sector surged 89.58 points or 13.69 percent to 654.15. The hydropower sector escalated 86.06 points to 1031.6. Similarly, the development bank gained 7.24 points and the manufacturing sector 7.63 points to rest at 251.58 and 728.96, respectively. The insurance sector accelerated by 9.37 points or 1.28 percent to reach 733.47 points. However, the ‘others’ sector plummeted 27.01 points or 3.46 percent to close at 780.1.  

The sensitive index that measures the performance of 133 blue chip scrip at the secondary market added 12.46 points or 9.73 percent to reach 128.1 points while the float index (calculated on the basis of real transactions) moved up 3.58 points or 10.22 percent to 35.03. A total turnover of Rs. 1,746,132,394 was realized during the review period with 6,012,652 units of shares traded through 24,809 transactions.  

The accompanying figure depicts the sector-wise distribution based on the total volume of trade. As usual, the banking sector dominated the trade volume with 76.95 percent share. The hydropower sector accounted for 9.29 percent while the development banks and ‘others’ sector grabbed 4.25 percent and 4.07 percent, respectively. And the remaining portion was shared among the rest of the sectors.   

Technically, the Simple Moving Average (SMA) is dominating both 30 days SMA and 200 days SMA. The index has already tipped and a drop by a few points can be expected on the basis of chart analysis. The upward movement has already surpassed the yearly movement, while support and resistance were yet to be visible when this analysis was prepared.   
 

Chitrakar is a Stock Analyst with Jamb Technologies Pvt Ltd.