Surprisingly, the stock market scaled to the height in a year when the Constituent Assembly (CA) failed to come up with a constitution as pledged, while investment climate continued to deteriorate due to the government´s failure to come up with a full budget.[break]
This indicates that investors, despite fretting about political instability and declining business environment, viewed the stock market as the only investment avenue that can give good returns.
The domestic bourse started off the year on a not-so-strong ground of 316 points, considering the all time high of 1175.38 points recorded in August 2008. This dismal standing was further shaken as the benchmark index started taking a dip in February.
To prop up market confidence, Nepal Rastra Bank Governor Dr Yuba Raj Khatiwada, on February 24, called on investors to pump money into the local stock market citing macroeconomic indicators, including growth estimates, inflation target and balance of payment situation, were positive.
His attempt, however, fell flat and the benchmark index continued to veer downward. By March 29 the index plunged to 298.89 points -- the lowest in 2012.
Then in April the government started talks of introducing market makers to make the stock market more vibrant. Around this time, it also pledged to make necessary legal amendments to encourage private companies and family-owned businesses to go public.
But as series of protests on state restructuring on the run up to promulgation of new constitution started dominating local politics, the government put the plans at bay.
At that time the most severe protest was launched by locals of the far-western region, who brought normal activities to a grinding halt for 20 days in the region demanding creation of a single Seti-Mahakali state comprising all the nine districts in the far-west. The agitation ended after the government signed a deal with them, but similar protests had gripped other parts of the country, including Kathmandu.
But to the surprise of many, these demonstrations did not have much effect on the local bourse, which moved in a band of 370 and 400-plus points, as many strongly believed the constitution would be promulgated within the deadline and this document would usher in new opportunities. This hope tripped many circuit breakers at Nepse in the month of May and by 27 May, the last day for the promulgation of the constitution, the index rallied to 412.87 points.
But after CA was dissolved late at night of May 27 without producing a constitution, hopes were dashed. This caused the index to plunge 5.08 percent to 391.89 points the next trading day. And for next one and half months the index moved below this level.
Despite low investor confidence in the days following CA´s failure to come up with a constitution, Nepse was successful in beating the government-set target of closing the index at 350 points on July 15, the last day of fiscal year 2011/12, as the index had advanced to 389.72 points by that time.
Gradually the index started moving up again after mid-July and it picked up pace rapidly after Dashain (festival) holidays.
Since the end of Dashian festival in late October, the stock market has soared by almost 20 percent, with index topping three-year high of 541.1 points on December 27 --the second last trading day of the year.
Many investors are thronging stock market these days as banks and financial institutions have slashed both deposit and lending rates.
“This has made loans cheaper for those interested in making investments in stock market, while discouraged depositors from parking money in bank accounts, as returns are now relatively higher on the stock market,” Anjan Poudel, president of Stock Brokers Association, said.
Coupled with this, the provision on margin lending introduced by Nepal Rastra Bank in June, which allows banks and financial institutions to extend loans to shareholders on guarantee extended by stockbrokers, has also started benefiting stock investors, easing their access to credit.
Although commercial banks are yet to join this bandwagon, interest shown by financial institutions in extending such loans at relatively affordable rates of 13 to 14 percent has lured many to the stock market, according to Poudel.
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