How do you see the recent stock market boom?
Rise, fall and stability are the essence of stock market. However, the rise is not always negative. While we look at the macro-economic indicators, the capital market is a bit at a higher level because the economic fundamentals might not have justified the growth. However, the capital market is not driven solely by the fundamentals. Its performance is also based on factors like third-party information, political development, related news, and growth prospective of a particular sector or company. When we look from the technical perspective, there are many reasons that can substantiate the current rise.
Isn't it surprising that the stock market is on a gaining streak despite of Tarai unrest and Indian blockade which has affected economic activities?
Immediately after the earthquake, we had expected that the Nepse index would go on a freefall. There was some was downfall in the market. However, the Monetary Policy brought an unexpected twist in the market. Though the central bank had a line of thought to raise the capital over the four or five years, it was referring to the core capital instead of paid-up capital. The unexpected decision to raise the minimum paid-up capital requirement for BFIs stopped the freefall. Despite uncertainties, we welcomed the new constitution. The sentiment of the investors was 'this is the forward looking market'. However, there is a critical question: should not there be a correction while the whole country was suffering from the recent turmoil and unofficial economic blockade? However, dividend offered by the listed companies offset those shortcomings.
Don't you think that the rise in paid-up capital in the absence of business growth will squeeze the return for shareholders?
Business growth of BFIs is a gradual process. The gradual growth of business means investors will not get expected return from institution which increased their capital manifold in a short time. We are yet to see whether we will have business for the servicing of such a big level of capital and whether there will massive economic activities to utilize the capital.
How do you observe capital market regulator's recent roles?
We have been always supporting the initiatives of Securities Board of Nepal (Sebon0. Regulator also needs to play role of facilitator in the market. The growth of market is not possible until Sebon becomes pro-active in expanding the scope of services, supervision, monitoring and improvement of market services. It will lead to efficiency of the market. However, while bringing in new services, the regulator should also consider about their practical aspect. It should also consider whether there is infrastructure in the market to deliver as per its expectation. The ground reality should be taken into consideration while you are running.
There are still problems in CDS even though it has gone into full-fledged implementation. What do you say?
We are talking about trading and settlement in Trading plus 3 days (T+3 days) while it takes at least eight to 10 days when we complete the full process. T+3 days would have made sense if it was about demat to demat. We were also operating on limitation due to the recent Tarai turmoil and unofficial economic blockade. Demat to demat transfer has become very convenient now. We are already providing bonus and rights shares directly into the demat account.
Mutual fund has not drawn attraction as much the IPO does. Why do you think so?
If we see the net asset value (NAV) of most of the mutual funds, the growth is impressive as the NAV has reached around Rs 13 per unit though their trading price is at around Rs 10 or Rs 11. Growth of 20 to 30 percent means that they can give a certain level of return. Mutual funds have also helped to stabilize the market to some extent. When there is a freefall, mutual funds enter into the market to cash in the correction of the market. There is very huge difference between NAV and trading price of mutual fund units. They are being traded at a very huge discount. Investors might feel why they should subscribe mutual fund at the beginning when they are available in the secondary market at the similar price. Also, a company has built an asset base while going public, mutual fund starts from zero like the first day of company incorporation.
Fee from the IPO has been a major revenue source for merchant banks in Nepal. Don't you think the source of revenue is now drying up for merchant banks?
This is the issue that we have been raising with Sebon for the last three years. The scope of works that the merchant bank has got will not allow any company to survive independently. This is why some of the merchant banks have disappeared from the scene in the last two years. So we have been saying that we should be allowed to provide services like corporate advisory, valuations, advisory services for merger and acquisition, private equity and venture capital, among others, in line with the regional markets. This has been incorporated in a draft regulation. Sebon should consider our requests and expand our scopes.
Is Nabil Invest coming up with new schemes or products?
We are bringing in a new scheme under Nabil Mutual Fund. We had initiated this scheme one year ago. However, we waited for some time due to our concern about rating, which we believe is not in line with the regional standard. Though we have asked Sebon to reconsider the rating system, there has been no development in that direction so far. However, we have now decided to launch the new scheme. Nabil Equity Fund is a scheme of Rs 1 billion which can be extended to Rs 1.25 billion if there is oversubscription. We plan to launch the scheme by the last quarter of the current fiscal year.
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