The stock market was on downward spiral since it reopened after public holiday on Tuesday as the selling spree, which began with profit-making motive, went wayward, with retail investors turning nervous and readily disposing shares. Within 37 minutes of the opening of market at 12 noon, the index dipped three percent from Monday´s closing of 404.73 points. [break]
As per the Nepse regulation, transaction should be halted for 15 minutes if the index falls or rises by three percent in the first trading hour. This practice is known as clamping of circuit breaker in the share market jargon.
The use of circuit breaker however, did not prevent stocks from tumbling. And by 1.04 pm the index had fallen by four percent - a level, which, according to the regulation, requires halting of share transaction for half an hour.
But even after 30-minute hiatus, stocks continued taking a hit, and at 1.36 pm the index plunged five percent. This prompted the market operator to halt the trading for the day.
Trading in Nepse is halted if the market falls or rises by three percent, four percent and five percent in the first, second and third trading hours of the day which extends from 12 noon to 3pm. This is done to protect the market from negative shocks of sudden upward or downward movement in share prices.
On Wednesday investors dumped shares of stock market giants like Nepal Telecom and banks like Nabil, Standard Chartered, Bank of Kathmandu, Everest, Prime Commercial and Bank of Asia Nepal.
Because of this, shares of Nepal Telecom, for instance, fell by Rs 45 to Rs 450. Since NT´s market capitalization is Rs 67.5 billion - or almost 19 percent of the total market capitalization of Rs 362.99 billion - even a moderate fluctuation in its share price affects the entire market.
This is the same with banks like Nabil - which lost 10 percent of share value and closed at Rs 1,260 and Standard Chartered - which shed Rs 192 to end at Rs 1,845 that have market capitalization of Rs 25.57 billion and Rs 29.7 billion, respectively.
"However, the surprising factor is that stocks of these companies did not take a hit due to fundamental change in their financial conditions," Nepse Spokesperson Shambhu Pant said, blaming "hoard of speculative investors for the market plunge."
"To change this situation and create some stability more institutional investors must be roped into the secondary market," he said.
Currently, retail investors rule the roost in the domestic local stock market. "These investors, many of whom use borrowed money, neither have appetite for risk nor ability to hold on to shares for relatively long period of time," Pant said. "As a result they follow the herd and dump or buy shares even if there is minor change in prices. This is creating instability in the market and does not bode well for investors."
This is why the stock market has been on a rollercoaster since the end of March with the market index rising from a low of 298.89 points to 13-month high of 409 points on April 25 and down to 384.38 points on Wednesday.
Yet many are satisfied as the market stands at a significantly higher level than at March end. This according to Pant, is the effect of positive developments in the political arena.
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