Stock Taking

Gloom in the Share Market

by Atma Ram Ghimire

The Keynesian doctrine of liquidity preference seems irrelevant to analyze the demand for money in Nepali economy. People are neither holding the money in their hands nor investing it in the stock exchange when the rate of interest offered by banks has reached an all time low. The main reason for not-investing in the stock is that the expected yield from such investment is very low. Not only that it is very much low this year, it is also expected to go down further next year. Himalayan Bank, which used to provide 55 to 60% cash dividend (including interim dividend), has proposed only 7.5% this time. The two greatest 'blue chip' companies - Standard Chartered Bank of Nepal Ltd. (StanChart) and Nepal Lever Ltd. (NLL) - have not been able to increase the size of cash dividend this year. The general trend on returns is positive with about 5 percent yield but current gloomy situation has made the investors' expectation of the future yield to go down.

Nepali share market is currently at the same situation as is the country. Making predictions is becoming ever more difficult due to the unnatural political and economic climate. There have been big prospects but all of them have been shadowed by the current situation. In general, the share market has remained stable.

The Nepse Index did not go down further than 261 mark and investors had a sigh of relief thanking even the proclamation of emergency, which stopped further erosion in the share prices. Banking, the sector that accounts for the biggest share of the trading in Nepal Stock Exchange floor, has remained stable except for a few surprises (e.g. the price of Himalayan Bank has remained the same even after the proclamation of 30% bonus share being issued). New entrants in the market from finance sector have fared well and there have not been significant changes in insurance, trading and manufacturing sector scrips.

Banks

Most of the banks (except NABIL, Nepal SBI, NIC, and Nepal Bank) have declared how much returns the shareholder are to receive for the last fiscal year ending mid-July. StanChart held an interaction program with the shareholders and let them know about the management's idea of providing 100% cash dividend. The shareholders present in the meeting vehemently opposed the idea and wished for a combination of bonus share and dividend. The meeting ended undecided, and now the bank has issued the notice convening the AGM with the same proposal of 100% cash dividend, without giving any thought to shareholders' demand.

Everest Bank and Bank of Kathmandu are prohibited by Nepal Rastra Bank from distributing any bonus share or dividend and they are holding their AGM without giving any return to the shareholders. Everest Bank too had called together a few shareholders for an interaction with the management. Selected for the meeting were those shareholders who are generally vociferous at the AGMs and the bank has bribed them Rs. 2000 each to win their support in the forthcoming AGM.

Himalayan Bank has declared 30% bonus share, which was notified only three days earlier than the book closure started for the AGM. The notice for AGM has also mentioned that there will be right issue of shares. Shareholders are angry at such malpractices. They think that their right to information should be honoured and the notices for such bonus and right share issue must be made public at least seven days prior to the book closure. Neither the Security Board nor the Nepal Stock Exchange Ltd. have dared to correct such malpractices of these 'mighty" organizations. Nepal Indosuez Bank Limited (NIBL) has announced 25% bonus share and 25% right share. But the notice has not clarified as to what has happened to the last year's decision to issue 33% right share. Meanwhile, NRB has stopped NIBL also from distributing dividend and bonus shares. Nepal Bangladesh Bank has announced 5% dividend and bonus share at the ratio of 2:1.

Finance Companies

A new entrant in the share market - Alpic Everest Finance Ltd. - is faring very well. It started with Rs. 270 per share (for Rs. 100 paid up), rose to Rs. 290, fell again to Rs. 247 and was Rs. 315 before the book closure for the forthcoming AGM. It is learnt that 100% right share and 19% dividend are being proposed, which should be considered as a very good return to the investors. And this price is justified also from the information about the performance of the company.

National Finance Ltd. has completed its AGM approving 28% dividend, KAFL 25% and Nepal Housing and Merchant Banking (NH&MB) 15%. Nepal Merchant Banking Finance and has declared 25% cash dividend and is faring very well at the stock market fetching a price that is higher than what it deserves at present.

NH&MB is holding its AGM in January 2002 by capitalizing the profit, HISEF has rescheduled the AGM and many others are lagging behind in announcing their returns or in issuing notices for holding AGMs. There also are many finance companies, which have long delayed allotting shares issued to the public (e.g. Shree Investment Co.) and investors feel that NRB should close them down if they do not allot the shares within next three months. Similarly, many companies have not provided the shareholders the bonus and right shares promised the last year itself. It seems that time management and sticking to the commitment needs to be made the criteria to decide whether to allow the management to continue operating the company. NIDC Capital Market Ltd. has been such a company, which has proven to be incompetent and lost public confidence because of the poor management of the mutual fund and also because of not issuing right shares.

Insurance Companies

There has not been any significant change in the field of insurance companies. Premier Insurance has been the first company in this category to hold AGM this year and has provided 13% dividend. Insurance companies were in news for their denial to insure against terrorism, which was going to affect the business of their clients as well as of the insurance companies themselves. But they have withdrawn that stand and have regained the earlier position in the stock market. United Insurance has announced 10% dividend and is holding AGM in January. None of the other companies has declared returns to the shareholders.

Manufacturing Companies

Bottlers Nepal (Balaju) and Bottlers Nepal (Terai) have held their AGMs and have declared 10% and 15% dividend respectively to their shareholders. Nepal Lever Ltd. has already announced 55% dividend. Gorakhkali Rubber Udyog Ltd. has not announced where and when it is going to hold its AGM.

Others

Among the hotel sector companies, Soaltee Hotel Ltd. has declared 10% dividend and bonus shares, whereas Yak & Yeti Hotel Ltd. has called for AGM declaring bonus shares. But Taragaon Regency (Hyatt) and Oriental Hotels (Radisson) are still silent. Most of the trading sector companies have been suspended from the Stock Exchange. Necon Air, Nepal Film Development Company, and Nepal Welfare Company are not suspended, but they too have not announced anything about the forthcoming AGM or the company performance as of the point of time of preparing this write up.

Against the background given above, the mood at the stock market can best be described as that of gloom. The investors seem to be confused whether to invest or not. The most attractive sector had been banking but the persistent erosion in the prices of the bank shares has caused the confidence of the investors in that sector to go down. Perhaps they have already sensed decreasing profits in the quarters to come, which mean that the annual profit too will go down. The experts estimate at least 30% reduction in the profits of the banks this year..

(Ghimire is a stock analyst.)