National 3 (Spotlight Weekly)

Upbeat Mood

Amid fresh initiatives for peace, the capital market, particularly the secondary one, is showing signs of recovery

By SANJAYA DHAKAL

The first positive reflection of last week's government-Maoist cease-fire was probably witnessed in the U-turn the stock index made from its persisting downward spiral. In less than a week after the truce was announced, the Nepal Stock Exchange (NEPSE) index showed strong signs of recovery.

According to recent reports by the Securities Board, Nepal (SEBON), the NEPSE index, which stood at 227.54 at the beginning of the current fiscal year in mid-July 2002, plunged to 200.80 six months later in mid-January 2003.

"However, following the announcement of cease-fire and hopes for permanent peace in the country, the market reacted positively," said Dambar Prasad Dhungel, chairman of SEBON. Until early this week, the NEPSE index had already risen to around 213.

Dhungel cautions that although fluctuations are regular in stock indices, it would be wrong to assume a trend just by looking at short-term figures. "But positive developments like hopes for peace will definitely go a long way in helping the market to recover."

Nepal's stock market had taken a serious beating in the last couple of years, thanks to political turmoil and economic recession. At the end of fiscal year 2057/58 (2000/2001) the NEPSE index stood at 348.43. By the end of the next fiscal year 2058/59 (2001/2002), however, it took a plunge of a whopping 120 points to reach 227.54 points. In the days since, the index has been gradually slipping down and was rallying around 200 points.

During fiscal year 2058/59, the annual transaction at the NEPSE was only around Rs.1.55 billion. Compared to the previous year, the market capitalization value of the listed stocks at the NEPSE came down by a staggering 25.13 percent to reach merely Rs.34.39 billion during this period.

With every other sector of the economy affected by political tensions in the country, no one could have expected the stock and securities market to do well. "Definitely, the securities market is in a big slowdown. But what is significant is that still this market is sustaining itself despite all these hardships," said Dambar Prasad Dhungel.

According to him, even the figures of the last six months of the current fiscal year 2059/60 (2002/2003) show a mixed trend. "There has been a significant growth in the primary capital market, whereas severe contraction was noted in the secondary market like stock exchange," he said.

"Due to the continuation of reform processes, the primary market witnessed growth. The issue approval in the period grew by 65 percent compared to the same period in the previous fiscal year. This was primarily due to two reasons; one, the banks and financial companies began to comply with the terms of their licenses, and two, they came into public flotation to meet the minimum capital adequacy requirement as determined by the central bank," said Dhungel.

In the period, SEBON approved 10 public limited companies to issue different capital instruments worth Rs.504.2 million to the public.

Dhungel said that since the capital market had not witnessed erosion in its fundamentals during the last couple of years, which were dismal from the economic point of view, they would not lose time to recover once concrete peace takes shape.

The NEPSE figures also showed that the scenario in the trading in the last year had been quite satisfactory, given the bleak economic outlook in that period. "We traded more than we expected during the fiscal year 2058/59 and even made profit of Rs.4.1 million," Mukunda Nath Dhungel, acting general manager of NEPSE, told SPOTLIGHT a few months ago. But the point is not lost. The secondary market had to face such a drubbing this year that the stock prices of banks that used to fetch Rs.3,300 only two years ago have come down to less than Rs.200. The share prices of almost all major banks and financial institutions had plummeted.

Against such a backdrop, the fresh initiatives for dialogue amid a growing yearning for peace among all sections of society have injected new confidence in investors, triggering recovery of the capital market.