Nepal, a recent graduate into the medium bracket of the Human Development Index (HDI), is a landlocked country located strategically between India and China. With an annual budget of just over USD 13 billion we have a target to achieve an annual growth of 8% in the 2018-2019 fiscal year.
Recently, it came as great news when the finance minister Dr. Yuvaraj Khatiwada announced that the economy is now ready to welcome Private Equity, Hedge Funds, and Venture Capital into the local markets. Hence, it is our goal to collaborate with international businesses to bring this prospect to fruition.
Nepal Stock Exchange Limited (NEPSE) started facilitating security trading actively in 1994. The markets have since evolved and the total market capitalization stands at an estimated USD 17 billion as of 2017. The market has just been recently digitized and access has been made available throughout the nation via the internet. This has sparked genuine interest and participation at local levels. The financial market has progressed in leaps and bounds thanks to technology, which makes us, believe that we have entered a point in history when the market is going through a radical transformation.
An astonishing fact is that the NEPSE index is still one of the lowest in the South Asian subcontinent if not in the world- and this is where we have identified our market and potential. If we look at the NEPSE Index for the last 9 years-we had a major correction in 2009 when the index dropped from around 1200 all the way to 200 in a span of two and a half years. After that the market enjoyed a time of prosperity for four and a half years with the market peaking at 1781 points in August 2016. That time of growth was supported by policy improvements like the introduction of market stabilizing measures like mutual funds and market positive institutions. It was a time when capital was affordable and available and liquidity was growing exponentially. To quote a CEO of a Class A commercial bank -bank deposits tripled from an estimated USD 500 million to USD 1.5 billion in between that time. All statistics and reason have time and again subtly hinted at one direction for the Nepalese market- up!
August of 2016 was when the market entered its correction phase after the end of a four and a half year bull run and we are in the 23rd month of a pullback as of June 2018. It is also relevant to note that the market has an inversely proportional relationship with interest rates and it is due to high demand for loans resulting in scarcity of funds to buy securities with that has contributed to this market correction. But as the saying goes all bull markets end in a tragedy and all tragedies come with an opportunity. I think this is a high time for increased local and foreign participation in Nepal’s stock market opportunity. I have good confidence in the Elliot Wave Theory and according to the wave theory- we are going to be blessed with a few years of a reasonable bull run after we get through this correction. This is the point in time and the opportunity that it brings for which we have to be ready.
Another stellar point to support this time of entry is that the security prices of blue chip companies are cheaper, without even adjusting inflation, than it was after the massive correction in early 2012 but we might also have to take into consideration the increase of supply contributing from the investor rewarding culture of rights issue of bonuses.
Whatever the reasons may be I fundamentally believe that the evolution of finance is such that in an optimistic economy as long as there is a will to do good work it goes on. It grows- snowballs bigger and bigger and innovative thinkers have to keep finding creative solutions to challenges that are bound to arise.
We have come a long way since the trading floors opened in 1994. We have achieved a constitution and a stable government now. Things are improving in technology, policy, stability and security. Minor hiccups aside, I really believe that things are changing for the better. It is due to these reasons I believe I have to devote myself and include willing parties in the financial market and in Nepal’s beautiful future.