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From Caution to Confidence: Tracking Three-Year Journey of Nepal’s Capital Market (2079/80–2081/82)

From Caution to Confidence: Tracking Three-Year Journey of Nepal’s Capital Market (2079/80–2081/82)

-CA Bikash Adhikari

Abstract

Over the three fiscal years from 2079/80 and 2081/82, the capital market in Nepal has continued to grow and develop quietly and steadily, with a sense of opportunity and optimism that reflects the resilience of the market and the confidence of the investors. While there was a fluctuation in the number of public issues and IPO approvals, the overall picture that emerges is that of steady progress and development in terms of more companies being listed, increased paid-up capital and a rise in market capitalization. Also, large number of people are opening DMAT accounts and using digital platforms such as Meroshare and engaging in primary and secondary market trading. This reflects the cultural shift in terms of greater financial literacy and self-investing habits.

The article also draws attention to regional variations. While more distant places are gradually catching up as access, education and financial possibilities improve, urbanized provinces like Bagmati and Koshi province dominate in capital market participation. Indicators of the stock market, such as the NEPSE and NEPSE Float indexes, demonstrate that the market is becoming more lively and investors are growing more confident. These years essentially show a developing capital market where technology, expertise and zeal are combining to build a more diverse, dynamic and robust financial ecosystem in Nepal.

  1. Introduction

Over the past three years, the capital market in Nepal has gone through considerable market volatility due to factors like macro economic changes, regulatory interventions, liquidity cycles and market sentiments. This period has seen market highs, corrections and volatility in market turnovers and market participants, witnessing considerable changes in market trends and market activities. In this article, we will examine the current market trends and activities through parameters like movement in NEPSE index, Investors Participation, Market Capitalization, IPO trends, etc, and see how structurally the market in Nepal has taken shape and what it implies in terms of market trends and activities in the days to come.

Nepalese capital market data shows a trend of resilience, opportunity and growing investor’s confidence in the market. While there have been ups and downs in terms of the number of IPOs and investor’s activities in the market from 2079/80 to 2081/82, what is noteworthy is that more and more people are taking their first steps as investors in the market. More DMAT accounts are being opened, more and more people are getting access to digital investment platforms like Meroshare especially for investment in primary market and TMS for secondary market. Besides, there seems to be a cultural shift in which the common man is becoming financially savvy and thinking of ways to increase their wealth and taking charge of their financial lives.

If we look geographically then more rural areas are increasingly catching up as possibilities and knowledge grow. Provinces like Bagmati, with their metropolitan centers and easy access to financial institutions lead in participation. Even while public issue activity varies, market measures like the NEPSE Index, paid-up capital, and overall market capitalization demonstrate that the market is growing stronger, more stable and more dynamic.

In summary, these three years show a developing capital market where investors are learning, adjusting and participating more than ever before, laying the groundwork for Nepal's financial future to be more promising and inclusive.

B. Public Issue and Approved IPO

If we consider the data from the fiscal years 2079/80 to 2081/82, we can say that the journey of Nepal’s capital market has been full of ups and downs. Overall the growth has been steady. Talking about the fiscal year 2079/80, we can say that this was the year when public issue activities were high. During this year, 79 public issues were approved, and the total approved public issue amount was 87.2 Arba. This includes IPO, Right Share, Additional Share Issuance, Debenture Issue and Mutual Fund Issuance. It was the year of optimism, and companies were keen to go public, while investors were also willing to invest in the capital market. However, in 2080/81, the number of approved public issues was only 27 with amount of issue of 62.92 Arba. However, during the fiscal year 2081/82, the activities in the capital market have been increasing. During this year, the number of approved public issues was 56, while the total approved IPO amount was only 62.07 Arba. This includes the 15 IPOs worth Rs.392.73 crores, 17 Right Shares worth Rs.1,541.08 crores, 5 additional issuance worth Rs.155.96 crores, 9 debenture issuance worth Rs.2,530 crores, 10 mutual fund issuance worth Rs.1,588 crores. It seems like the companies are showing interest in going public but the size of their offerings remains moderate.

 

C. Number of Listed Companies and Market Capitalization

There have been ups and downs in IPO approvals during these three fiscal years. Landscape of Nepal’s stock market shows a picture of steady growth and consolidation in number of listed companies and market capitalization. The number of listed companies increased consistently moving from 254 in 2079/80 to 270 in 2080/81 and reaching 272 in 2081/82. This steady rise indicates that even when fewer new companies were entering the market in certain years, the overall market base was gradually expanding. This reflects a broader confidence in the stock market as a platform for long-term capital mobilization and investment.

 

Alongside, the growth in the number of listed companies shows that the paid up capital of these companies also exhibited continuous upward movement. In 2079/80 the total paid up capital of listed companies stood at 728.5 Arba, which rose significantly to 825.05 Arba in 2080/81 and further increased to 869.85 Arba in 2081/82. This trend points to the strengthening financial foundation of listed companies suggesting that they were raising larger amounts of capital either through IPOs, Bonus Issues or Right Issues. On of the significant contributing factor for increase in Paid up capital is issuance of Bonus Share. In these three years 263 Bonus Issuance were approved worth Rs.8,485 crores. The consistent increase in paid up capital indicates that listed firms were not only growing in number but also in size and financial capacity enabling them to undertake larger projects, expand operations and contribute more robustly to the overall economy. However investors needs to analyze whether investment are made in new projects from the proceeds of public issue or it is just a substitute of debt financing prior to investing.

Taken together, these trends show that the Nepalese stock market was steadily maturing during this period. Even though the number of new IPOs fluctuated year to year, the market as a whole was becoming more stable, with more companies listing and progressively building stronger capital bases. This gradual yet persistent growth lays the foundation for a resilient and increasingly attractive investment environment.

 

 

 

One of the most notable trends observed in the Nepalese capital market over the years from 2079/80 to 2081/82 is the rise in market capitalization, which not only measures the size of the stock exchange but also provides an insight into the market’s sentiment. In the financial year 2079/80, the market capitalization stood at 3082.5 Arba, which is a good beginning. It has shown a moderate rise to 3553.7 Arba in the financial year 2080/81, which again indicates that the market has shown steady growth over the years, despite the fact that the financial year 2080/81 witnessed fewer approved public issues. However, the most notable rise in market capitalization has been observed in the financial year 2081/82, in which the market capitalization has shown a sharp rise to 4656.99 Arba, which may be attributed to the rise in the share prices of all the listed companies, the rise in the number of investors, and the rise in the number and scale of the operations conducted by the listed companies. The increase in market capitalization is largely linked to issuance of bonus shares and right shares. Bonus shares and right shares improves shares liquidity   in capital market making more shares available for trade. Even though there is a proportional decrease in share price due to price adjustment in short run, the issuance of bonus share or Right Share creates positive market perception which supports for a gradual rise in share price over time and supporting growth in market capitalization, Overall, these trends reveal that even as public issues approvals varied, structural growth in the capital market remained robust. Thus, in these three years, growth in the capital market has been reflected in terms of more listed companies, greater paid-up capital, and a robust growth in terms of total market capitalization. These factors reveal a maturing stock market, which, despite some slowdown in public issues, has remained robust and has laid the foundation for a deeper, more vibrant, and investor-friendly financial environment in 2081/82.

 

  1. NEPSE Index and NEPSE Float Index

Furthermore, the movement of the NEPSE Index, which is the benchmark stock exchange index of Nepal over the three fiscal years from 2079/80 to 2081/82 gives us an overall understanding of the changing investor sentiments. It is observed that in the year 2079/80, the NEPSE Index was at 2097.1, which can be considered the baseline. During this year, the stock exchange was showing signs of optimism, but at the same time, there was caution. It was observed that during this year, there was a gradual movement in the stock prices, which can be seen as moderate investor activity and economic stability. During the year 2080/81, the NEPSE Index showed a steady increase, reaching 2240.4. It can be observed that during this year, there was an increase in stock prices, which can be seen as an indication of the overall growth of the stock exchange. It can be observed that during this year, there was a slowdown in new public issues, as well as IPO approvals. However, during this year, there was an indication of investor confidence in the existing listed companies, as investors were willing to retain their shares in these companies. This can be seen as confidence in the overall performance and long-term potential of the market rather than just speculative activity.

 

 

The most notable change occurred in 2081/82, in which there was a sharp rise in the NEPSE Index to 2794.79. Such a sharp change in the NEPSE Index indicates that there was a renewed sense of optimism in the market. There can be several reasons for this sharp change in the NEPSE Index. One reason for this change can be the increase in trading volumes, the valuation of the companies that have already been listed in the stock exchange, and the overall profitability of the economy.

Overall, the changes in the NEPSE Index over the last three years indicate that the market not only survived in spite of the fluctuations in IPO approvals but also continued to mature with the sharp change in 2081/82.

 

 

 

Similarly, if we analyze the performance of the NEPSE Float Index, which monitors the performance of only those shares that are easily tradable in the market, we find similar results:

 

The performance of the Float Index in 2079/80 was 144.97. This is where we find the baseline performance of this market for the next three years. The performance of the market of easily tradable shares was stable during this year, with incremental changes in share prices and modest investor participation. The performance of the Float Index increased slightly in 2080/81, rising to 152.62. This is a sign of slow and steady growth during this period, as it also suggests that while there was growing interest in investing in easily tradable shares, it was a cautious and measured growth in investor sentiment, possibly because of the slowdown in approvals of new public issues during this period.

 

The most significant change was recorded in 2081/82 when the Float Index recorded a sharp increase and reached 193.27. This significant change in the Float Index is indicative of increased activity on the part of investors and suggests that a larger number of investors were engaged in trading shares and that the shares available for trading were performing exceptionally well.

Overall, it is evident that the changes recorded in the NEPSE Float Index during these three fiscal years are similar to changes recorded in the general NEPSE Index; however, it is worth mentioning that the changes recorded in the Float Index are indicative of increased activity on the part of investors and suggest that during 2081/82, not only did the capital market grow in size but also became dynamic and energetic.

 

E. DMAT Accounts

The steady rise in the number of DMAT (Dematerialized) accounts from 58.21 lakh to 69.97 lakh in the last three years is a significant indicator of the rising trend among people to take part in the share market. The rising trend in DMAT accounts is a reflection of the fact that more and more people in the country are becoming financially literate and inclined to take part in financial activities such as investment. Every year, more and more people are becoming financially literate and are taking the first step in becoming financially literate and participating in the capital market by opening a DMAT account, which is the first step in buying and selling stocks electronically. The increase in the number of DMAT accounts is not just a statistical increase, but also a reflection of the rising trend among people to become financially literate and to seek avenues to increase their wealth and become financially secure by seeking financial instruments and avenues. The rising trend in DMAT accounts can also be attributed to the fact that people are becoming financially literate and seeking avenues to increase their wealth and become financially secure.

 

F. Meroshare Users

The steady increase in the number of users of Meroshare, with the number rising from 48.26 lakh to 59.76 lakh, clearly reflects that more and more people are adopting the use of digital platforms to manage their financial activities. This steady rise in the number of users can be taken as a clear reflection of the shift in the behavior of investors, with more and more people getting comfortable and confident about using technology to manage their financial activities. By using the services offered by Meroshare, people can conveniently access a number of services offered online, including the application for Initial Public Offerings (IPOs), tracking the performance of their portfolios, and keeping track of the trends in the stock market in real time. This helps people to effectively manage the complex processes involved in investment in a simpler way, without the use of physical documentation, queues, and other complexities, and hence more and more people can be encouraged to participate in the capital market in a more actively. Moreover, this can be taken as a clear reflection of the increased adoption of digital finance options with the increased penetration of the Internet and the use of other technologies to raise awareness about investing. Ultimately, the rising number of Meroshare users not only signals technological adoption but also signifies a growing culture of self directed investing and financial empowerment among the public.

 

G. Investors Participating in IPO:

The trend in the participation in the Initial Public Offering (IPO) has also depicted a significant trend in the last few years. The number of participation in IPO increased from 1.98 million to 2.17 million from 2079/80 to 2081/82. Even though there has been a reduction in the participation in the IPO during the fiscal year 2080/81, the very next year, 2081/82, witnessed a significant increase in the participation, with the number of investors rising to more than 2.17 million. This shows that the participation in the IPO is also influenced by factors such as the overall stability in the market, the profitability of the investment options and the overall environment in the capital market. The reduction in the participation in the IPO may have been due to factors such as the uncertainty and the relatively lower profitability of the IPOs in the market. The significant increase in the participation in the IPO in the very next year shows that the environment can change very fast, and the investors can become very confident in participating in the capital market, especially in those IPOs that are highly profitable and those from renowned organizations. This also shows the maturity in the investors, who are becoming more and more aware and are becoming more and more responsive to the environment.

 

H. Secondary Investors:

The steady increase observed in the number of secondary market investors, growing from 32.83 lakh to 42.48 lakh, is an indicator of a major shift observed in the market where people are moving beyond merely applying for Initial Public Offerings (IPOs). This is a clear indicator of a higher number of people engaging actively in buying and selling shares of companies on the secondary market, signifying a higher degree of engagement with the stock market environment. Unlike IPO applications, where people are willing to take part based on occasional investment opportunities, engaging with the secondary market involves higher levels of decision-making and market analysis, as well as monitoring of stock market performances. Thus, it is evident that there is a higher degree of confidence observed among people regarding these market processes and a higher degree of understanding of engaging with the secondary market.

 

There may be a number of reasons that can be attributed to this phenomenon, including increased accessibility to trading platforms, improved education among investors, and awareness about the possibility of wealth generation through smart trading. Moreover, this increase in secondary market participants indicates that the general population is becoming more financially savvy and willing to take calculated risks, as opposed to merely entering the market with primary investments. Overall, the increase in secondary market participants reflects a maturing investment culture in which people are not merely entering the market, but are actively participating in its dynamics and contributing to its vibrancy.

 

 

  1. Online Investors

Online Investors are those investors availing TMS facility. Unlike the conventional and traditional approach to investment in the market, which requires investors to make numerous and tedious paperwork and to physically visit brokers to make their investments, the online platforms reduces the paperwork, minimizes the need for personal visits to brokers and also provide real time updates on market activity. This enables investors to make more informed and timely decisions. The online investors have been increasing steadily from 17.63 lakhs in 2079/80 to 22.58 lakhs in 2080/81 and further to 27.35 lakhs in 2081/82. This reflects an excellent growth pattern over the last three years. The increased number of online investors indicates a clear and evident shift towards digital trading in the financial markets. This shift can be seen as a move towards a wider cultural shift in terms of how people approach investment in the financial markets and can be attributed to the increased availability of internet access and other digital devices that can be used to access the market and make investments. Investors can now make their investments, track the performance of their stocks, and manage their investments with unprecedented ease and speed, all while in the comfort of their homes or on the go with their smartphones and computer devices.

 

The shift in terms of investment can also be seen as a move towards increased confidence on the part of investors in the digital platforms that they use to make their investments in the financial markets, as security and other measures that are in place make it safer and more convenient than ever before to make transactions and investments in the market.

 

Furthermore, online investing is also a result of changes in society as a whole, such as increased financial literacy and comfort with technology and investing on one’s own. Thus, as more people become able to access online investing, it is likely that the demographics of people investing in the stock market will become more inclusive and less exclusive because of geographical constraints and a lack of formal knowledge of investing. The obvious growth of online investors is evidence of a change in culture as much as it is evidence of a change in technology.

 

 

J. Active Secondary Investors:

Active secondary investors have also been increasing steadily from 16.44 lakhs in 2079/80 to 21.16 lakhs in 2080/81 and further to 25.05 lakhs in 2081/82. This reflects steady growth in the market. The surge in the number of active secondary market investors indicates a more profound degree of involvement in the stock market, which shows that the growth is not only in the number of participants but also the degree and nature of their involvement in terms of the number of transactions. Unlike passive investors, active investors frequently buy and sell stocks based on trends and movements in the stock market and the overall investment climate. This shows that the participants have become more confident and informed and have started becoming more proactive and involved in the management of their portfolios.

 

The surge in the number of active participants also shows that the stock market has become more dynamic and liquid, with more participants involved and more efficient price discovery mechanisms. It also shows that the participants have become more financially literate and have the ability to analyze the data and make the right decisions at the right time. The recent surge in the number of active participants has been made easier by the advent of technology, which has enabled participants to access the stock market at any time and from anywhere with the help of online trading platforms and mobile apps.

 

Furthermore, this rise in activity also points to the maturing nature of the investor base, which, instead of merely entering the market, is already making its contributions to the vibrancy of the market. Moreover, this rise in activity may be seen as a pointer to the general popularity of the stock market as a means to create wealth, prompting more and more investors to move away from merely holding the market to strategic, informed, and active engagement with the capital markets. The strong rise in active secondary investors, therefore, points to the quantitative and qualitative progress in the market, which may be seen as a positive development in the market ecosystem.

 

 

K. Province Wise DMAT reach

If we look at the number of DMAT accounts across different provinces of Nepal, it is evident that there is a pattern emerging. For instance, the lowest number of DMAT accounts is found in Karnali Province, where only 2 lakh people are invested. This indicates that investing is a new concept for people residing in this region of Nepal. This could be due to a lack of financial literacy, fewer economic opportunities, and limited access to formal financial institutions. However, there is an increase in the number of DMAT accounts found in Far Western Province, where there are 4 lakh accounts. Although investing is not very prevalent, there is a marked increase and people are becoming more curious about investing and exploring different opportunities available for them.

 

If we move towards other provinces, namely Madhesh and Lumbini, it is evident that there is a marked increase in the number of DMAT accounts. Both provinces have 8 lakh DMAT accounts. This is an indication of people becoming more inclined towards investing and adopting different investment practices. Similarly, there is a marked increase observed in Gandaki Province, where there are 9 lakh DMAT accounts. This is an indication of people are investing and investment are becoming a more common and accepted activity among its residents.

 

However, Koshi Province stands apart with the number of DMAT accounts, which amounts to 13 lakh, indicating higher participation in the stock market. This may be attributed to various factors, such as the province providing better economic prospects, a higher number of urban centers, and the infrastructure that provides better access to financial markets. The people here seem to be more confident in exploring investment avenues, which may indicate the maturity and activity of the investors.

Lastly, Bagmati Province leads the pack with a huge margin, with 25 lakh accounts, establishing its position as the hub for all stock market activities in the country. This may be attributed to the urban nature of the province, higher literacy levels, the number of business entities, and the high number of financial institutions and brokerage firms that are available in the province. The people here are making the most of the available infrastructure, which not only shows their enthusiasm but also their capability to take part in capital market activities.

 

Thus, the distribution of the number of DMAT accounts serves as an illustration of not only the sheer differences, but also the underlying factors that affect investment behavior in different parts of Nepal in terms of economic development, infrastructure, urbanization, and financial literacy, among others. It shows that while stock market participation is concentrated in some areas, in others, people are slowly catching up.

 

 

L. Way Forward

Based on above data analysis we can witness that Nepal’s capital market has made tremendous growth over the past few years. However, there is always room for growth. The way forward for the capital market is to make it more accessible and engaging for all. Here’s how this can be achieved:

 

  1. Development of Financial Literacy: Although more people are opening DMAT accounts and going online, the majority of the people still do not have the required knowledge about the process of investing. Financial literacy will play a vital role in making people comfortable enough to take the first step towards investing. SEBON and other stakeholders shall initiate activities relating to digital financial  awareness.

 

  1. Development of Online Facilities: The emergence of online investors shows the potential of technology to revolutionize the capital market. The expansion of internet facilities will enable people from all over the country to participate without any barriers.

 

  1. Development of New Products: Development of new professional products related to capital market can also support growth of capital market. New investment products like NEPSE Index or Subindex Linked Funds, Systematic Investment Plans (SIPs), Systematic Withdrawal Plans (SWP) can also encourage larger market capitalization.
  2. Attracting Institutional Investors: To improve the market in a sustainable way, the focus should shift towards strengthening institutional investment. Efforts should be made to attract institutional investors including FDIs from abroad. Institutional investors typically bring larger, more stable and long-term capital into the market.

 

 

 

  1. Promote Active Engagement: Opening an account with the stock market is just the beginning. Assisting investors to keep track of their portfolios and make informed decisions regarding their investments can make the market more interesting and exciting.

 

  1. Build Trust Through Stability: The capital market must be well-regulated to gain the trust of the people. The more people trust the market, the more they will be encouraged to invest not just once, but regularly as well.

 

  1. Embrace Innovation: The use of technology, such as AI and smart trading apps, can be employed to make better and more informed decisions regarding investments. The companies can also take advantage of this to mobilize capital and keep the investors informed about the market and the trends.

 

To put it simply, the future of Nepal’s capital market is bright. By focusing on education, technology, and trust, it is possible for the capital market of Nepal to become a place where everyone from a beginner investor in a small town to a savvy trader in a city can invest with confidence and build wealth.

 

M. Conclusion

If we look at the past three fiscal years from 2079/80 to 2081/82, it is evident that the capital market of Nepal is on a path of growth, resilience and change. Though the number of public issues and IPO approvals is subject to fluctuations, it is also evident that the capital market of Nepal is growing as more and more companies are listing on the stock market, paid-up capital is rising, market capitalization is increasing, and stock market indices such as NEPSE and NEPSE Float Index are also rising. Another factor that cannot be ignored is the human factor as more and more people are opening DMAT accounts and exploring online platforms such as Meroshare and participating in primary and secondary markets in a positive and proactive manner. This is not only a factor of technology but also a factor of culture as people are increasingly becoming financially literate and are participating in wealth creation in a positive and proactive manner.

 

The development of the market is also greatly influenced by geography and opportunity, with the more financially serviced, urbanized, and financially opportune provinces, such as Bagmati and Koshi, leading the pack in terms of investor participation, with the other provinces gradually closing the gap as financial knowledge and infrastructure grow. All these factors indicate that the capital market in Nepal is not only expanding in terms of size but is also becoming increasingly more inclusive, dynamic, and resilient, capable of weathering the slowdowns and remaining attractive to new investors.

 

In conclusion, the period between 2079/80 and 2081/82 is one that the capital market in Nepal is learning, adapting, and growing, with the market characterized by investors who are increasingly empowered to make their own decisions, with firms laying the foundations, and with the stage being set for a dynamic, inclusive, and sustainable capital market that has the potential to support the economic development of Nepal in the years to come.

 

References