Continuous Decline in the Nepali Stock Market: Index Falls Below 2,800, Most Technical Indicators Bearish

The Nepali stock market has witnessed a significant decline. After recently touching the 3,000 level, the market has been continuously falling and has now closed below 2,800. Analysts say small investors who were encouraged to buy shares are now under stress. Those who took bank loans or broker credits in hopes of making quick profits are facing increased panic.

Historically, the market often remains bullish during the months of July and August, but this time selling pressure is dominating. This drop of around 200 points is mostly due to traders and technical investors selling shares, while large and institutional investors have not sold significantly. Still, the decline has surprised many. Some attribute the fall to recent news, such as the decision to remove the microfinance dividend cap only in mid-October, and the proposal to issue separate demat numbers for promoters and the public. Others claim broker credit sell-offs are contributing to the drop. A few analysts remain optimistic, stating that the market is unlikely to fall below 2,750 points.

Although around three dozen companies have published their annual financial reports showing improved profits, investor sentiment remains low. Out of 20 commercial banks currently in operation, 10 have released their annual results, yet this has not boosted confidence. More than a dozen microfinance institutions and some development banks have also posted attractive profit growth, and some mutual funds have even announced last year’s returns.

Despite these strong earnings and improved financial indicators, the market continues to face heavy declines. Analysts believe most commercial banks will report improved results, with microfinance institutions and hydropower companies also showing strong earnings due to lower interest rates. Still, panic persists among investors. The ongoing debate on whether to revise the microfinance dividend cap before or after approving annual reports has increased volatility in microfinance stocks. Additionally, the mandatory requirement of a national ID card for share transactions has also impacted trading.

Today, despite the overall decline, City Hotel shares hit the positive circuit level, while Samaj Laghubitta rose by more than 4%. In contrast, Sikles Hydropower hit the negative circuit. Nepal Reinsurance topped the turnover list with shares worth NPR 267.7 million traded.

Technical Analysis
According to technical analysts, the market gave a “one-candle sell” signal when it was near 2,950 and was expected to fall to 2,780–2,800, which has now happened. Although there have been attempts to rise, trading volume has not increased in bullish sessions. A 26-point drop today, along with lower turnover in the falling market, has been seen as somewhat positive by analysts. Ajit Khanal, a technical analyst, noted that most major support levels have been broken. The 50% retracement level was also broken, and the index closed below the psychological 2,800 level, leaving most technical indicators bearish. The next major support is expected at the 61% retracement level (around 2,755) or near the 50-day moving average.

Broker Analysis
Out of the 10 largest brokers in today’s market, 5 had relatively higher buy activity, while the other 5 had higher sell activity.