Correction Phase or Start of a Downtrend? Investors in Dilemma as NEPSE Falls

Despite listed companies in the Nepal Stock Exchange (NEPSE) publishing strong fourth-quarter financial results for FY 2080/81, the stock market has taken a sharp dip. While net profits, EPS, and other key financial indicators have improved across the board, Tuesday's trading session saw the NEPSE index drop by 41.78 points to close at 2,833.57. This decline has shaken investor sentiment and triggered confusion about the market’s future direction.

Machhapuchchhre Bank Reports Strong Profit Growth

On the same day the market declined, Machhapuchchhre Bank published its financial report showing a 92.45% surge in net profit, with its earnings per share (EPS) doubling. Operating profit, net interest income, and commission income all saw solid growth.

Similarly, over a dozen microfinance institutions and several development banks have reported significant year-on-year profit increases. A number of mutual funds have also declared attractive returns, indicating that the overall financial sector is performing strongly. Despite this, market behavior remains contrary.

Key Reasons Behind the Market Fall

One primary reason is profit booking. As share prices reached recent highs last week, many investors began to cash out, exerting downward pressure on the market.

Secondly, the lack of clarity regarding dividend cap revisions for microfinance companies has unsettled investors. While Nepal Rastra Bank (NRB) announced a review through the recent monetary policy, the timeline for implementation is still unclear. This uncertainty has caused significant volatility in microfinance stocks.

ISIN Number Controversy Adds Pressure

Another issue adding fuel to the fire is the recent proposal from CDS and Clearing Limited (CDSC) to assign separate ISIN numbers to founder and public shares. While several hydropower companies have strongly opposed the move, general investors seem to be in support. The ongoing debate has added further pressure to the market environment.

Sector-wise & Trading Volume Analysis

Total turnover on Tuesday stood at Rs. 9.33 billion—down from Monday’s Rs. 11 billion. Out of 13 sectoral indices, 11 declined, while microfinance and mutual fund sub-indices posted minor gains.

Samaj Laghubitta and Unnati Sahakarya Laghubitta were the only stocks to hit the positive circuit level. This signals some optimism in the microfinance sector, although policy ambiguity still poses a risk.

Stock Highlights: Top Gainers and Losers

Three Star Hydropower took the hardest hit, dropping 10% in a single day—the steepest fall among traded stocks. On the turnover front, Himalayan Reinsurance topped the list with Rs. 392.8 million in trades. Trade Tower followed with over Rs. 370 million, and Shivam Cements recorded trades above Rs. 330 million.

Technical Analysis: Support & Resistance in Focus

NEPSE failed to breach the 3,000-point resistance zone and retreated sharply. Technical analysts interpret this as a failed breakout attempt. While it's unclear whether the market is in a mere correction phase or the start of a larger downtrend, analysts point to the 2,780–2,800 range as a key support level.

If this zone breaks, analysts warn that the market may face deeper losses, leading to a more prolonged bearish trend.

Broker Analysis: Buy vs Sell Pressure

Among the top 10 active brokers, six showed higher sell volumes compared to buy volumes. Four brokers recorded relatively higher buy activity.

For example, in PCL, Broker 58 recorded a buy of 217,000 shares and a sell of 244,000 shares—hinting at matched transactions. In Global IME Bank, Broker 89 bought 107,000 shares while Broker 60 sold 200,000 shares.

Although company fundamentals remain strong with positive financial reports, the market is under pressure due to investor psychology, unclear dividend policies, and regulatory uncertainties.

Investors are advised not to rush into decisions but rather to assess technical indicators, watch key support levels, and base decisions on both technical and fundamental analysis. Whether NEPSE is merely correcting or entering a long-term downtrend will become clear in the coming trading sessions.