Nepal Stock Market Suffers Decline Amid Investor Uncertainty

The Nepalese stock market witnessed a volatile third week of Poush (December 14 to 18), with the NEPSE index plummeting by 44.84 points, closing the week at 2586.23. The significant downturn was triggered by regulatory actions and compounded by investor anxiety, leading to a subdued trading week.

The decline in NEPSE was primarily influenced by the Nepal Rastra Bank's decision to declare Karnali Development Bank problematic on Poush 10, subsequently taking over its management. Following this, NEPSE delisted the bank on Poush 11, citing investor protection. This regulatory intervention spurred fears that other companies with high non-performing loans (NPL) might face similar action. Rumors about further delistings spread rapidly on social media, triggering panic selling, particularly in the Finance and Development Bank sectors.

The Development Bank and Finance sectors bore the brunt of the selling pressure. On Sunday, the Development Bank index fell by 142.35 points, followed by a further 145.10-point drop on Tuesday. The Finance sector mirrored this trend, losing 137.46 points on Sunday and 152.44 points on Tuesday. This sectoral weakness rippled across the broader market, amplifying declines.

Investor sentiment was further strained as speculative behavior overshadowed fundamentals. Gopal Katuwal, a market analyst, remarked, "Our market is highly reactive to rumors. Once key sectors like Finance and Development Banks show weakness, it triggers a cascading effect on the entire market."

The market saw limited enthusiasm among traders, with a total turnover of NPR 19.35 billion over four trading days, averaging NPR 4.83 billion per day. Approximately 43.79 million shares changed hands in 230,873 transactions. This subdued activity reflects the cautious approach adopted by investors in the face of uncertainty.

• Sunday: The week started on a bearish note, with the NEPSE index falling by 21.12 points, closing at 2609.58. Transactions amounted to NPR 5.47 billion.

• Tuesday: The index suffered its sharpest decline of the week, dropping 33.08 points to 2613.95. Turnover was NPR 5.67 billion.

• Wednesday: A slight recovery saw the index gain 5.10 points, closing at 2581.60. However, trading activity weakened, with a turnover of NPR 3.59 billion.

• Thursday: The market remained subdued, gaining only 0.17% to close at 2586.23. Transactions totaled NPR 4.60 billion.

The week’s decline highlights the sensitivity of Nepal's stock market to regulatory actions and speculative sentiment. The delisting of Karnali Development Bank served as a catalyst for widespread investor fear, overshadowing any positive developments. The exaggerated reaction to rumors about potential delistings suggests a lack of confidence and maturity in the market, where short-term speculation often overrides long-term investment perspectives.