After steadily declining for nearly three years, the Nepal Stock Exchange (Nepse) index showed strong resistance towards the last week of November 2019, when the market began to resist the steep decline.
Experts estimate that the Nepalese stock market alone has been on the rise since January 2020. The stock market index, which stood at 1,182.31 points on January 5, 2020, broke the previous record of 1,881.45 points set. on November 26, 2020 and then started to climb steadily.
Any bull run, while considered the best time to invest in a stock market and make money, is invariably accompanied by periods of “corrections” when a large group of investors sell their holdings for returns. profits. The first major correction during this bull run was observed in March 2020 when the Covid-19 pandemic forced the country into containment.
The market was ill-prepared to launch online business immediately and many traders / investors did not have online trading accounts. Also, confusion reigned over the future of the market, leading to panic sales. In this period, the index, which had reached 1,670 points, quickly fell to 1,150.
The index started to climb from the end of June, but saw another correction to 1,561 points, before hitting a low of 1,368 points in mid-July 2020. From that point on, there is had several minor weeklong corrections and the index moved sideways. It was not until the third week of February 2021 that the market experienced a four-week multi-week correction with a high of 2,676 and a low of 2,369 points.
After that, the corrections were regular. Mid-April saw a two-week correction with a high of 2,760 points and a low of 2,500 points. The market is currently going through a further correction with a high of 3,227 points and a low of 2,779 points.
With the announcement by the government of a “budget holiday”, we fear a liquidity crisis in the market. At the same time, Nepalese private banks started offering higher interest rates on deposits from September 17, adding to speculation about a liquidity crunch that could have a direct negative effect on Nepse. With average interest on term deposits dropping from around 5-6% to 9%, investors could opt for the safer option of placing their money in banks rather than on the stock market, analysts fear.
Under these conditions, we asked some experts how long they think the bull run will last. As expected, we got mixed responses.
âIrrational exuberance,â entrepreneur Karma Tenzing uses the famous phrase coined by former US Federal Reserve Chairman Alan Greenspan during the dot-com bubble of the 1990s. The phrase can be interpreted as a warning that the stock market is overvalued .
âWe are currently seeing a massive overvaluation of stocks. Everyone flies on the stock market. Companies with no profit or even no loss have high equity values. The market is overheated and fundamentals or technical analysis just don’t make sense, âTenzing says.
An active trader with a substantial investment, Tenzing has now left the market; for him, the Nepse bull run is over. He believes the market has already peaked and will not surpass it for another year. âIrrational thinkingâ and the increase in interest rates on deposits will lead to the continued fall in the market for the time being, Tenzing said. He looks forward to re-entering the market after a year of “healthier minds prevail”.
In Nepal, based on past trends, a bullish run typically lasts four years, followed by a three-year bear market. When the bull started in January 2020, most traders and investors had speculated on the same. “But this belief is based on the concept that history repeats itself,” said Manil Shrestha, a seasoned investor and former stock market analyst at ApEx. “But the main factor driving the stock market is interest rates.”
Shrestha explains that if interest rates rise small percentage points, it supports the market. But rapid rate growth will hit the market hard. The market had already anticipated the rise in interest rates from the 1st Asoj (September 17th), and therefore saw a decline in aggressive buying and increasing selling pressure.
But even with both trading volume and the index falling sharply, Shrestha doesn’t see this as the end of the bull run. Once government spending begins and there is an influx of remittances and Dashain’s business boom, the liquidity situation could improve quickly. âIt’s too early to predict the end of the bull run,â says Shrestha. âThe market could go awry for a while. But if interest rates don’t rise or fall substantially by mid-November, the market will turn positive again. “
Mukti Aryal, another seasoned trader and financial analyst, is more positive about the trajectory of the market. Although it is difficult to make predictions, Aryal believes that the running of the bulls will last another year or a year and a half. And even after that, the market will not go down, unlike past bear markets. The market will gain equilibrium due to the high volume of investors and the increased number of institutional traders.
Regarding frequent corrections in the market, Aryal believes they will only help support the bull run. âWhen there are frequent corrections, the market can support longer bull runs,â says Aryal. âThe stock market is like a rubber band. The more you stretch, the more it will contract.
Aryal believes the market is supported by strong fundamentals. So if publicly traded companies grow and can pay decent dividends to their stakeholders, Nepse will grow accordingly.
Looking at the current bull run, Aryal sees the index hitting around 4,000 (plus / minus 5%) by the end of this fiscal year. âThe liquidity crisis like the one we are currently experiencing is to be expected as banks invest heavily before the end of the financial year. Soon, bank investments will start to pay off and interest rates may fall. There will also be a lot of cash flow in the financial system during Dashain, âAryal adds. âThis correction is temporary. The running of the bulls will continue.
For Ashim Lamichhane, a tech professional who makes maximum use of technology to trade on the stock market, the bull is not over yet. âComputer-generated data doesn’t always work accurately in the Nepalese market, but it gives us a good idea,â says Lamichhane. âWe can set target levels based on market theories, but we can’t swear on their accuracy. According to Lamichhane’s calculations, the index will stay around the 3000 mark for some time. “There is an area of ââimmediate support for the Nepse Index at 2,910-2,920,” he adds.
However, it depends on the volume. If strong resistance is encountered around this number, 3,400+ are achievable. âI expect the market to increase after the holiday season. Until then, it will stay within a fairly stable range, âsaid Lamichhane.