June 22, 2020 | Investopaper
There are several factors affecting the stock market of Nepal. The share market is highly sensitive and volatile and is easily influenced by different factors. Here, we have listed the eight major factors that have a huge effect on the share market of Nepal.
1. Political Changes
In case of Nepal, Political changes have major influence on the performance of the stock market. Investors in stock market seem to closely watch the political developments. Any positive political development with stability has a huge impact on the stock market index in Nepal.
2. News, Rumours And Speculation
The share market of Nepal is highly influenced by rumours, news and speculations. Rumors in the market and news-feed by the media play a major role in influencing the stock market.
To reduce rumours and speculation, transparency should be increased in this market. Information related to listed companies should be easily accessible and available in order to clear gossips and rumours in the market.
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3. Interest Rate
There is a negative relationship between the interest rate and the stock market of Nepal. At a time of higher interest rate in the economy, the stock market crashes. Likewise, during the low interest rate environment, the market seem to flourish.
Liquidity also plays a huge role in the share market of Nepal. Stock index rise when there is ample liquidity available at a low interest rate. With excess liquidity in the economy, money flows towards stock market. This results in the sharp increase in the stock prices as investors flock into the market.
We can link this to the recent crashes in the stock market with the recurring credit crisis in the banking sector of Nepal.
5. Growth Of Money Supply
Money Supply has also a strong positive relationship with the share market. A loose monetary policy could trigger an asset price bubble in share market, which is mainly dominated by BFIs. With growth in money supply, the stock market moves in the positive direction. A contraction in money supply leads to fall in the stock prices.
6. Business Performance And Dividend
The stock market of Nepal also closely follows the performance of listed companies. When the earnings and business performance grow, stock market seem to move in the positive direction. Nepalese Investors seem to study quarterly reports and prefer stocks with strong performance. Also, investors choose stocks with higher dividend. Likewise, they prefer companies announcing bonus shares over other companies.
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7. NRB Policies
The policies by Nepal Rastra Bank also have an influence on the share market of Nepal. Mainly dominated by the BFIs, the stock market reacts with any impact on BFIs by those policies. Mostly, NRB’s policy on lending against share collateral seem to have effect on the movement of stock market index.
Likewise, NRB policy on increasing paid-up capital of BFIs also led to the rise in the stock index as we witnessed in the last bull market.
Related: Monetary Policy Of Nepal
At last, Inflation may also have a positive association with the stock market of Nepal. During the period of higher inflation, investors put their money at work into the market in order to generate higher returns.
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