Basic Knowledge For Beginners In Share Market Of Nepal

Prakriti Nepal

Is the share market a side hustle? How do I really understand the essence? Is it entry-worthy? Do I become rich if I start investing and trading?

These are a few questions that arise in every person’s mind who think of entering the share market with the willingness to earn from share investment and trading. These are quite natural questions that pop up, because investing, earning, and getting a return seems alluring to people and the return from it is unimaginably high for some. Recently, with continuous rise- the Nepalese Share Market has made a lot of people interested in it.

Know Basics About Share Market

If you want to begin, you need to kick start with knowing what share actually is? Stock commonly pronounced as “Shares” is a financial instrument that represents ownership in a company or corporation and represents a proportionate claim in its assets and what it earns. The Par Value of shares- the value of a single common share is NPR 100. However, there has also been seen Rs 10 as Par value and securities of units issued at Rs 10.

Share market, a component of the overall economic market in general terms, is the place where the buying and selling of securities take place. In the context of Nepal- there are two types of markets:

1. Primary Market
2. Secondary Market

However, many people who hardly understand the basic term of shares are also actively involved in the share market; be it primary or secondary.

Primary Market is the market where the shares (securities) of the company registered under Public Limited are issued to the general public. It a market where those securities are issued to the public for the first time which is known as IPO (Initial Public Offerings).

The Secondary Market is a trading battleground. A secondary market is a market where the trading of securities (shares) that are issued on the primary market are traded.

While understanding the share market in Nepal- we need to know that it is commonly referred to as NEPSE (Nepal Stock Exchange Ltd.). NEPSE was established under Company Act 2006 and is governed by SEBON (Securities Exchange Board of Nepal).

The important step while setting foot in the share market is creating a Bank account, Demat account, and a broker account.

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Determination Of Price Of Stock In The Market

In business and in day-to-day life, we always follow the demand and supply rule. Similarly, the depth of the share market lies in price determination in the secondary market while utilizing and recognizing the basic demand and supply flow.

The price of a stock in any market is determined by the interaction of demand and supply of that particular script (stock, shares, securities). Higher the demand higher the price, lower the demand lower the price. Similarly, the higher the supply lower the price, and the lower the supply, the higher the price.

We can see so much technicality going on when it comes to shares. Though, why do some people who seem to have very little or zero understanding of the share market with money in hand seem to be earning immensely? What is so glamorous about the share market that it attracts non-financial people also?

The answer for this can be that the stock market generally functions on the perception of the investors. Some investors might think that a particular script is overvalued and decide to sell and other investors might think the script might increase in the future and decide to purchase.

Another reason is hype! Share Market of Nepal is a buzzing word on social media platforms these days. With pandemics and people residing inside closed walls- we can see many people showcasing their interest and investment in public social media platforms.

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Types Of Securities Analysis

Despite hype and perception- the cycle of money- finance depends on the analytical waves and tricks and traits, which is of utmost necessity to have a win-win situation in share investment and trading. It is a must and quite beneficial to perform research and analysis before choosing any script.

There are two different approaches to perform the analysis:

1. Fundamental Analysis
2. Technical Analysis

Fundamental Analysis

Fundamental Analysis in simple terms- is an analysis of a company’s financial health with the focus on economic indicators and the environment. The fundamental analysis comprises an analysis of the company’s financials, anticipating the future prospect of the balance sheet, dividends, and management. Hence, the person who is a fundamental analyst conducts a thorough analysis of the balance sheet before deciding whether to invest in a particular script or not. Some of the popular techniques used in Fundamental analysis are EPS, PE Ratio, Book Value Analysis, Graham’s Value, and others.

Technical Analysis

Technical Analysis is all about analyzing the movement of the price of a particular script. It is a tool to forecast the price of any script based on the past price. Technical analysts try to find the pattern of price and decide upon investing in that particular script or not.

In technical analysis, the financial health of the company plays little or zero role and it is based on the simple mantra of “History repeats itself”.

Some of the tools used for technical analysis are- MACD, Trend Analysis, Moving Average Analysis, Inverted Hammer, Shooting Stars, and others.

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Sustainability of Nepalese Share Market- Growing Economic Indicator

Like any share market in the world, the Nepalese Share Market has also gone through its own ups and downs. There are a lot of improvements which need to be done, for the efficient operation of the market.

There are more than 35 Lakh Demat Accounts at present and roughly around 60% are involved in Primary Market. Whereas, 6 lakhs investors are active in the Secondary Market. Going by the numbers of investors/traders and the current level of NEPSE, it seems that the Share Market of Nepal is in a growing phase. However, there is still a lot of improvement that is required for its long-term sustainability and development.

Share Market is one of the economic indicators of the country. Even with Pandemic, in contrast to other sectors, the Nepalese Share Market is gaining new highs every day in terms of the index and volume, which are the key characteristics of the Bull Market.

In earlier days, Nepal Share Market used to be driven higher by political factors. Though, in recent times the political turmoil has not significantly affected the market. This is a plus point for the Share Market which used to be earlier affected by even mere statements of the Finance Minister. Well! This might also be because of the analytical effectiveness and awareness in collision with education perception and mapping. Even so, a political influence still exists but the effect seems to be minimized.

With the introduction of an online system (TMS) and T+2 settlement, the market is gaining momentum. Anyhow, because of not sufficient intervention in the market by the Governing Body (SEBON, NEPSE)- the current share market of Nepal is standing on a very thin line.

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Role Of Investors And Governing Body In Uplifting The Stock Market

The types of Investors also play a role in the existential capability of the Share Market. Usually, in the Share Market there are two types of investors:

1. Investors- who invest in the share market with a long term vision
2. Traders- who invest in the market to book short-term gain

Both can take benefits from the market but they should be able to know the basic fundamentals of investment.

In the current situation of the Nepalese Share Market, it seems that ‘Traders’ have overshadowed the ‘Investors’, which is not substandard; Yet-with this situation the chances of people losing their hard-earned money has increased significantly.

Hence, a proper investment strategy from the investor/ trader is the need of the hour for every share market monger, and proper guidance and check and balance mechanism is of utmost necessity to be given from the governing body.

In the Nepalese share market case, the governing body has played little role in the check and balance of the market. It seems to many that- when a renowned person in social media- tagged with various names based on his/ her portfolio and earnings starts protesting publically against the wrongdoing in the market- the SEBON or NEPSE tends to act. Hence, Perception in terms of the Governing body, as well as share investors and traders, need to have significant positive changes.

Nepalese Share Market governing body has to be reactive rather than proactive.

In the share Market- the responsibility of the governing body to minimize the future prospective loss is equally important as research and analysis by the investors/ traders who are entering or are already in the market. Going by what others say only might lead to dismay sometimes.

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Yes, the Share Market is Very Magnetic!

The market is seeing new highs and has entered into a bull phase after a prolonged bearish market for more than 5 years which has given hope and attracted more people. With the arrangements such as T+1 settlement, creation of a broker settlement fund, more advanced technology, and most probably intraday trading, the market might see a new high in the coming days.

The key grasp of the share market lies in understanding that – the market or any particular script does not rise every time and does not fall every time. This means, after every bull, the bear market will come and after every bear, the bull market will come. It is of utmost importance to make the proper investment decisions, choose the right script, and go by your own knowledge rather than going by what others say in order to be a stable investor and gain from the market in the long run.

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Suggested Readings: 5 Golden Rules to be Successful in the Stock Market

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