Movement of Nepse in 2020: What to expect ahead?

March 15, 2020 | SOM THAPA

Movement of Nepse Index in 2020

The stock market of Nepal has been highly volatile since the start of the year 2020. Investors earned huge sums of money when the market advanced from 1169.50 on January 1 to 1632.18 in a period of 3 months. The index surged by almost 40 percent in a short period of time and investors expected the new bull run which would bring more growth ahead. However, the expectations were washed by the harsh reality when the market plunged by more than 15 percent in the next 9 trading days. As of March 12, 2020, the Nepse index stood at 1377.19 points.

The Nepse index from the start of 2020 is shown in the table below:

Nepse Index in 2020

See the chart of Nepse index movement from the beginning of the year 2020 until now (i.e March 12) below:

In Chart: Nepse Movement in 2020

Causes for the recent market correction

From profit booking to re-appointment of Dr. Yuvraj Khatiwada as the finance minister to the fears of corona-virus paralyzing the economy are some of the causes attributed to the recent market correction.

However, rapid rise in share price in the short period is almost always followed by the correction which might be a small correction or a crash. This is the nature of the stock market.

The major question is whether the market correction will prolong or is it temporary? Will the stock market rebound in the coming days?

What to expect in the coming days?

Despite the recent market correction, I expect the market to grow in the upcoming days. The rationale behind my expectation is the huge accumulation of stocks by the institutional and big players in the market since the start of the year 2020.

In the month of January, the average daily turnover  was at Rs. 1.23 Arba which is more than four fold the average daily trading volume before 2020 [ Rs. 30 crores is taken as the daily turnover]. Likewise, the turnover amount per day increased to Rs. 2.20 Arba in the month of February. In the first half of the month of March, the average daily turnover has increased to Rs. 2.71 Arba which is almost 9 times the daily turnover in the bearish period from second half of 2016 to the end of 2019.

See the turnover volume since the start of 2020 in the table below:

From the above table, we can assume that there has been huge accumulation of stocks during this period by the institutions as well as big players of the market. The small or general investors are probably not behind the aggressive buying seen in this period. Hence, I expect the stock market to rebound and rally ahead after the current market turmoil.

Apart from this, there are several reasons behind my expectation- the positive sentiment of finance minister and concerned authorities about the stock market, policies regarding addition of brokers, recovery from prolonged bear market, increase in investors’ confidence, entry of big investors, among others.

This market correction will wash away those investors which are uncertain about their positions in the market. Those who know about their investments and sit tight will enjoy better returns when the big investors push the market ahead.

So, when will the market rebound- within a week, a month or 3 months? I honestly do not know. My guess will be as good as yours.

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