NEPSE Index And Its importance To Investors

Mukunda Tripathee

A market index is a measure of changes in value of a representative sample of stocks against a base date and value. Research persons of security markets, prospective investors and securities analysts use the market averages and indicess to describe, evaluate and analyze the behavior and movement of security markets.

Market index depict the performance of stock market over the period. It is useful to forecast the price movement of securities in future. So, investors and prospective investors should have better to knowledge of the market indices. Besides, market indices can be used for forecasting the movement of macroeconomic movement of nations, because market index serves for various other indicators for rate of interest, money supply, industrial production, GDP growth and so on. So market indices are very much useful to the investors either to invest in real assets or to invest in financial assets.

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In Nepal, the measure for the stock market index is NEPSE Index. Similarly, for international securities market (US market) we can take reference of The Dow Jones Industrial Average (DJIA) Index, Standard and Poor’s Index (S&P 500) which are popular in international markets.

NEPSE Index:

NEPSE started to publish index since February 12, 1994 using 100 as the base. At first, NEPSE computes the total market capitalization of each listed company at the close of a given business day. Then it finds the total market capitalization by summing them. To compute the index, total market capitalization of the given business day is divided by total market capitalization of base period and quotient is multiplied by 100. Suppose yesterday’s total market capitalization is Rs. 213 billion and base period market capitalization is Rs. 200 billion. Now, to find out the index, Rs. 213 billion is divided by Rs. 200 billion and multiplied by 100. Here market index is 106.5.

Total market capitalization of NEPSE as of mid-Nov 2020 was recorded at Rs.2302.76 billion. NEPSE has 212 listed companies in its record as of mid-Nov 2020. Out of which 144 are Bank and Financial Institutions (BFIs) and insurance companies, 35 hydropower companies, 19 manufacturing and processing industries, 4 hotels, 4 trading companies and 6 others.

The mix up of market capitalization of NEPSE is-BFIs and insurance companies 73.3 percent, hydropower companies 6.6 percent, manufacturing and processing industries 3.6 percent, hotel industry 1.1 percent, trading companies 0.5 percent and the share of other sector companies is 15 percent.

Fig: NEPSE Index As Of December 24, 2020

Also Read:

History of NEPSE: Battle Of Bulls And Bears (A Study Of 23 Years)

Nepse Index & Interest Rate (A Study Of 27 Years)

NEPSE Float Index:

NEPSE Float Index is a market index of Nepal published by NEPSE. To calculate the float index, only publicly floated shares’ values are taken for the market capitalization. Shares which are under the possession of promoters, shares held by government and employees and locked for trading are excluded for the market capitalization. NEPSE Float index considers the shares offered to general public which are allowed for stock market trading. Since, September 11, 2008 NEPSE started to float index. For to calculation of NEPSE float index: current market capitalization of publicly floated shares is divided by base period’s market capitalization and multiplied by 100.

NEPSE Sensitive Index:

NEPSE started to calculate this index since September 11, 2008. This index represents shares of Group A Companies and their market capitalization. The companies which fulfill the parameters which are specified by NEPSE are called Group A Companies.  Here, if company has minimum paid up capital Rs. 20 million,  has minimum 1,000 public shareholders, the company is operating in profit since at least last three year, the book value of shares of the company is not less than the paid up value and hass regularly submitted annual report within six month form the completion of fiscal year, then they are categoried under Group A Companies. NEPSE considers market capitalization of Group A Companies to calculate sensitive index. For to calculation of sensitive index: market capitalization of Group A shares is divided by base period’s market capitalization and multiplies by 100.

Suggested Readings:

Float Index And Its Significance To Investors

Basic Requirements To Start Trading In The Stock Market Of Nepal

NEPSE Sensitive Float Index:

NEPSE Sensitive Float index was also started to be computed since September 11, 2008.  Sensitive float index represents the publicly floated shares of Group A Companies and their market capitalization. In order to calculate sensitive float index, market capitalization of publicly floated Group A Shares is divided by base period’s market capitalization and multipled by 100.


NEPSE indices are calculated using market capitalization weight, so NEPSE index is a  weighted index. In the weighted index, the companies with larger market capitalization have greater weight in index. In such case, market will be more volatile if the market price of such companies is change. In case of securities market of Nepal, Nepal Doorsanchar Company (NTC), Nabil Bank Ltd. (NABIL), Nepal Life Insurance Company Limited (NLIC), Nepal Reinsurance Company (NRIC), Global IME Bank Limited (GBIME) etc have huge portion of market capitalization in total. In case of changes in price of shares of such companies NEPSE index is largely affected.

(Mr. Mukunda Tripathee is currently working in the banking sector.)

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