September 8, 2023 | Investopaper
Nepal Stock Exchange (NEPSE) is on the verge of introducing its new index, the ‘NEPSE 30,’ after completing essential technical and policy preparations. The final approval, however, still awaits the board of directors. The proposed procedure for the index has been submitted to the NEPSE Board of Directors for their consideration and is expected to be approved during their upcoming meeting. Once approved, trading of the ‘NEPSE 30’ index will commence.
Technical preparations for the ‘NEPSE 30’ index have been completed, including the setup of the necessary server (IT system). Internal testing has been underway since Shrawan 9, 2080 BS, involving selected sample companies. These tests have demonstrated the feasibility of implementing the ‘NEPSE 30’ index. NEPSE anticipates that the index will become operational within approximately one month following board approval.
‘NEPSE 30’ index will include the top 30 companies among all listed ones that meet specified criteria. NEPSE currently features 17 indices, divided into sensitive, sub-sensitive, and other categories. The ‘NEPSE 30’ will be the 18th addition. Importantly, there won’t be a separate trading platform for this index; instead, its value will be calculated based on transactions in the main index. NEPSE plans to introduce separate trading only once the general public gains a solid understanding of it.
The criteria for inclusion in the ‘NEPSE 30’ index involve companies from six sectors: banks and financial institutions, microfinance, insurance, hydropower, manufacturing, trade, and services. A minimum of one and a maximum of eight companies from a single sector can be included, with the top 30 companies selected based on NEPSE’s criteria.
To qualify, companies must meet various financial benchmarks, including a book value per share higher than the paid price per share, a net profit in three of the last five years, and an earnings per share of at least 10 percent of the paid-up capital, among other requirements. Additionally, companies should have issued at least 25 percent of shares to the public or have a free float capitalization exceeding 1 percent, with a minimum of 20,000 shareholders.
Other criteria include an average daily transaction of at least 25 lakh rupees, an average daily trading volume of at least 5,000 shares, and an average of at least 40 transactions daily in the past six months. Furthermore, the company should have conducted business on more than 75 percent of business days during the last six months to qualify.
The calculation of the ‘NEPSE 30’ index involves determining the weight of each selected company based on factors such as free float market capitalization, last year’s earnings per share, turnover amount, turnover number, and turnover share. Companies listed on NEPSE are classified into six sectoral groups, and a maximum of eight companies will be selected from each group based on their weightage marks.
The introduction of the ‘NEPSE 30’ index aims to enhance secondary market transactions by providing a comprehensive, market capitalization-based index