The only stock exchange in Nepal for the secondary market, Nepal Stock Exchange Ltd. (NEPSE), offers investors a venue to buy and sell shares of publicly traded firms across a range of industries. The Companies Act of 2006 allowed for its creation, while the Securities Act of 2007 governs its operations. Since then, a paradigmatic shift in the stock market has occurred.
A snapshot of the history of Nepal Stock Exchange
Growth Indicators of NEPSE:
Liquidity, market size, and index performance are a few metrics that can be used to gauge stock market growth.
The total turnover can be used to determine the liquidity of the stock market. The value of all shares exchanged is divided by market capitalization to determine total turnover. According to Bepari and Mollik (2008), higher turnover frequently suggests greater market liquidity, which makes it simpler to sell stock. The entire share turnover in 2019–20 climbed from NPR 110.07 million to NPR 150.04 million, a 36% increase. When it reached NPR 1454.44 million in 2020–21, it rose by an astounding 869%. In the fiscal years 2006–07 and 2007–08, the total turnover on the stock market climbed by 142% and 173%, respectively. Similar to this, the turnover went up by 54% in 2011–12, 114% in 2012–13, and 251% in 2013–14. This increase in turnover demonstrates a rise in overall trade volume compared to market size as well as an increase in liquidity over time in the Nepali stock market. Over the following four years, a steady increase in turnover is predicted by the trend line in the figure below:
The number of publicly traded companies is one indicator of market size. There were 219 businesses listed in NEPSE in 2020–21, an increase from 212. When it reached 209 enterprises in 2010–2011, it had likewise grown by 19%. In 2013/14, the number of listed firms as a whole grew to an all-time high of 233.
In 2020–21, there were much more transactions (1.85 million versus 15.42, an increase of 734%). When it reached 85.6 thousand in 2003/04, a 272% increase over 2002/02, there was still another notable rise. Similar to how it did in 2013/14, when the number of transactions rose by 94%, and in 2015/16, when it rose by 75%.
It's noteworthy to notice that Nepal's overall market value has grown over time. Market capitalization rose from NPR 1.79 trillion in 2019/20 to 4.01 trillion in 2020/21, a 124% rise. Market capitalization rose sharply in both 2006–07 and 2007–08, by 92% and 97%, respectively. Another notable rise occurred in 2015–16, when the market capitalization climbed by 91% to NPR 1.06 trillion from NPR 0.99 trillion in 2014–15.
By comparing the value of all the listed stocks to the value of the nation's total output, it is possible to determine the market capitalization-to-GDP ratio and if the current stock market is priced appropriately relative to a historical average. By dividing an economy's stock market capitalisation by its GDP, the ratio is determined. A ratio greater than 100% typically denotes an overvalued market, whereas values between 90% and 115% are regarded as somewhat overvalued. Nepal's market capitalisation as a percentage of GDP is 93.4%.
NEPSE index points are a metric that can be used to evaluate how well the Nepali stock market is doing. The NEPSE index rising indicates an optimistic stock market. The NEPSE index climbed by 1521.01 points from 1362.4 points in 2020–21 to 2883.41 points in 202–21. Similarly, the index climbed by 517.77 points in 2013–14, which was another notable change. Further notable changes were observed when the index rose by 297 and 279.41 points, respectively, in 2006/07 and 2007/08.
Trends and Drivers of Growth
Digitalization made transactions more convenient for investors and transparent by enabling them to place orders online and conduct trading, clearing, and settlement electronically. Investors had to call their brokers to place their orders to purchase or sell stocks prior to the launch of NOTS. Since the launch of NOTS, investors can now purchase and sell stocks via a platform called Trading Management System, which is accessed through an account issued by their broker. Broker involvement in the process has been significantly reduced, saving investors a great deal of time. Due to this, the procedure of trading stocks has been shortened from at least a week to three days.
Together with digitalization, COVID-19 promoted stock market investments and had a substantial impact on market performance. Businesses in numerous industries closed their doors or suspended operations as a result of COVID-19, which stopped economic activity. With COVID-19, a lot of people began using the stock market as a passive source of income, which increased market activity.
Also, as a result of numerous educational institutions teaching students about the stock market and people exchanging insights and fundamental knowledge on social networking sites like the Clubhouse, Nepal's degree of financial literacy has grown over time. Investor confidence has been boosted by easy access to news and data about the capital market provided by websites like sharesansar and nepalipaisa.
Together, these elements have increased both the volume of trade on the capital market and the number of Nepalis buying shares. Almost 1.5 million more Demat accounts were opened in 2020–2021. According to the CDC, there are now 4,895,021 Demat accounts and 8,012,542,328 dematerialized shares. At the conclusion of FY 2020/21, there were 3.79 million Demat accounts, up from 1.48 million in FY 2018/19.
The growth in key share market indicators and stock market trends demonstrate how crucial digitization is to the Nepalese stock market. The number of active traders in the Nepali stock market has the potential to develop further due to rising financial literacy and the anticipated increase in remittance inflow into the nation. A lot more businesses are entering the secondary market, as seen by the rise in the number of businesses asking for and receiving approval for an initial public offering (IPO). Increased financial awareness, improved use of the online trading platform (TMS), and incentives for international migrants to invest in Nepali stocks might all lead to an increase in market participants. Nepal has the opportunity to progress in terms of improving the convenience for investors, even though the initial platform upgrades had a significant impact on drawing Nepali people to the capital market.