Stock prices down 35% in eight months

myrepublica.com, 14-Apr-09
MILAN MANI SHARMA

If the drop in the prices of stocks indicates anything, people who invested on shares in the secondary market have lost 35 percent of their money over the past eight months.

Nepal Stock Exchange (NEPSE) figures show, the floating index -- which portrays the picture of stock prices -- has presently dropped to 64.58 points from 100 of eight months ago due to protracted gloom in the stock market.

And a sharp rise in the supply of shares as against lowered purchases has dragged the value of even the most sought-after companies’ shares down to half over this period. A NEPSE official said only the people who bet their money on companies that issued rights and bonus shraes have been saved and the rest have lost as much as 65 percent.

What this means is people who invested on shares of companies and banks like Standard Chartered Bank and Nabil Bank that issued bonus and rights shares got value for their money.

But those who put their money on the stocks of companies like the Bank of Kathmandu (BoK) and Nepal Investment Bank (NIB) have suffered losses, for the share price of BOK has dropped to Rs 1,450 from Rs 2,649 and NIB’s to 1,170 from Rs 3,281 during the period.

“Mainly those who bought the shares at bloated prices earlier this fiscal year have lost the money,” said Nanda Kishore Mundada, president of Nepal Stock Brokers’ Association.

Stock brokers mainly blame the lack of clear vision of the government, dramatic changes in policy, enforcement of Voluntary Declaration of Income Scheme (VDIS) and rumors of government digging out income sources of stock transactions for the present deserted outlook of the stock market.

“Insensible and irresponsible statements by the finance minister against the stock market and its players also left a grave impact,” said Mundada.

As a result of the gloom, stock market has performed dismally over the first nine months of the fiscal year.

For instance, turnover of stock trading has presently dropped to Rs 34 million a day, whereas it had averaged Rs 100 million a day last fiscal year. And NEPSE, which initially projected transactions to cross over Rs 34 billion and after six months revised the projection down to Rs 25 billion, says that it could miss even this revised target.

Breakdown of NEPSE trading shows, the market was vibrant even till the first five months of the fiscal year that ended mid-December 2008. As people rushed to buy shares of some banks and financial institutions anticipating bonus and right shares, 14.1 million units of shares were traded at Rs 12.30 billion during that period.

NEPSE index too had swollen to 1175.38 points in August 2008.

In the later four months from mid-December 2008 to mid-April 2009, however, only 7.9 million units of shares were transacted and the turnover totaled Rs 4.63 billion.

Apart from the people, the government is also set to miss its collection target from the market. In the budget statement, the government had projected to collect Rs 1.50 billion in capital gain tax alone while raising the tax to 15 percent from 10 percent. But with nine months gone the collection is not even Rs 900 million.

And given the transaction trend, revenue collection will remain short of target, a NEPSE official said.

But stock analysts noted that the current decline in prices has also created a new opportunity for investors. “If prudently invested, the people could reap sound returns on the shares when share prices rise in the early quarter of the next fiscal year,” said Mundada.