KATHMANDU: The Nepali stock market has become a fertile ground for deception for small investors, leaving millions of everyday investors at risk. While the market’s average capitalization hovers around a 40 trillion Nepali rupees, this figure masks a troubling reality.
After bottoming out at 30 trillion two years ago, the market rebounded to 45 trillion. Yet, within this period, an astonishing 15 trillion Nepali Rupees—hard-earned money of common investors—has reportedly vanished into thin air, siphoned off through manipulative practices.
Paradoxically, even loss-making companies have seen their share prices skyrocket, raising alarms about the integrity of the system.
Regulatory bodies and investors alike must confront the growing trend of securities fraud, which directly affects the 7.2 million people involved in Nepal’s stock market. Adding to the woes, some brokerage firms have withheld payouts after share sales, stalling payments and sowing confusion among their clients.
Out of the 245 companies listed on the Nepal Stock Exchange (NEPSE), 64 have a book value per share of less than NPR 100. Despite their poor financial performance, the market value of some of these companies has soared as high as NPR 3,200.
Over 26% of companies listed on the Nepal Stock Exchange (NEPSE) fall into the loss-making category, yet their share prices remain disproportionately high due to manipulation by certain groups, leading to large-scale stock market fraud. This example highlights the astonishing state of the Nepali share market and how ordinary investors are misled under the guise of investment, often with little to no returns.
This AI-generated image illustrates potential share market manipulation in Nepal.
A prime example is Ghorahi Cement, which reported profits before being listed on NEPSE but has managed to post a net profit in only one quarter since its IPO. Similarly, Sonapur Minerals has yet to record any profit since going public. Both companies issued IPOs at a premium over their face value but have consistently failed to generate profits post-listing. This inability to earn profits has worsened their financial condition, compounded by declining revenues and mounting losses.
The financial health of these IPO-listed companies appeared significantly better before their public offerings. Both companies projected annual profit growth in their prospectuses to attract investors. However, rather than delivering on these projections, their losses have only grown. The financial statements, which seemed promising prior to the IPO, now present a bleak reality.
Regulators, such as the Securities Board of Nepal (SEBON), must exercise greater vigilance, and investors themselves need to be more aware of key factors like financial health and operational viability before making investment decisions. Several companies listed on NEPSE continue to report net losses quarter after quarter, exposing systemic issues in their operations and the financial management of the Nepali share market.
Companies without Governance
Corporate governance in Nepal’s stock market has been reduced to a hollow promise. Directors of many companies are alleged to pocket hefty allowances, enjoy extravagant perks, and indulge in illegal benefits—all while neglecting their fiduciary duties. Audits remain undone, general meetings are postponed indefinitely, and the financial health of such companies remains a mystery. Despite this lack of transparency, their shares trade on the secondary market for thousands of rupees, leaving ordinary investors vulnerable to significant financial risks.
Regulators’ inaction has enabled this dangerous trend. By allowing companies led by irresponsible directors to continue trading, investors’ capital is exposed to unwarranted risks with little to no returns. To curb this, proactive vigilance is required from both investors and government agencies. Enforcing stricter laws to hold companies and directors accountable must become a top priority.
The Manipulators in the Shadows
Behind the scenes, a more sinister game is being played. Market manipulators exploit Nepal’s Trading Management System (TMS) during bull runs, distort credit ratings, and engage in insider trading. Social media platforms and clubhouse forums have become breeding grounds for misinformation, where self-proclaimed experts circulate rumors about specific shares—who is buying, who is selling, and which groups are driving prices up.
Using low-cap stocks, these manipulators bait ordinary investors with promises of quick profits. As prices rise, the manipulators offload their shares at the peak, leaving unsuspecting investors to shoulder the losses. This practice of insider and circular trading has turned the market into a speculative battleground where only a select few emerge victorious, while the majority are left nursing their financial wounds.
A Call to Action
Nepal’s stock market, a cornerstone of the economy, should serve as a platform for sustainable growth and wealth creation. Instead, it is increasingly mired in scandals and schemes. To prevent further erosion of trust, the government and regulatory bodies must establish stringent measures to root out fraud. Investors, too, must educate themselves, stay alert, and demand accountability.
Only through collective vigilance can Nepal’s stock market be steered away from this growing culture of betrayal and towards a future of transparency and trust.
Here’s what you need to know about how and why Nepali share market investors continue to bet on loss-making companies:
How many companies listed on NEPSE have book values below Rs 100?
Out of the 245 companies listed on the Nepal Stock Exchange (NEPSE), 64 have book values below Rs 100 per share. This accounts for 26.12% of all listed companies.
What is the highest market price of these companies?
Despite having low book values, some of these companies have market prices as high as Rs 3,200 per share.
Why do these companies have such high share prices despite weak financials?
The prices are high primarily because these companies have low capital and are held by a few individuals or groups. When such key holders maintain their positions, stock prices remain inflated. However, if they withdraw, ordinary investors could face significant losses.
Are these companies making profits?
No, many of these companies are loss-making. In fact, 36 out of the 64 companies with book values below Rs 100 are currently running at a loss.
Are there companies with book values below Rs 100 but share prices above Rs 1,000?
Yes, there are 8 such companies. Among them, 3 have incurred net losses as of December.
Why are investors still buying shares of these companies?
Investors are primarily engaging in speculative trading, aiming for capital gains rather than long-term fundamental value. Many are buying stocks of low-capital companies without considering their financial health.
Which company has the lowest book value?
Dibyashwari Hydropower has the lowest book value at Rs 7.33 per share, followed by Shiva Shree Hydropower at Rs 11.94, Narayani Development Bank at Rs 20.94, Janaki Finance at Rs 21.94, and Solti at Rs 26.04. Since the face value of a share is Rs 10, a book value of Rs 26 cannot necessarily be considered weak. In total, 8 companies have book values below Rs 50.
Are there any companies close to Rs 100 book value?
Yes, some companies have book values close to Rs 100, including Chandragiri Hills at Rs 99.73, Ghalemdi Hydropower at Rs 98.2, and Reliance Finance at Rs 97.19. These companies, while not below Rs 50, still indicate a significant gap between book value and market price.
Is a book value below Rs 50 considered too low?
A total of 8 companies have book values below Rs 50. However, since the face value of a share is Rs 10, a book value of Rs 26, for instance, is not necessarily weak.
What should investors be cautious about?
Experts warn that investors should be careful when investing in non-fundamental companies with high share prices but weak financials. If major stakeholders pull out, share prices could collapse, leading to significant losses for ordinary investors.
How is the share market structured in Nepal?
Nepal’s share market consists of two main segments: the primary market and the secondary market. The primary market is where companies issue new shares to the public through Initial Public Offerings (IPOs), allowing them to raise capital for expansion or other purposes. Once these shares are issued, they move to the secondary market, where existing shares are traded among investors. The Nepal Stock Exchange (NEPSE) facilitates these transactions, providing a platform for liquidity and price discovery, which allows investors to buy and sell shares based on current market conditions.
What are the initial steps to start investing in the Nepali share market?
To begin investing in the Nepali share market, the first step is to open a bank account, which will serve as the foundation for all financial transactions. Following that, setting up a Demat account is essential, as it holds your shares in electronic form, ensuring both security and easy access. You will also need to register for Mero Share, an online platform provided by CDS and Clearing Limited, which allows you to apply for IPOs and manage your share portfolio digitally. Finally, selecting a licensed broker is crucial, as brokers facilitate the buying and selling of shares on your behalf in the secondary market.
The share market in Nepal operates on several key concepts that are essential for understanding its dynamics. Stocks, also known as shares or equity, represent ownership in a company. When you buy a stock, you become a shareholder and own a portion of the company, entitling you to a share of its profits and growth. Dividends are another important aspect, where companies distribute a portion of their earnings to shareholders. While not all companies pay dividends, many well-established firms provide this regular income to reward their investors.
Capital gains form a significant part of the stock market, referring to the profit earned when a stock is sold at a higher price than its purchase value. Another critical concept is market capitalization, which represents the total value of a company’s outstanding shares and is calculated by multiplying the current stock price by the number of shares issued.
This AI-generated image illustrates potential share market manipulation in Nepal.
The terms “bull market” and “bear market” describe the overall trends in stock prices. A bull market refers to a period of rising stock prices, characterized by investor optimism and economic growth, while a bear market indicates a period of declining prices, often associated with reduced confidence and economic challenges. Understanding these concepts is vital for anyone looking to navigate the Nepali share market effectively and make informed investment decisions.
How does the Nepali Stock Market function in Nepal?
The Nepse Stock Market operates much like other global stock exchanges. Companies wishing to trade shares on the exchange must first apply for listing approval from Nepse. Once approved, their shares become available for trading. Investors can buy and sell shares through licensed brokers, ensuring that trading occurs within a regulated environment designed to promote fairness and transparency. After a trade is executed, the transaction is settled by transferring the ownership of shares from the seller to the buyer, along with the corresponding payment. The Securities Board of Nepal (SEBON) oversees Nepse to ensure the market operates with integrity, protecting the interests of investors and maintaining transparency in the process.
A trading account is an indispensable tool for individuals aiming to participate in the Nepali stock market. It serves as the gateway for buying and selling stocks listed on the Nepal Stock Exchange (NEPSE). To start trading, investors in Nepal must open a trading account with a brokerage firm licensed by NEPSE. These firms facilitate access to the market and manage the technical aspects of trading on behalf of their clients.
The trading account provides real-time updates, allowing investors to track their available funds, current holdings, and transaction history. It simplifies the entire trading process by ensuring seamless execution of buy and sell orders. The account balance, a critical element of any trading account, reflects the total amount of money available for transactions at any given time. This balance is a key indicator of a trader’s financial position and ability to invest or trade further.
For anyone looking to invest in Nepal’s stock market, opening a trading account is not just a formality but a fundamental requirement to engage actively and efficiently in stock market transactions.
A brokerage is an individual or firm that facilitates the buying and selling of financial assets, acting as an intermediary between buyers and sellers in financial markets. In Nepal, brokerages must be registered with the Nepal Stock Exchange (NEPSE), where 88 licensed brokers currently operate. Choosing the right brokerage is crucial for traders, as it affects the efficiency of trades, costs, and overall experience. By carefully evaluating factors such as fees, customer support, and regulatory compliance, traders can align their choices with their financial goals and preferences.
Why is portfolio management important for investors in Nepal, and how does it work?
Portfolio management helps investors strategically plan and manage a collection of investments to achieve specific goals, such as wealth creation or capital preservation. It balances risk and return by diversifying across assets like stocks and bonds, and it is crucial in Nepal’s stock market to navigate economic conditions and tailor investments according to individual financial objectives.
What are key indicators and the “high risk, high reward” principle in NEPSE?
Technical indicators, like Moving Averages (MA) and the Relative Strength Index (RSI), help traders analyze market trends and make informed decisions. The principle of “high risk, high reward” applies in NEPSE, where emerging sectors or small-cap stocks may offer higher returns but come with increased volatility. Investors should assess risk tolerance, conduct thorough research, and consult advisors to balance potential gains and risks.
What is the difference between a bull and a bear market?
A bull market occurs when stock prices are rising, and investor optimism drives higher buying activity. In contrast, a bear market is characterized by falling stock prices and low investor confidence. Bull markets offer opportunities for growth, while bear markets highlight the importance of risk management to protect capital during downturns.
How can I get started with investing in Nepali stock market?
To start investing in Nepse, first, educate yourself by reading books, attending seminars, and following financial news to understand the stock market. Next, open a Demat account with an authorized depository participant in Nepal to hold your shares electronically. Choose a registered broker who can facilitate your trades, and ensure the broker has a good reputation and reasonable fees. Once you have selected your broker, research potential stocks by analyzing the company’s financial health, market position, growth potential, and management team. After your research, place an order through your broker. Regularly monitor your investments to stay updated with market trends and news, adjusting your portfolio as needed. It’s essential to keep your emotions in check, avoid impulsive decisions, and stay focused on long-term goals.
What common mistakes should you avoid while investing in share market in Nepal?
One of the most common mistakes investors make is a lack of research. Before investing, always thoroughly analyze the company’s business model, financial health, and market conditions. Avoid overtrading, which leads to high transaction costs and lower returns. Never base your decisions on hot tips or rumors; always rely on solid research and analysis. Ignoring diversification can also increase your risk, so make sure your portfolio includes various stocks and sectors. Lastly, emotional investing can lead to poor decisions, so stick to your investment strategy and remain disciplined, regardless of market fluctuations.
How is the price of a share determined in the market?
Share prices are influenced by the dynamics of demand and supply. When demand for a particular share exceeds its supply, the price tends to rise. Conversely, if supply surpasses demand, the price may decline. Investor perceptions, company performance, and broader economic indicators also play pivotal roles in price fluctuations.
What are the key methods to analyze shares before investing?
Informed investment decisions are rooted in thorough analysis. Fundamental analysis involves evaluating a company’s intrinsic value by examining financial statements, management quality, industry position, and economic factors. On the other hand, technical analysis focuses on studying historical price movements and trading volumes to predict future trends, often using charts and statistical tools. Together, these approaches provide investors with a comprehensive understanding of a company’s value and market behavior, enabling them to make more strategic and informed decisions.
What should you consider before buying or selling shares in the secondary market?
Engaging in the secondary market requires careful deliberation to make informed and strategic decisions. It is crucial to stay informed by regularly reviewing company reports, market news, and economic indicators to understand market trends and company performance. Setting clear objectives is equally important, as defining your investment goals—whether aiming for short-term gains or long-term growth—helps guide your decisions. Additionally, consulting professionals, such as licensed brokers or financial advisors, ensures that your strategies align with your financial goals, offering expert insight to navigate the complexities of the market.
What common mistakes should beginners avoid in the Nepali share market?
One of the most common mistakes investors make is following the herd mentality—buying stocks simply because others are doing so, without conducting their own research. This often leads to inflated prices and losses when the market corrects itself. Instead, investment decisions should be based on careful analysis of a company’s financial health, market trends, and long-term potential.
Another critical strategy is portfolio diversification. Placing all your investments in a single sector or company exposes you to unnecessary risks. By spreading your investments across different industries and asset types, you can minimize losses and ensure stability even in volatile market conditions.
Patience is also key to successful investing. The stock market is not a quick-money scheme but a long-term wealth-building tool. Investors who react impulsively to short-term fluctuations often end up making poor decisions. Staying committed to a well-researched strategy and avoiding panic-driven actions can yield better returns over time.
Before investing, it is crucial to assess a company’s overall financial status, including its profitability, debt levels, and potential for future growth. Looking at key indicators such as return on investment (ROI), earnings reports, and market position can help make informed choices. By combining knowledge, strategy, and vigilance, investors can navigate Nepal’s share market with greater confidence and success.
What are the potential risks associated with share market investments?
The share market offers significant opportunities for wealth creation, but it is not without its risks. One of the most pressing challenges investors face is market volatility. Share prices can fluctuate unpredictably, driven by shifts in the economy, political events, and global trends. These rapid changes can yield both substantial gains and considerable losses, making it crucial for investors to adopt a long-term perspective and remain well-informed to navigate such uncertainties.
Liquidity risks are another concern. Certain shares, particularly those of smaller or less active companies, may be difficult to sell quickly without affecting their price. In times of market turbulence, this becomes even more pronounced, as finding buyers can become a challenge. Diversification is key here, ensuring that investors have access to a mix of liquid assets that can provide stability when needed most.
Beyond market-wide forces, company-specific risks also play a crucial role in shaping investment outcomes. Poor management decisions, regulatory changes, and shifts in industry dynamics can significantly impact a company’s performance and, by extension, its stock value. Investors must conduct thorough research into a company’s financial health, leadership, and position within its industry to minimize the likelihood of unforeseen setbacks. By understanding and preparing for these risks, investors can make more informed decisions and better navigate the complexities of the share market.
Investing in the Nepali stock market may seem easy, but achieving success as an investor is far more challenging than it appears. Many inexperienced investors lose money each year due to a lack of knowledge and manipulative practices by certain market players who offload shares to beginners through deceptive means. The weak regulatory oversight in the Nepali stock market further exacerbates the risks, making it essential for investors to approach the market with caution.
Before investing, it is crucial to thoroughly research the companies you are considering. Understanding their price-to-earnings (P/E) ratio, recent financial performance, and overall financial health is essential. Evaluate the risks associated with the company and its potential for long-term growth. Companies that pay consistent and attractive dividends can be particularly rewarding for investors seeking steady returns. Additionally, the price of a stock is determined by the dynamics of demand and supply. Higher demand typically drives prices up, while increased supply can cause prices to drop.
Relying solely on brokers for advice can be risky, as they may not always act in the investor’s best interest. Instead, investors should take the time to study and understand the companies they are investing in. Diversification is another critical strategy to minimize risk. Spreading investments across various sectors and industries can provide stability and reduce exposure to losses.
A long-term investment approach is often more rewarding than short-term trading, which can be unpredictable and requires substantial expertise. To succeed, investors must avoid impulsive decisions and focus on understanding how companies generate revenue and sustain profitability. Blindly investing without knowledge of a company’s operations or financial viability can lead to significant losses.
For investors in Nepal, exercising caution and conducting detailed research is non-negotiable. Making informed decisions based on careful analysis will not only safeguard their investments but also increase the likelihood of achieving long-term financial success in the stock market.
Before making any investment decisions in the stock market, it is essential to take a step back and honestly assess your entire financial situation—especially if you’ve never created a financial plan before. Jumping into the stock market based on others’ success stories or advice without proper preparation can lead to poor outcomes.
The first step toward successful investing is identifying your goals and understanding your risk tolerance. You can do this independently or seek help from a financial professional. It’s important to note that there are no guarantees of making money in the stock market. However, by gathering accurate information about saving and investing and following a well-thought-out plan, you can work toward financial security and enjoy the long-term benefits of effective money management.
Smart investors typically ensure they have sufficient emergency savings before investing. A common approach is to save enough to cover at least six months of living expenses, providing a safety net in case of unexpected events like job loss. This financial cushion allows you to invest with confidence, knowing you are prepared for emergencies.
In the Nepali stock market, it is crucial to stay vigilant. Many large public companies use marketing strategies to lure potential investors, such as creating attention-grabbing headlines, spending on advertisements to generate hype, or leveraging brokers to manipulate demand and supply. To protect your investments, always verify the authenticity of the information. Conduct unbiased research using direct sources, such as company websites and financial reports, to evaluate a company’s true financial health and performance.
Take your time when making investment decisions. Consult trusted friends, family members, or financial professionals for their insights. Avoid impulsive actions and choose companies carefully, based on thorough research and analysis. By creating a solid financial roadmap and making informed decisions, you’ll increase your chances of achieving long-term success in the stock market.
