KATHMANDU: The Nepal Stock Exchange (NEPSE) has been on a consistent upward trajectory since February 16, reflecting growing investor optimism as Nepal Rastra Bank (NRB) Governor Dr Maha Prasad Adhikari approaches the end of his five-year term.
With trading volumes at record highs, the market is riding a bullish wave, largely attributed to expectations surrounding the governor’s departure rather than fundamental changes in economic indicators or monetary policy adjustments.
The stock market has shown uninterrupted growth since February 16, entering a strong bull trend. Investors have witnessed substantial gains, with NEPSE gaining 71.3 points over the last week alone, rising from 2743.74 points to 2815 points.
This surge has been fueled by heightened trading activity totaling Rs 43 billion within just four trading days, with a daily average transaction volume of approximately Rs 10 billion.
Impact of monetary policy review
The rally gained further momentum after NRB’s second quarterly monetary policy review for the fiscal year 2024/25 was announced on Tuesday. The market opened on Thursday with a surge, reflecting investor sentiment that was more influenced by the anticipation of Governor Adhikari’s exit than by the policy changes themselves.
Stock analyst Raju Poudel argues Governor Adhikari’s imminent departure has contributed to a 200-point increase in the market.
“Even though the monetary policy review brought minimal changes, the sentiment surrounding the governor’s exit propelled the surge,” he says.
Poudel says the banking group was the primary driver behind the bullish trend, partly due to the removal of provisions for bad loans.
“The banking sector has finally moved, and with the support of high-cap companies, we were able to break the 2,800 resistance line,” Poudel said.
Out with the old
Governor Adhikari has been viewed as an anti-stock market figure due to his stringent policies affecting market liquidity and banking provisions. With his tenure ending on April 6, investor sentiment has shifted positively.
“It is customary for the governor to take leave a month in advance. His departure has signaled a favorable investment environment, and the market is expected to rally until a new governor is appointed,” said Poudel.
Radha Pokharel, President of the Nepal Capital Market Investor’s Association, shared similar sentiments.
“Investors have been waiting for this moment for a long time. Adhikari was known for increasing the bank’s provision to 1.10, which impacted distributable profits. Now that he is exiting, investor confidence has been restored,” Pokharel said.
Despite the positive sentiment, Pokharel noted that the monetary policy review did not meet investor expectations.
“We had no hope from this governor, but the removal of certain banking provisions has brought some relief,” she said.
Market reactions
The market showed consistent gains throughout the week. On Sunday, NEPSE rose by 11.66 points to 2755.40, with a trading volume of 21.12 million shares worth Rs 11.54 billion.
Monday saw a modest gain of 3.53 points, bringing the index to 2758.57. Trading volumes decreased slightly to 21.11 million shares worth Rs 11.854 billion.
On Tuesday, NEPSE maintained its green streak, increasing by 7.13 points to 2765.88. However, trading volume fell to 17.86 million shares worth Rs 9.9 billion.
Lastly, on Thursday, following the policy review, NEPSE surged by 49.15 points, closing the week at 2815 points. Trading volumes soared, with 26.19 million shares exchanged, amounting to Rs 11.29 billion.
Market outlook
Ghanshyam Pandey, President of the Nepal Shareholders Association, attributed the bullish trend primarily to Governor Adhikari’s exit.
“We had no confidence in his policies. The review did not impose any new burdens, and reducing the bank’s provision by 0.10 percent was a positive step. The market will likely continue its upward trend as a new governor is anticipated,” he said.
Pandey added that while the market is not currently driven by liquidity, a new governor focused on economic growth could further boost market sentiment.
“If a dynamic leader who can mobilize capital and stimulate economic activity takes over, we could see a more robust stock market,” he said.
Stock trainer Subash Chandra Bhattarai echoed this sentiment, predicting that the NEPSE index could soon cross the 3,200 mark.
“The market is in a strong bull trend with rising investor confidence. The new leadership is expected to bring reforms that the current governor could not implement,” Bhattarai said.
Market analysts believe that the current momentum will be sustained until a new governor is appointed. Investors are optimistic about a more market-friendly leadership that could introduce policies to stimulate economic growth and improve liquidity.
“There is a strong expectation that the new governor will take a more balanced approach to monetary policy, benefiting both the stock market and the overall economy,” said Bhattarai.
As investors eagerly await the appointment of a new governor, the stock market is likely to remain volatile, driven by speculation and sentiment.
For now, traders and stock market experts argue that the bulls are firmly in control, riding the wave of optimism surrounding the end of Governor Adhikari’s tenure.
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