Market on Edge: NEPSE Seeks Bottom as Corporate Giants Fuel Debt-Driven Expansion

Kathmandu — The Nepali financial sector is flashing mixed signals, caught between a potential technical recovery in the stock market and mounting concerns over highly leveraged corporate investments. On Thursday, the Nepal Stock Exchange (NEPSE) index managed a slight gain, attempting a rebound from an oversold zone. Meanwhile, major corporate houses are aggressively expanding their portfolios using massive bank loans, raising critical questions about systemic financial risks.

Technical Rebound or False Dawn?

After consecutive days of a bearish slide, NEPSE closed at 2,542.77 on the final trading day of the week, up by a marginal 4.66 points. The daily turnover stood at a respectable Rs 3.39 billion, indicating that investors who were previously on a "wait and watch" mode are slowly returning to the floor.

Technical analysts observe that the market formed a small green candle on the daily chart after bouncing off the day's low of 2,533.28. This upward rejection suggests a growing buying pressure at lower levels, establishing the 2,520–2,530 zone as a crucial immediate support.

Furthermore, the Relative Strength Index (RSI) has climbed to 31.43. Just days ago, the RSI was hovering near the 20-mark—a deeply oversold territory. This upward hook in the momentum indicator signals a potential technical bounce, meaning the intense selling pressure might be exhausting itself. However, the Ichimoku Cloud analysis paints a more cautious picture. The index remains trapped below the Kumo cloud, signaling that the broader structural trend is still bearish. For a confirmed bullish reversal, the index must consistently breach the immediate resistance at 2,673 and sustain its momentum toward the 2,800 mark.

Debt-Fueled Corporate Aggression

While retail investors look for technical support, institutional players are taking massive, debt-driven bets. Three investment arms promoted by the Bhatbhateni Group have recently initiated credit ratings to secure bank loans totaling a staggering Rs 10.64 billion. These funds are earmarked for aggressive expansion across hydropower, real estate, agriculture, and the secondary stock market itself.

According to the rating agency ICRA Nepal, companies like Bhatbhateni Investment, Srinivas Holding, and Sribriddhi Holding are operating on highly leveraged models. For instance, Srinivas Holding has heavily concentrated its investments in the secondary market—primarily relying on margin and promoter loans—leading to an alarming gearing ratio of 5.1 times. Currently facing a portfolio loss of around 12 percent due to sector concentration, the company's financial health is dangerously tethered to NEPSE's daily fluctuations.

Systemic Risks on the Horizon

The heavy reliance on bank financing for equity and real estate investments highlights a growing vulnerability in Nepal's financial ecosystem. Sribriddhi Holding, another arm of the group, has poured 77 percent of its investments into the banking sector's shares, with nearly half concentrated in a single commercial bank. At a time when the banking industry is grappling with rising non-performing loans (NPLs) and shrinking profitability, such extreme portfolio concentration amplifies the risk.

Financial experts warn that injecting billions of borrowed rupees into a highly volatile stock market and illiquid, under-construction projects could backfire if the market fails to sustain a bullish run. While corporate groups are successfully leveraging their strong market presence and banking access, the lack of dedicated risk management frameworks and formal investment policies in these newly formed entities remains a critical concern. As NEPSE struggles to break its structural downtrend, this massive influx of debt-financed capital serves as a double-edged sword for Nepal's broader economic stability.