NEPSE Corrects After Three-Day Rally as Profit Booking and Political Signals Pressure Market

Nepal’s stock market paused its recent upward momentum on Tuesday as investors rushed to secure short-term gains following a strong three-day rally. The correction came at a time when optimism had started returning to the market due to policy-level reform discussions, improving sentiment and expectations of structural changes in Nepal’s capital market. However, a combination of profit booking, psychological pressure and resistance at higher levels pushed the Nepal Stock Exchange (NEPSE) index back into negative territory.

The NEPSE index fell by 39.44 points to close at 2744.40. The Sensitive Index declined by 5.15 points, while both the Float Index and Sensitive Float Index also moved lower. Although the decline appeared sharp compared to the previous sessions, analysts believe the correction was largely expected after the market had gained nearly 73 points within just three trading days.

Market participants say many short-term investors who entered the market during the rally of Baisakh 22, 23 and 24 began booking profits once the market approached the key resistance zone near 2800 points. That selling pressure gradually intensified during the latter half of Tuesday’s session, preventing the market from sustaining earlier gains.

Despite the decline in the benchmark, overall trading activity remained strong. Shares worth more than Rs. 4.66 billion were traded during the session, slightly higher than Monday’s turnover of Rs. 4.61 billion. More than 10.6 million shares of 338 listed companies changed hands through over 62,000 transactions. Analysts interpret the higher turnover during a declining session as a sign that the market is still active and liquid, rather than entering a panic-driven collapse.

The sectoral performance reflected broad weakness across the market. Twelve out of the thirteen trading groups closed in negative territory. The trading sector suffered the sharpest decline of 2.33 percent, while finance, hydropower, and hotel and tourism sectors also recorded losses exceeding two percent. Pressure was visible across development banks, manufacturing, investment and microfinance sectors as well, indicating that the correction was not limited to a handful of speculative stocks.

Beyond technical factors, Tuesday’s market sentiment was also influenced by strong remarks made by Finance Minister Dr. Swarnim Wagle during a parliamentary committee meeting. The minister stated that a limited group of individuals had manipulated Nepal’s stock market through insider trading, artificial transactions and organized market control, allegedly misusing billions of rupees belonging to ordinary investors. He warned that the government would not spare those involved in such activities.

Those comments appear to have created immediate psychological pressure within the market. Analysts believe some large investors and market operators became defensive after the government signaled a more aggressive stance against insider trading and manipulation. The statement reinforced concerns that regulatory agencies may intensify investigations and surveillance in the coming months.

At the same time, the government’s broader policy direction toward capital market reform remains supportive. In its policy and program for the upcoming fiscal year, the government has announced plans to restructure NEPSE, modernize the securities regulatory framework and improve the clearing system. Authorities have also emphasized expanding institutional participation in the market through pension funds, insurance companies, mutual funds and Non-Resident Nepali (NRN) investors.

While those long-term reforms have improved optimism among investors, analysts say policy announcements alone are not yet enough to stabilize short-term market behavior. Investors remain highly sensitive to political signals, regulatory statements and technical resistance levels, especially after the market’s recent volatility.

Technical analysis of Tuesday’s session suggests that the market remains in a corrective phase but has not yet entered a fully bearish structure. The daily candlestick formed during the session has been interpreted by analysts as a “Bearish Rejection Candle” or “Profit Booking Candle.” During intraday trading, the market climbed as high as 2802 points before facing heavy selling pressure and eventually closing near the day’s lower range.

That rejection near the 2788–2800 zone is being viewed as technically important. Analysts consider this area a major resistance zone, and the market’s inability to close above it indicates that buyers still lack full control over momentum. The descending trendline visible on the daily chart also continues to pressure the market from above, preventing a confirmed breakout.

However, analysts note that the broader technical structure has not completely deteriorated. NEPSE is still trading within a “Higher Low” pattern, suggesting that buyers continue to defend important support zones. The area around 2677 is currently viewed as the market’s key technical support. As long as the index remains above that level, analysts believe the possibility of another upward move remains alive.

If the market falls below that support zone in the coming sessions, however, investor confidence could weaken sharply and deeper correction may follow. The next major support areas are currently seen around 2608 and 2568 points.

Technical indicators such as BOS (Break of Structure) and CHoCH (Change of Character) further suggest that the market is still attempting to transition away from the strong downtrend seen after March’s correction. While buying interest has gradually improved from lower levels, the market continues to struggle against strong resistance and uncertain sentiment.

Analysts say the coming few trading sessions could become decisive for the market’s short-term direction. A recovery above the 2788 level may revive bullish momentum and improve confidence once again. On the other hand, if the market continues forming consecutive red candles with weakening structure, investors may become increasingly defensive.

Among individual companies, Dhaulagiri Laghubitta Financial Institution emerged as the session’s top gainer after hitting a positive circuit and closing at Rs. 1,395. In contrast, First Microfinance Laghubitta recorded the steepest decline, falling 12.40 percent. In terms of turnover, National Hydropower led the market, followed by Reliance Spinning Mills and Ridi Power Company.

Overall, Tuesday’s session reflected a market caught between optimism and caution. Policy-level reform discussions and institutional investment plans continue to support long-term sentiment, but profit booking, political pressure and technical resistance have temporarily slowed the market’s upward momentum. Analysts believe the market is now entering a highly sensitive phase where both psychology and technical levels will play a crucial role in determining NEPSE’s next direction.