NEPSE Remains Under Pressure Despite Stable Government: Cleanup Phase Signals Deeper Market Shift

Expectations were high that Nepal’s stock market would rebound once political instability eased. With the formation of a stable government backed by a near two-thirds majority under Rastriya Swatantra Party, many investors anticipated a strong upward movement. However, the reality has been different. The capital market has yet to respond positively, raising fresh concerns among investors about the underlying dynamics driving the current trend.

Before the government formation, the NEPSE Index was trading around the 2950 level. In recent weeks, it has declined to the 2700 range, reflecting sustained selling pressure across multiple trading sessions. Analysts suggest that this decline cannot be explained solely by economic fundamentals. Instead, a significant portion of the downturn appears to be driven by investor sentiment and uncertainty.

One of the key triggers behind this sentiment shift is the government’s recent move to investigate and take action against individuals involved in unethical market practices. While such actions are intended to improve market integrity, they have created short-term fear among investors. Many participants, particularly retail investors, appear cautious, choosing to stay on the sidelines rather than actively engage in trading.

However, a different interpretation is also emerging. Market observers argue that this phase represents a structural “cleanup” rather than a systemic weakness. The removal of influential players who previously manipulated prices could lead to a more transparent and efficient market in the long run. In this sense, the current correction may be laying the foundation for a healthier capital market ecosystem.

From a policy perspective, signals remain largely positive. Finance Minister Dr. Swarnim Wagle has emphasized aligning Nepal’s capital market with international standards. Reforms such as the competitive selection process for leadership at the Securities Board of Nepal and the ongoing restructuring of the Nepal Stock Exchange are viewed as critical steps toward strengthening regulatory credibility and market efficiency.

Macroeconomic conditions also appear supportive. Nepal Rastra Bank has been facilitating liquidity through policy easing, while interest rates remain at historically low levels. Such conditions typically encourage investment in equities. Additionally, the introduction of margin trading is expected to gradually increase participation and liquidity in the market.

Technically, however, the market is showing signs of weakness. The recent break of an upward trendline indicates that bullish momentum has faded in the short term. The transition from a Higher High to a Lower High structure suggests the early stages of a downtrend. The formation of a strong bearish candle in the latest session further reinforces the dominance of sellers.

Despite this, the market is approaching a crucial support zone around 2660–2670. This level is widely regarded as a key technical base. If the index manages to hold above this zone, a short-term rebound is possible. Conversely, a breakdown below this level could expose the market to further downside risks.

Another notable trend is the decline in trading volume, which reflects a “wait-and-watch” approach among investors. Many participants appear to be holding back until clearer signals emerge. At the same time, experienced investors are beginning to accumulate fundamentally strong stocks, viewing the current phase as an opportunity rather than a threat.

In essence, the market is currently caught between two contrasting forces—short-term fear and long-term optimism. While immediate pressures persist, ongoing reforms, regulatory tightening, and structural improvements are gradually reshaping the market environment. The coming trading sessions, particularly the behavior of the index around the key support zone, will likely determine the next direction of NEPSE.