Policy Optimism and Technical Recovery Lift Nepal’s Stock Market

Nepal’s stock market has begun to regain momentum as investors increasingly interpret the recent rise in the Nepal Stock Exchange (NEPSE) index not merely as a short-term technical bounce, but as a reflection of growing policy optimism and changing market psychology. After months of uncertainty, weak confidence and allegations of manipulation-driven trading, the market now appears to be moving gradually toward a more positive narrative.

Monday’s trading session strengthened that perception. The NEPSE index climbed 38.19 points to close at 2783.85, extending gains for the third consecutive trading day. The Sensitive Index rose by 6.08 points, while the Float Index and Sensitive Float Index gained 2.67 points and 2.09 points respectively. The rise in the benchmark was accompanied by a notable improvement in turnover, suggesting that buying interest is no longer limited to a few speculative counters.

Daily turnover crossed Rs. 4.61 billion, significantly higher than the previous session’s Rs. 3.28 billion. More than 10.4 million shares changed hands through over 68,000 transactions involving 332 listed stocks. Analysts say the simultaneous increase in both market index and turnover indicates improving liquidity flow and growing investor participation.

Much of the renewed optimism appears to be linked to recent policy and structural developments surrounding Nepal’s capital market. The government has already implemented mandatory 25 percent down-payment requirements, formally introduced the margin trading system, and opened doors for institutional funds to participate in broader capital market instruments. These changes are being viewed as long-term structural reforms rather than temporary administrative adjustments.

The possibility of large institutional investors such as Citizen Investment Trust, Employees Provident Fund and Social Security Fund becoming more active in the market has also strengthened confidence among investors. Market participants believe that greater institutional participation could gradually reduce volatility and improve long-term market stability, which has historically been lacking in Nepal’s retail-dominated stock market.

Another important factor supporting sentiment is the expectation that the Securities Board of Nepal (SEBON) may soon receive a technically capable and market-oriented leadership. The regulator has remained without stable leadership for an extended period, creating delays in policy implementation and weakening regulatory confidence. Investors now expect that a competent chairman could accelerate reforms, strengthen market supervision and introduce new financial instruments.

At the same time, ongoing investigations related to money laundering and suspicious trading activities have made several large investors and market operators increasingly cautious. Government agencies have intensified scrutiny on source-less investments, artificial transactions and coordinated price manipulation. Officials appear determined to “clean up” the market environment, believing that tighter oversight could eventually make the market healthier and more transparent.

This shift, however, is also altering market dynamics. Analysts say Nepal’s stock market was previously driven heavily by a limited circle of large operators capable of influencing short-term price movements. With many of those players becoming defensive under regulatory pressure, market leadership is slowly shifting toward retail investors. While that transition could create short-term uncertainty and volatility, some analysts believe it may ultimately help the market become more fundamentally driven rather than operator-controlled.

Seasonal sentiment is adding another layer of optimism. In Nepal’s stock market culture, the months of Jestha, Ashadh, Shrawan and Bhadra are traditionally viewed as favorable periods for equities. Improved banking liquidity, budget-related expectations, dividend anticipation and rising investor participation often create a bullish environment during these months. This year, expectations surrounding the government’s market-friendly policies and the upcoming budget have reinforced that psychological momentum.

Sector-wise participation on Monday was broad-based. All 13 sub-indices closed in positive territory, indicating that the rally was not concentrated in only a few sectors. The “Others” subgroup rose the most by 2.11 percent, while banking, trading, development banks, hydropower, finance, microfinance, non-life insurance, manufacturing and investment sectors all gained more than one percent. Analysts say such synchronized sectoral participation usually reflects broader market confidence rather than isolated speculative buying.

Among individual stocks, First Microfinance Laghubitta posted the highest gain of 14.19 percent. Kumari Dhanabriddhi Yojana surged by nearly 11.5 percent, while Dolti Power rose by around 8.5 percent. Interestingly, the decline among losing stocks remained relatively shallow, with most falling less than three percent, suggesting that selling pressure has weakened considerably compared to previous sessions.

Reliance Spinning Mills led the market in turnover with transactions exceeding Rs. 210 million. National Hydropower followed with more than Rs. 175 million worth of trades, while SY Panel Nepal also recorded turnover above Rs. 160 million. The distribution of turnover across multiple sectors further reinforced the impression that participation in the market is expanding.

Beyond the fundamental narrative, technical indicators on the daily chart are also beginning to support the bullish outlook. Monday’s candlestick formation was interpreted by technical analysts as a “bullish recovery candle,” signaling renewed buying interest after a prolonged corrective phase. The market traded between an intraday low of 2747 and a high of 2783.99 before closing near the day’s peak, which is generally considered a positive technical sign.

The chart suggests that NEPSE has successfully defended the critical support zone around 2669. Analysts point out that the market is still maintaining a broader “higher high” and “higher low” structure despite recent corrections. The formation of another Higher Low near the support region indicates that buyers are gradually stepping back into the market.

However, the market is still trading just below a descending trendline that has pressured prices for several weeks. Monday’s rally pushed the index closer to that resistance zone, but a confirmed breakout has yet to occur. Technical analysts believe that if NEPSE manages to sustain above the 2788–2800 range in the coming sessions, it could confirm a medium-term trend reversal and potentially open the path toward higher resistance levels around 2879 and 2911.

The zone between 2900 and 3000 is now being viewed as a major resistance area and a potential “strong high” region. A decisive move above that range could significantly strengthen bullish momentum in the broader market. On the downside, analysts continue to view 2669 as the key support level. Below that, 2608 and 2568 remain the next major support zones.

Volume behavior has also improved technically. Rising turnover during a market rebound is generally considered a healthier signal than a low-volume rally, as it reflects genuine buying participation rather than temporary price movement. Technical patterns such as BOS (Break of Structure) and CHoCH (Change of Character) appearing on the chart suggest that the market may be attempting to transition away from the strong downtrend seen after March’s sharp correction.

Despite the improving environment, analysts remain cautious about declaring the beginning of a full-fledged bull market. Regulatory tightening, cautious large investors and global uncertainty could still create volatility in the near term. Nevertheless, the combination of policy reforms, improving technical structure, stronger participation and recovering investor sentiment has undeniably revived optimism in Nepal’s capital market.

If the market succeeds in breaking above the descending trendline and stabilizes above the 2800 level, analysts believe NEPSE could gradually enter a stronger medium-term bullish phase in the weeks ahead.