Pre-Dashain Regulatory Relief: Sales Conditions for Basic Shareholders Eased, Hopes for Return of Market Confidence

Over the past week, the NEPSE index closed at 2,591.80, up by 4.55 points (0.18%) from the previous week's 2,587.25. However, rather than this marginal climb in the index, the sluggishness in trading volume drew more attention. The average daily turnover decreased by 21.08%. In the meantime, the Securities Board of Nepal (SEBON) amended the directives regarding the sale of shares by basic shareholders, relaxing the condition for prior notice. This is expected to provide relief to the market after Dashain.

Out of the five trading days, the index ended higher on three days and lower on two. However, this simple count does not paint the whole picture. On the final trading day, the index surged by 17.15 points (0.67%) in a single day, which is about four times the total weekly gain. Over the previous four days, the index was down by approximately 12.60 points. Buying on the final day alone turned the week's ledger positive. The week's low was 2,557.30 and the high was 2,591.85, and the closing price settling near the highest point indicates a strong grip by buyers on the final day.

Although the index increased, market activity declined. The average daily turnover dropped from Rs. 4.79 billion to Rs. 3.78 billion, a decline of over one billion rupees. The average daily number of traded shares and total transactions fell by 13.93% and 12.41%, respectively. The number of traded companies remained almost the same, inching up to 357 from 356. This means the contraction in trading was not due to fewer companies participating, but rather a drop in trading intensity per share. Calculations from published average data show that the per-transaction value also dropped from around Rs. 95,000 to Rs. 85,000, indicating a potential decline in large-value deals. Market capitalization, however, increased by approximately Rs. 8 billion, reaching Rs. 4.458 trillion from Rs. 4.450 trillion.

The Sensitive Index rose by 0.61% (2.83 points), the Sensitive Float Index by 0.81% (1.27 points), and the Float Index by 0.41% (0.74 points). Since the growth of all three indices exceeded NEPSE's 0.18% rise, it can be inferred that large and heavily traded companies pulled the index up. Out of the 13 sub-indices, four increased while nine declined. The Banking sub-index increased by 1.52% (22.78 points) to reach 1,517.25. In terms of points, the Development Bank sub-index led the gainers with a 32.16-point rise. On the other hand, the Others sub-index fell by 1.05%, and in point terms, Non-Life Insurance lost the most at 76.99 points. The Microfinance, Investment, and Finance sub-indices also declined by 0.71% to 0.88%. The roughly equal range of gains and losses, coupled with weakness in nine sub-indices, shows that the week's gains were narrow rather than broad-based.

In terms of individual shares, Kutheli Bukhari Small Hydropower was the most discussed stock of the week. Trading at Rs. 806, its share price jumped 20.35% to reach Rs. 970. Investors were attracted after the company announced an 18% bonus share distribution. The growth of other top gainers (SNORL, GHL, BHCL, GBIMESY2) remained below 6.5%. On the losing side, Ridge Line Energy plunged 8.86% to Rs. 668. Unnati Sahakarya Laghubitta and Mabilung Energy dropped by about 8%, MKCL by 7.67%, and SWASTIK by 6.58%. Floorsheet analysis revealed that Laxmi Sunrise's 7% Debenture 2092, Prime Bank's 6.25% Debenture 2093, and Global IME Laghubitta topped the most popular buy list. Increased buying in fixed-yield debentures indicates that investors are seeking safe returns in an uncertain market.

The question of why the market could not muster enthusiasm has been lingering among investors for some time. After the budget proposed increasing the capital gains tax from 7.5% to 10% for short-term and from 5% to 7.5% for long-term investments, widespread protests ensued. The government subsequently backtracked, and rather than just reverting to the old rates, set them even lower at 5% for short-term and 3.75% for long-term. Even though investors received more concessions than they asked for, the market failed to reach heights reflecting this change. One reason was the fear of policy instability. News that a 15-day prior notice rule for share sales was about to be implemented created massive confusion in the market. Apprehensive that the same authority lowering taxes today might introduce a different rule tomorrow, investors opted to wait rather than pour in capital.

Against this backdrop, SEBON amended the directives. In a letter sent to all listed companies on Ashoj 23, the board stated it had modified, amended, and added to the directive originally issued on Bhadra 9, 2083. Under the previous provision, basic shareholders wishing to sell 5% or more of their shares had to notify the company 15 days in advance. Now, notification is only required if selling 15% or more, and providing this notice just 5 trading days prior is sufficient.

The amendment also clarified the scope of the directive. This provision will now only apply to basic shareholders who held shares during the Initial Public Offering (IPO) of companies listed on the Nepal Stock Exchange (NEPSE) whose lock-in periods have expired in accordance with Rule 38 of the Securities Registration and Issue Regulations, 2073. The previous directive broadly stated "basic shareholders of NEPSE-listed companies," without explicitly mentioning the conditions regarding IPO-time shareholders and the expiration of the lock-in period.

This change can be interpreted on two levels. First, it reduces the fear that regulatory control measures in the market are increasing. With the scope clearly limited to specific basic shareholders, confusion is likely to decrease. Second, the board has reduced the procedural burden. The threshold for notification has tripled, and the waiting period has been significantly shortened. This makes selling easier for basic shareholders. However, there is another side to this. Since prior notice is no longer needed for sales under 15% under this directive, the market will not be aware of such sales beforehand. From a transparency perspective, how this aspect will be monitored is a matter to watch in the coming days.

The impact of this decision is estimated to bring relief to the market. It is expected that the panic selling witnessed before Dashain will stop, and the market will turn positive after the Dashain holidays. Even as the government and regulators took successive lenient steps to reform the market, adequate confidence had not awakened among investors. Now, with taxes reduced and directives softened, market hurdles are being removed one by one.

However, policy relief alone does not push the market higher. Without sufficient liquidity, favorable interest rates, and the entry of new investors, genuine demand is not created. The reduced trading volume over the week also shows that buyer enthusiasm remains limited for now. According to some market experts, large investors might still be in the accumulation phase, collecting shares at lower price points.

Technically, the week's low (2,557.30) stayed above the first support zone of 2,546.69, while lower support lies at 2,501.49. On the upside, a declining trendline and the first resistance converge in the 2,650 to 2,676.52 zone. After that, 2,754.08 and 2,799.15 act as the next resistance levels. The daily RSI has reached 48.67, and although the MACD is still below zero, the gap with the signal line is narrowing. The weekly RSI (43.54), however, indicates that medium-term momentum remains weak. The main test now will be whether the index can cross the 2,650–2,676 zone with increasing trading volume. Conversely, a close below 2,546 could lead to a retest of the 2,500 zone. This analysis is for informational purposes and does not constitute investment advice.

000