Reliance Spinning Rally Lifts Mutual Fund Profits in Jestha, Some Schemes Book Heavy Losses

Kathmandu — A sharp surge in the share price of Reliance Spinning Mills has significantly boosted the performance of Nepal’s mutual fund industry in Jestha, with schemes holding large positions in the company emerging as the top profit earners for the month.

The rally in Reliance Spinning Mills—particularly shares acquired through a book-building issue at Rs 912 per unit—has generated substantial valuation gains for institutional investors, especially mutual fund schemes with large allocations.

According to market data, 57 mutual funds operating in Nepal, including both open-ended and closed-ended schemes, collectively earned a net profit of Rs 1.15 billion in Jestha. This marks a 22.47 percent increase compared to Rs 941.6 million recorded in Baisakh, reflecting improved equity market performance and selective stock rallies.

Among individual schemes, Prabhu Smart Fund emerged as the top performer, earning Rs 223.4 million in profit. It was followed closely by Kumari Dhanabriddhi Yojana with Rs 220.2 million, Prabhu Select Fund with Rs 170.5 million, and Kumari Equity Fund with Rs 166.2 million.

Market analysis shows that these top-performing funds had significant exposure to Reliance Spinning Mills, with holdings ranging from around 50,000 to over 75,000 shares each. These shares were largely acquired at the book-building price of Rs 912 per unit, well below prevailing market levels.

During Jestha, Reliance Spinning’s stock price surged sharply, at one point approaching Rs 4,000 per share before stabilizing above Rs 3,000. This multi-fold increase in valuation—more than four times the original purchase price—became the primary driver behind the extraordinary gains recorded by these funds.

Fund managers also benefited from broader market momentum, particularly in newly listed companies where mutual funds hold IPO allocations. Under regulatory arrangements, mutual funds receive reserved quotas in IPO issuances, allowing them early access to potentially high-growth stocks.

However, the performance picture was not uniformly positive across the industry.

Out of the 57 funds, 17 reported losses during the month. The largest loss was recorded by HLI Large Cap Fund, which posted a negative return of Rs 521.1 million. Similarly, NIBL Sahabhagita Fund reported losses of Rs 261 million.

According to market analysis, HLI Large Cap Fund suffered primarily due to exposure in stocks such as Nepal Reinsurance, NLG Insurance, and Guardian Micro Life Insurance, which had been purchased at elevated valuations. Subsequent corrections in these stocks led to a sharp decline in portfolio value.

The contrasting performance highlights the highly sensitive nature of mutual fund returns in Nepal, where equity-heavy portfolios are directly exposed to stock market volatility. With a large portion of investments concentrated in listed equities, short-term market fluctuations continue to have a strong impact on fund performance.

Market observers note that the stock market has remained volatile in recent months, with fluctuations intensifying after political transitions and shifting investor sentiment. While some correction has followed earlier rallies, selective stocks continue to drive disproportionate gains for well-positioned institutional investors.

Interpretation: Stock Concentration Risk and IPO-Driven Gains

Financial analysts say the latest data reflects a dual reality in Nepal’s capital market: concentrated stock exposure can generate outsized returns, but also significant downside risk.

Funds heavily invested in Reliance Spinning benefited from what is effectively a valuation windfall driven by secondary market momentum, rather than broad-based earnings growth. This raises concerns about sustainability, as such gains depend heavily on market sentiment rather than fundamental performance.

At the same time, IPO allocations continue to play a crucial role in boosting mutual fund returns. With multiple new companies entering the market and experiencing post-listing price appreciation, institutional investors are increasingly benefiting from early-stage entry advantages.

However, experts caution that reliance on IPO-driven and speculative rallies may distort long-term portfolio stability. Funds that failed to diversify or misjudged entry prices in financial sector stocks faced significant losses, as seen in the case of HLI Large Cap Fund.

The broader takeaway is that Nepal’s mutual fund industry remains tightly linked to equity market cycles. While short-term gains can be substantial during bullish phases, risk management and diversification remain critical to sustaining long-term performance.

For now, the Jestha results underline a familiar pattern in Nepal’s capital market: selective winners driven by concentrated stock rallies, and simultaneous losses for funds exposed to volatile financial and insurance sector corrections.