Nepal Stock Market Liquidity Analysis (2025/26)
Stock market liquidity — the ease with which shares can be bought and sold — is a critical indicator of market health. Nepal's NEPSE data for mid-March 2026 shows a concerning decline in trading liquidity despite stable index levels.
Liquidity Metrics Comparison
| Metric | Mar 2025 | Mar 2026 | Change |
|---|---|---|---|
| NEPSE Index | 2,736.49 | 2,820.45 | +3.07% |
| 12-Month Turnover (Rs. M) | 330,653 | 102,260 | -69.07% |
| Turnover/Market Cap | 37.47% | 25.81% | -11.66pp |
| Turnover/GDP | 32.04% | 21.68% | -10.36pp |
| Total Shares (M) | 8,699.02 | 9,259.38 | +6.44% |
| Listed Companies | 268 | 286 | +18 |
The Liquidity Paradox
NEPSE presents a paradox: the index is up +3.07% and 18 new companies listed, but turnover collapsed -69.07%. This means:
- Fewer shares are changing hands despite more being available
- Holding period has extended — investors are sitting on positions
- Price discovery is weakening — thin trading can lead to volatile moves on low volume
Why Has Turnover Fallen?
1. Rising interest rates: CB lending rate moved from 7.26% to 8.40%. Higher fixed-income returns attract money away from equities.
2. Deposit rate recovery: At 4.54%, bank deposits now offer meaningful returns with zero risk — competing directly with equity investments.
3. Post-rally consolidation: After the 29.77% rally in 2024/25, many investors booked profits and stepped aside.
4. Margin lending constraints: Higher interest rates make margin trading expensive, reducing leveraged activity.
Impact of Low Liquidity
- Wider bid-ask spreads — higher transaction costs for investors
- Difficulty exiting large positions without price impact
- Reduced IPO enthusiasm — new listings may struggle to attract capital
- Market becomes more sentiment-driven and volatile on thin trading
Conclusion
NEPSE's liquidity deterioration is the most significant market development in FY 2025/26. While the index remains near all-time highs, the 69% turnover decline signals reduced investor participation and confidence. A return of liquidity likely requires either lower interest rates or a fresh growth catalyst that re-attracts capital into equities.