Nepal Stock Market: A Week of Decline, Key Decisions Await Next Week

The Nepal Stock Exchange (NEPSE) endured another week of declining performance, with the market grappling to find stability amid resistance and sectoral fluctuations. The index closed at 2,734.93 points on Thursday, down by 15.93 points, marking the continuation of a bearish trend. While some sectors showed resilience, others struggled under selling pressure, reflecting the prevailing uncertainty in investor sentiment.

This article delves into the week's market dynamics, sectoral performance, key gainers, losers, and trading patterns, followed by a technical analysis and future outlook.

Market Overview

The week began on a cautious note as the NEPSE index dropped by 9.99 points on Sunday. Monday saw a slight recovery, with the index gaining 19.97 points, followed by a 17.80-point rise on Tuesday. However, the momentum faltered midweek as Wednesday and Thursday recorded losses of 24.97 points and 15.93 points, respectively.

Despite these fluctuations, the market turnover remained within the range of NPR 8 billion to 10 billion per day, indicating consistent trading activity despite the declining index.

The index's inability to breach the 2,780-point resistance level highlights the market's struggle to sustain upward momentum, even as certain sectors and stocks showed positive movement.

Sectoral Performance

The sectoral analysis reveals mixed results, with a few sectors demonstrating significant gains while others declined. The trading sector emerged as the week's top performer, driven by a substantial rally in Bishal Bazar Company. Conversely, the banking sector suffered the largest drop, highlighting the challenges faced by the financial segment.

Interpretation of Sectoral Movements

1. Trading Sector:
   The trading sector posted a remarkable growth of nearly 20%, driven largely by the impressive performance of Bishal Bazar Company, whose price surged by 21.76%. The sector, dominated by two companies (Bishal Bazar and Salt Trading Corporation), benefited from strong capital gains in Bishal Bazar, which has a market capitalization ten times larger than Salt Trading.

2. Hydropower and Life Insurance:
   Both sectors showed modest growth, gaining 1.00% and 1.37%, respectively. The hydropower sector's rise was fueled by the performance of stocks like Khani Khola Hydropower and Joshi Hydropower, which were among the week's top gainers.

3. Banking Sector:
   The banking sector continued its downtrend, declining by 3.48%. This sector’s poor performance can be attributed to weak investor confidence and increased selling pressure, which also dragged down related sectors like development banks and finance.

4. Other Sectors:
   Most other sectors, including microfinance, non-life insurance, hotels, and manufacturing, experienced marginal declines, reflecting a broader cautious sentiment among investors.

Top Gainers and Losers

Several stocks recorded significant gains this week, with hydropower companies dominating the leaderboard.

On the other hand, several banking and finance stocks ended the week in the red, contributing to the sector’s underperformance.

Trading Activity Analysis

The total weekly turnover exceeded NPR 45 billion, with notable activity observed in Nepal Finance, NRN Infrastructure, and Ngadi Group Power. Nepal Finance topped the list with transactions worth NPR 1.58 billion, followed by NRN Infrastructure and Ngadi Group Power.

Broker Analysis:
Broker number 58 led the market activity, recording total transactions worth NPR 1.33 billion, comprising NPR 760 million in buy trades and NPR 570 million in sell trades, achieving a 1.34 buy-to-sell ratio. Stocks like Rasuwagadhi Hydropower (RHPL) and NLG Insurance saw significant activity by key brokers, raising suspicions of operator influence.

Technical Analysis

The NEPSE index continues to struggle below its 2,780-point resistance level, failing to generate sustained upward momentum. While the formation of higher lows (HL) suggests the market remains in an uptrend, the weakening strength of the rally since October indicates a cautious outlook.

1. MACD Analysis:
   The MACD line is nearing a critical decision point. If the signal line crosses below the MACD line, it could confirm a bearish trend, signaling a potential downturn.

2. Trendline Support:
   The index remains above its trendline support, providing a cushion for cautious optimism. Analysts predict that breaching this support could lead to accelerated selling pressure.

3. Volume Analysis:
   Trading volumes have remained steady, reflecting sustained participation despite the index's decline. However, the lack of substantial buying pressure above the resistance level suggests weak bullish sentiment.

Future Outlook

Market analysts predict that next week will be crucial for the NEPSE index, as it approaches critical support and resistance levels. A decisive move above 2,780 points could signal the resumption of the uptrend, while a breach below current levels may trigger a deeper correction.

1. Resistance and Support:
   The 2,780-point resistance remains the immediate hurdle for the index. A breakout above this level could attract fresh buying interest. Conversely, if the index breaches its trendline support, it could lead to a sell-off.

2. Investor Sentiment:
   Sentiment remains cautious, with many investors adopting a wait-and-watch approach. The upcoming week is expected to witness increased volatility as technical and fundamental factors converge.

3. Key Factors to Watch:

   • MACD crossover: A bearish crossover could dampen market sentiment further.

   • Operator Activity: Stocks like RHPL and NLG Insurance require closer monitoring for potential manipulative practices.

   • Sectoral Performance: Continued strength in the trading and hydropower sectors could provide much-needed support to the broader market.

Conclusion

The NEPSE index's performance this week highlights the ongoing struggle between bullish optimism and bearish pressure. While technical indicators suggest the market remains in an uptrend, the weakening momentum and failure to break key resistance levels underline the fragility of investor confidence.

As the market gears up for another crucial week, all eyes are on the 2,780-point resistance level and the broader sectoral trends. Investors are advised to remain vigilant, adopt a data-driven approach, and closely monitor technical indicators to navigate the prevailing uncertainty.