Nepal Stock Market Plunges Amid Political Uncertainty and Negative Indicators

The Nepal Stock Exchange (NEPSE) suffered a significant drop on Monday, with the index falling by 51.37 points to close at 2,630.91, reflecting a negative sentiment among investors. The turnover also decreased to NPR 5.93 billion, down from NPR 6.14 billion in the previous trading session, signaling reduced market activity.

Sector-Wise Analysis

All 13 sub-indices closed in the red, highlighting a broad-based sell-off:

Finance suffered the steepest loss, declining 4.41%, followed by Trading, which dropped 3.5%.
Development Banks, Hotels & Tourism, and Hydropower saw declines exceeding 2%, indicating weakness in traditionally resilient sectors.
Banking, Life Insurance, Manufacturing, Microfinance, Non-Life Insurance, and Others all fell by over 1%, reflecting the pervasive negative sentiment.

Interpretation of Sector Performance

The sharp decline in the Finance and Trading sectors suggests that liquidity concerns and reduced confidence in economic stability are weighing heavily on investor decisions. Hydropower, often seen as a growth driver, also faced significant selling pressure, likely due to sectoral risks and investors shifting to safer bets.

Key Gainers and Losers

Despite the overall market decline, a few stocks bucked the trend:

Kuthali Bukhari Small Hydropower hit the upper circuit, with its stock price increasing by NPR 300 to close at NPR 3,300.
Joshi Hydropower surged 8.7%, while Kumari Subal Yojana gained 5%. On the flip side:
Janaki Finance was the biggest loser, plummeting 9.58%.
Nepal Finance dropped approximately 7.5%, reflecting investor concerns over financial sector stability.

Turnover Highlights

NRN led the turnover chart, with shares worth NPR 264.5 million traded.
Joshi Hydropower and Janaki Finance followed, with turnovers of NPR 190 million and NPR 185 million, respectively.

Factors Behind the Market Decline

The market's downward trajectory was fueled by a combination of political and technical factors:

Political Instability: Rumors of a government collapse and uncertainty over PM KP Oli’s China visit have unsettled investors. Foreign influence and tensions over the BRI agreement have added to the turmoil.
Technical Indicators: A majority of indicators signaled "sell," prompting traders to exit positions.
IPO Oversupply Concerns: Expectations of an influx of IPOs under the new SEBON chairman have raised fears of excess supply, leading to cautious trading.
Lack of Confidence: Large investors displayed hesitance in driving high-cap stocks, further dampening market sentiment.
Negative Earnings Forecasts: Speculation of poor Q2 financial results has led to widespread caution.

Technical Outlook

The next support level for the market is identified at 2,617, based on higher lows. However, if this level is breached, the market could further decline to 2,500, intensifying investor concerns. Non-fundamental stocks faced the heaviest selling pressure, while some fundamental stocks displayed resilience, hinting at a sectoral rotation among investors.

Broker Insights

Broker activity analysis reveals mixed trends:

Broker #58 dominated buying, purchasing stocks worth approximately NPR 500 million and selling NPR 470 million.
Conversely, Broker #19 emerged as the top seller, offloading NPR 216.6 million worth of stocks against purchases of NPR 197.2 million.
Promoter shares of HIDCL were primarily acquired by Broker #58, accounting for 65% of the trades.

Investor Sentiment

NEPSE Trading’s AI Traffic Light system remains on a yellow signal, indicating caution. This reflects ongoing uncertainty and a need for investors to carefully navigate the volatile market.

Conclusion

The Nepal Stock Market’s decline underscores the impact of political uncertainty, technical sell signals, and investor skepticism. With all sectors under pressure and key support levels being tested, market participants are advised to adopt a cautious approach, keeping an eye on political developments and quarterly earnings reports for further direction.