Nepal's Stock Market Caught in Political Crossfire Over Governor Appointment, NEPSE Drops 32 Points

The Nepal Stock Exchange (NEPSE) index continued its downward spiral this week, falling 32.38 points on Wednesday to close at 2655.94. Trading volume also contracted, dropping to NPR 7.57 billion from NPR 8.32 billion on Tuesday. A combination of internal and external factors has eroded investor confidence.

Delays in appointing the Nepal Rastra Bank governor, compounded by the resignation of selection committee member Bijayanath Bhattarai, have heightened policy uncertainty. Analysts note this has stalled monetary policy clarity and market reform initiatives. Protests by teachers and threats of agitation by civil servants are expected to strain government expenditure, potentially disrupting budget balance and weakening the investment climate. The Maoist Centre’s claim that the ruling coalition has lost its moral legitimacy to govern has also drawn close scrutiny from investors.

A recent World Bank report projecting lower economic growth for South Asia, including Nepal, has further dented investor sentiment. While the government prepares the 2025/26 budget, its upcoming policy and program announcement on May 2 has failed to inspire optimism. The National Planning Commission has recommended cutting budgets for stalled projects due to resource constraints, with weak revenue growth, declining foreign aid, and reduced loan mobilization adding to fiscal challenges.

Delays in implementing recommendations from a high-level market reform committee, coupled with liquidity shortages, limited foreign investment, and a lack of policy reforms, have left investors in limbo. The third-quarter financial reports of banks have added to the gloom, with the average non-performing loan (NPL) ratio of commercial banks rising to 4.83% from 3.65% last year. Himalayan Bank’s NPL ratio stands at 7.68%, while Kumari, Nepal Investment Mega, Laxmi Sunrise, NIC Asia, Citizens, Prime Commercial, Nepal, and Prabhu banks exceed 5%.

Technical analysis indicates a weakening market, with NEPSE breaking below the middle Bollinger Band. The 200-day moving average (2630) may offer potential support, but a breach could push the index toward the lower Bollinger Band. The Relative Strength Index (RSI) at 37.61 is nearing oversold territory, yet selling pressure persists. Volume analysis shows increased selling volume, signaling further bearish sentiment.

On Wednesday, all but two of NEPSE’s 13 sub-indices—mutual funds (up 0.21%) and manufacturing & processing (up 0.39%)—declined. The development bank sub-index fell the most, down 2.09%. Radhi Vidhyut Company led trading with NPR 581.9 million in turnover, while Corporate Development Bank’s share price dropped 9.06%, the day’s biggest loser.

Analysts warn that without investor-friendly policies and structural reforms in the upcoming budget, the market could weaken further.