NEPSE Index Drops Below 2500 After Three Days of Decline; Major Brokers Continue Buying Amid ‘Change of Character’ Signal in the Market

The NEPSE index declined further on Monday, dropping by 15.54 points to settle at 2594.13. Despite the fall, trading volume increased compared to the previous day, reaching over NPR 6.65 billion. This marks the third consecutive day of decline, pushing the index below the critical psychological level of 2500, raising uncertainty and doubt among investors.

On Monday, 322 companies saw a total of over 13.8 million shares traded. NRN Infrastructure and Development Company led the market with a turnover of NPR 250 million, followed by Nyadi Hydropower and Himalayan Power Partner in the second and third positions, respectively.

The last day of the Nepali month of Poush created selling pressure in the market. Large and mid-level investors were engaged in settling loan interest, principal repayments, and taxes, leading to reduced trading activity. The trend of profit booking by short-term traders has also been observed, contributing to the selling pressure.

Banks have decided to maintain the same interest rates for Magh as in Poush, signaling no imminent rise in rates. However, concerns about deteriorating non-performing loans (NPLs) in the second quarter of the fiscal year have caused anxiety among investors.

Despite sufficient liquidity in the banking system and falling interest rates, which suggest a positive outlook for the market, these concerns have cast a shadow on investor sentiment. Share collateral loans have increased by 20% in the past year, indicating continued trust in the stock market by some investors.

The NEPSE index breaking below the 2600 psychological level has caused analysts to advise investors to wait for further signs of recovery. While the correction from 3000 levels after a sharp rally is considered normal, the ongoing sideways movement between 2400 and 2700 suggests a period of consolidation. Analysts believe the market may soon signal a bullish run based on its cyclical patterns.

Technical analysis reveals the NEPSE index is currently battling critical support at 2556 and resistance at 2647. The index has been forming ‘Lower Highs’ (LH) and ‘Lower Lows’ (LL) in recent months but recently hinted at a ‘Change of Character’ (CHoCH) before showing further weakness.

If the index breaks above 2647, analysts recommend it as a buying opportunity, with potential targets of 2700 and 2800. However, a break below 2556 could indicate further downside risk, with the index potentially heading toward 2440.

Despite the market's decline, major brokers have continued buying, signaling that large investors may be re-entering the market. Broker 58 purchased shares worth NPR 443.38 million while selling shares worth NPR 274.6 million. Similarly, Broker 4 bought shares worth NPR 373.6 million and sold shares worth NPR 172.5 million. Broker 28 followed with purchases of NPR 237.2 million and sales of NPR 228 million.

Although the market remains in a consolidation phase, the upcoming second-quarter financial reports of listed companies are expected to play a crucial role in determining its next direction. Analysts suggest that general investors focus on fundamentally strong companies with good dividend potential and invest strategically to minimize risk.

The market's reaction to Tuesday's trading session and the technical chart will provide further clues on whether the market will continue its downtrend or recover from current levels.