"Wait and Watch" NEPSE shows slight improvement`

The Nepal Stock Exchange (NEPSE) index recorded a slight improvement on Wednesday, the first trading day of the month of Magh, rising by 1.83 points to close at 2,595.96. The total trading volume exceeded NPR 5.82 billion today. Despite this minor recovery, the overall sentiment of the market remains sluggish, reflecting cautious investor psychology and seasonal market conditions.

Even though the NEPSE index showed slight gains, the broader participation of investors continues to remain subdued. With NEPSE hovering near the 2,500 level, significant market recovery seems improbable in the near term. Investors appear to have adopted a "wait-and-watch" strategy, unable to break out of this mode.

A total of 299 companies traded over 10.7 million shares today, which indicates a moderately active market. NRN Infrastructure and Development Ltd. topped the trading charts with transactions worth over NPR 324.9 million, followed by Super Madi Hydropower Ltd. and Sindhu Bikas Bank Ltd. These leaders contributed positively to the overall market sentiment.

Although the banking system remains liquid, credit disbursement has not picked up pace. Notably, margin lending for shares has increased significantly compared to other types of loans.

• Increase in Margin Lending:
  The statistics show a 20% increase in margin lending for shares. Larger investors have been more active, with loans exceeding NPR 10 million rising by approximately 49%. This indicates that major investors are actively leveraging margin loans to increase their positions, while participation from general investors remains weak.

Despite stability in interest rates, banks have not reduced them further for Magh. Though some banks lowered rates in the previous month of Poush, the overall scenario hasn't changed significantly. Declining interest rates are expected to have a positive effect on the market, but this has not yet translated into noticeable buying momentum.

As Magh begins, listed companies are set to release their second-quarter financial reports. Speculation around rising non-performing loans (NPLs) and impacted profitability in banks and financial institutions has left retail investors in a wait-and-watch mode.

• Impact of Financial Reports:
  If financial reports reveal lower profitability or higher NPLs, it could exert further downward pressure on the market. Conversely, positive earnings reports could help lift the market sentiment.

Some analysts consider the current market correction phase as part of a healthy cycle. They believe that after this prolonged "rest," the market is poised for a stronger uptrend. For general investors, investing in companies with solid financial metrics and good dividend-paying capacity remains a prudent strategy.

Technical Analysis

After today’s trading session, NEPSE Trading's technical team conducted a detailed analysis of both the NEPSE index and the Hydropower sub-index.

• NEPSE Index:

  

  • The 2,550 level is identified as a crucial support zone. A close below this level could push the market further into negative territory.

  • On the upside, the 2,647 level acts as a key resistance. A breakout above this level could lead to a renewed bullish trend.

  • Investors are advised to maintain a "wait-and-watch" approach in the current market conditions.

• Hydropower Sub-Index:

  

  • The Hydropower sub-index closed at 3,667.11, marking a 1.76% gain.

  • The 3,581 level serves as a critical support zone, providing a foundation for market recovery.

  • If the index breaks the 3,696 resistance level, it could chart new highs, indicating increased momentum in the hydropower sector.

Broker Analysis

An analysis of broker activity reveals that out of the top 10 brokers, only 3 showed relatively higher buying activity, while 7 engaged in more selling.

• Key Highlights:

  • Broker No. 58 recorded the highest trading activity, buying shares worth NPR 312.1 million and selling shares worth NPR 355.8 million.

  • Broker No. 65 bought shares worth NPR 399.1 million while selling NPR 252.9 million.

  • Broker No. 62 purchased NPR 230 million worth of shares and sold NPR 240 million worth.

Matched Transactions in Selected Companies

NEPSE Trading has flagged potential matched transactions in Super Madi Hydropower Ltd. (SMHL) and Reliance Finance (RFPL):

• Super Madi Hydropower Ltd. (SMHL):

  • Broker No. 65 accounted for 93% of the total buy transactions, purchasing 187,000 shares at an average price of NPR 1,510.

  • Interestingly, the same broker sold 50% of the total sell transactions (approximately 100,000 shares), suggesting potential matched trading.

• Reliance Finance (RFPL):

  • Broker No. 62 sold 86% of the total sell transactions (114,000 shares) and simultaneously bought 81% (108,000 shares).

  • This indicates an attempt by certain investors to manipulate prices through matched transactions.

Today’s trading activity reflects a cautious market sentiment, with NEPSE index showing minor improvements and the Hydropower sub-index gaining momentum. While larger investors continue to dominate margin lending, the market remains in a delicate position as it awaits quarterly financial results.

The presence of potential matched transactions highlights the need for stricter monitoring to ensure fair trading practices. Moving forward, breaking the critical resistance levels in both the NEPSE and Hydropower indices will be key to restoring positive momentum in the market. For now, a "wait-and-watch" strategy remains the most prudent approach for investors.