Share market in Nepal

Stock market has been growing day by day in Nepal as many companies have been issuing shares and debentures. However the growth is not satisfactory as well as not steady. If we look at the history of share market index, there is sharp incline and decline in short period. There are many reasons behind this unbelievable fluctuation.

First, most of the investors pour their hard earned money without knowing the stock and stock market. They have been following the crowd. If the stock market start to increase they start investing in those stock whose price have increasing. But after someday, the price starts to fall without any valid reason and they got trapped. This type of investment can be regarded as nearly gamble investment where odds of gain is less.
Second, large investor normally can manipulate the Nepalese share market by buying and selling the stock within own circle. A simple example: If A hold 100000 shares of Nabil bank and want to manipulate the market he starts selling small number of shares to his own circle in higher price. In some days when the price is its peak then he sales in bulk and earn profit. However the market will come in its real situation after selling all the shares by A and small investor who have purchased the share will lose their investment.

Third, Nepalese investors lack stock market knowledge and share pricing. They don’t know what the real value of a certain share is and how much they can earn by investing. Another simple example: If Nabil offers 50% cash dividend, and current market price is Rs.1500.00 then the real return will be 3.33% if somebody hold the stock for one year. This rate can be earned without taking any risk if somebody make deposit in bank. There are many other factors but this applies only to those investors who hold the stock only for dividend.

What can be done to avoid such risk and get the higher return from stock market? There are many ways. First look thoroughly the financial statement of the company. Give importance to the rate of return, earning per share, general reserve. Further analyze the future growth potential of the company. If the company in its saturation then it can’t earn abnormal profit and it can’t provide higher dividend. Third, keep open your eye and ear open because there are many information related to the company which directly or indirectly affect the share price and return of the company. Rumor of merger & acquisition, change in management team, abnormal income etc. also affect the share price of the company.