Kathmandu. Investors’ morale has not been lifted even when the external indicators of the economy are good, there is enough liquidity in the banks and the continuous fall in interest rates. The demand for credit in the financial market is very low. Traders and investors are worried. Especially, the immature style of the new government and the indiscriminate crackdown on private sector entrepreneurs in the name of good governance have disturbed the business environment.

There is no country anywhere in the world where the state treats businessmen who employ thousands of people and pay millions in revenue like prisoners. Businessmen are the jewels of any country. Those who can bring the light of prosperity. Therefore, even if they have made mistakes in the past, they should not be intimidated, they should not be arrested. They should be investigated and honorably punished with financial fines, if they have done anything contrary to the law. But it is wrong to arrest him without evidence, without any basis, and to implicate him in a case. Such work does not create an entrepreneurial environment in the state. Neither will jobs be created. Nor will the revenue of the state increase. Such an act will destroy the business environment of the entire country. And then the money will be piled up in the banks and there will be no demand for loans. If this situation persists for a long time, capital may migrate. Businessmen can invest abroad instead of Nepal. Therefore, the business environment is an important basis for economic prosperity. If the business environment improves, the demand for loans in banks will increase, new entrepreneurs can be born. They create jobs in the state. Economic activity increases. Exports will increase. And, the country will move forward on the path of becoming rich. Nor does the stock market.

Politics and the stock market

Politics always has an impact on the stock market. Political parties, in particular, exist with different ideologies. Some are in favour of a liberal economy, while others are in favour of a controlled economy. Some parties have been moving between liberal and controlled policies in recent times. Therefore, which political party is in power, what kind of economic policies it takes, how it looks at the private sector and the capital market have a direct or indirect impact on the stock market.

News that affects the economic and business environment due to politics is equally important for the stock market. Signs of a change in the government, the appointment of a finance minister, changes in the budget or tax rates, changes in regulatory policies, public spending, the government’s attitude towards the private sector or political stability are some of the most likely news stories to affect investor psychology. Which plays a role in increasing and decreasing the market. Therefore, the stock market is also a bit of a market of uncertainty.

Politics can shake the market, but what makes the market sustainable in the long run is the real economic condition of the economy and companies.

This is also reflected in the history of Nepal’s stock market. In the last two decades, there have been big bulls and bear cycles in Nepal’s stock market. In 2008, NEPSE had reached the level of around 1200. After that, the market fell for a long time and fell to around 300 in 2012. After that, the market went on a long upside, testing a high above 1800 points in 2016. Then there was a correction again and in 2019, the NEPSE index fell around the 1100 point.

After that, the market took another big turn. At the end of 2019, NEPSE reached a historic high of over 3200 in 2021 due to excess liquidity in the banking system, reduced interest rates, compulsion to invest from home, expansion of digital transactions and increased participation of investors.

In this way, the cycle of the market in Nepal’s stock market is not new. At one stage, there is a lot of excitement, then there is a correction, the market is sluggish for some time, and then another journey is decided on a new basis.

Therefore, the stock market, which is now hovering around 2600, can be seen as a phase in that historical cycle. On top of this, the number of demat account openers in Nepal has reached 80 lakhs. That’s a positive thing for the stock market. This proves that people’s attraction towards the market is increasing. In the last few years, the number of companies listed on NEPSE (currently 284 companies listed in NEPSE) has also increased and about 70-80 business entities are also in the process of IPO issuance. Their IPO issuance will increase the public’s interest in the stock market. Because the 10-kite lottery policy has increased the attraction of the general public to the market.

Politics and market relations

We have seen many ups and downs in the market due to politics many times in the past. A political event can cause the market to fall by a big number in two days. A positive political signal could prop up the market in a few days. But the lifespan of such an effect is usually short.

For example, when a government appears to be favorable to the stock market, there may be excitement in the market. But after some time, if the company’s profits do not increase, bank loans do not expand, interest rates increase and the economy slows, then political enthusiasm alone cannot keep the market going up for a long time.

The opposite is also true. Even if there is some negativity in the political environment, the business of the company is doing well, there is enough liquidity in the banking system, interest rates are falling, and the economy is expanding, and the market will eventually absorb it.

In this way, political developments can lead to short-term volatility in the stock market. But in the long run, economic factors, business environment, economic policies and the financial condition of the company are important.

Will the market move now?

The future of the stock market cannot be predicted exactly. No one can say with certainty how many points NEPSE will rise or fall tomorrow. But taking together the history, current economic indicators and the policy environment, there is no reason to disappoint the current market.

Since 2008, the market has seen the level of 300. A few years later, the market reached a point above 1800. In 2019, the market was around 1100 and reached a historic high of 3200 in less than two years.

This makes one thing clear that the whole story of tomorrow’s market cannot be written by looking at today’s Nepse issue.

It is the nature of the market whether the market, which is currently above 2600, will remain in the same number tomorrow. But if interest rates remain favorable, credit expands, the government’s capital expenditure increases, private sector investment increases and corporate earnings improve, it can have a positive impact on the stock market.

Therefore, the current slowdown can also be seen as a preparation for the market to rise. The stock market doesn’t always rise from its peak peak. Many times, the market builds a new base in times of despair and confusion. The stock market, which is currently hovering around 2600, may also be in a similar phase.