“Nepal should focus on attract­ing foreign investment but not in unproductive sectors like real state, stock market and hire purchase,” said the new finance minister Yubaraj Khatiwada soon after assuming office. This caused a stir in the Nepali business commu­nity, especially in the share market. The already shaky share market witnessed further losses following the remark as investors started pan­ic-selling, leading to an alarming drop in the Nepal Stock Exchange (NEPSE) index. Sunday, March 4, the first day of trading after a long weekend, saw a 41.56 point fall in the market, to close at a year low of 1287.74.

 

Khatiwada’s statement has drawn flak from investors and other stake­holders in the share market with speculators predicting record lows for the NEPSE index. Investors could lose billions of rupees.

 

Recognized as one of the best economists in the country, Khati­wada holds a Phd degree in Mone­tary Economics from Delhi School of Economics and has previously served two terms as the Vice Chair­man of National Planning Commis­sion. He was also a Governor of Nepal Rastra Bank, the central bank.

 

During his tenure as Governor, Khatiwada was known for his strict measures against money launder­ing, regulation of bank loans and progressive strategies for the econ­omy. While starting his new stint as finance minister, he has said that “tackling money laundering, com­pleting pending government proj­ects and maintaining a balance in trade between India and China” will be among his to priorities.

 

But while there are some who blame Khatiwada for the recent bearish trend, Chhote Lal Rauniyar, the vice chairman of Nepal Inves­tors’ Forum, and also a recognized name in the share market, attributes the ‘bloodbath’ in the share market, at least partly, to the failure of the regulatory bodies. The delay in the launch of the fully automated online trading system is causing many pro­spective entrants in the market to refrain from investing now. (The online trading system is expected to be launched by June 2018.)

 

Also, at present, the share brokers are mostly in Kathmandu, which puts investors from the outskirts at a disadvantage. Since small investors outside Kathmandu cannot easily buy stocks, there is an oversupply of shares in the market.

 

“The panic is also the result of the weak mentality of investors at the moment,” says Rauniyar. “The state­ment of the finance minister just happened to increase their fears. Some are exaggerating the signifi­cance of his comments and stoking panic for their own benefits.”

 

The ongoing liquidity crunch and the high interest rates commercial banks are offering on deposits also dissuade investors from holding on to their stocks. Moreover, there is an oversupply of shares as paid up capital of financial institutions has increased, with most of them offering bonuses, right shares, Further Public Offerings and Initial Public Offerings.

 

“We have high hopes from the KP Oli government as he has always supported the securities market,” Rauniyar says. “Even during the Indian embargo in 2015, when Oli was prime minister, the share market was steady. Even now many hydropower projects are issuing shares to the general public to raise capital, so the share market cannot be considered entirely unproductive.”