Nepse hits historic high, doubts crop up

Propelled by the open secret of capital plans of all commercial and development banks and financial institutions, Nepse index today touched a historic high of 1000.49 points in its 14-year history. The index had closed at 992.81 points last week. The market capitalisation has crossed Rs 3.15 trillion.
“Rights and bonus shares have fuelled the capital market,” capital market analyst Rabindra Bhattarai said. “The boom will sustain for some time.”
“However, small corrections here and there are evident any time due to the book closures of the financial institutions like Standard Chartered Bank that had pulled the market down a couple of weeks ago,” he added.
“Around 90 per cent of the shares traded on Nepse floor is of financial institutions,” CEO and managing director of Nepal Investment Bank, Prithvi Bahadur Pande, said, adding that it does not justify the market fundamentals. “If the banks have tremendous growth, it could be rational,” he added. “But the profit-to-earning (PE) ratio is abnormal and there has to be a correction sometime and the small investors could lose.The PE ratio should not be more than 20.”Now the PE ratio of most of the banks is over 40.
The Nepse floor is dominated by the development banks. The major market boosters in today’s trading were also the Development banks group that surged by 56.24 points or 3.72 per cent to 1566.12 points, Hydropower companies group flared by 25.36 points or 1.73 per cent to 1494.79 points and Finance companies group that flared by 9.66 points or 1.11 per cent to 881.16 points.
“People have also started holding the shares — that are in high demand but low supply in recent days — leading to a market boom,” Bhattarai said.
“Some investors are exploiting the market and controlling the price, so that they can borrow money from the banks against the shares,” Pande cautioned.
Chiranjivi Nepal, chairman of Securities Board of Nepal (SEBON), also suspected the sustainability of the current bullish trend. “Bearish trend is evident,” he said, warning the investors not to be affected by noise creators as they could spoil the market.
“Globally the trend is faster,” he said, adding, “But the shares of companies that have negative net worth and unbelievable PE ratio are also flaring, which could be fatal for the small investors.”
“The investors should go through performance of any institutions, before buying their shares,” he suggested.“The instruments are weak to check the market manipulation. So, only a limited number of people are enjoying the benefits,” Nepal accepted.

Why it’s a bit fishy
• Last December, Nepse index was hovering around the 500-point mark and the commercial banks group’s index was hovering around 590 points. Within a year i shot up to 500 ore points, whereas it took more than a decade to reach 500 points.
• Initially there were 32 brokers, but their number is now only 23 and soon Nepse is adding 27 brokers.
• Globally a standard PE ratio of a bank is not more than 20, but in Nepal, almost all the banks have a PE ratio over 40.
• Nepse started automated trading from September and now nine brokers transact from their office via Wide Area Network and soon Nepse will launch online trading.