Nepse plunge belies investment myths

The whopping fall in the index of commercial banks, development banks and finance companies group -- considered blue chip shares -- in recent weeks belies the belief that financial institutions are goldmines.
This week, commercial banks lost 31.03 points to slide to reach 694.17 points, development banks lost 45.63 points to slide to 1094.89 points, finance companies lost 22.69 points to stop at 971.04 points, hydropower companies lost 4.72 points to go to 918.82 points and insurance companies lost 19.88 points to go to 731.34 points, respectively. They also pulled down the Nepal Stock Exchange (Nepse) index down by 22.73 points to 720.52 points from last week's closing of 743.25 points.
While stock markets are known for their irrational exuberance the domestic secondary market seems to be in correction mode over the recent months, compelling investors to be more circumspect. One should attach place importance to the company, its background and promoters, financials and valuations before investing in its shares.
This week, the total transaction dropped by 20.95 per cent to tumble to Rs 352.85 million from last week's Rs 446.37 million. Around 82 companies' scrips were traded in the secondary market where the group-A companies contributed 56.08 per cent to the total trading from last week's 39.87 per cent. Nepse ended in negative territory for all five days of this week.
The hype surrounding the secondary market is cooling down as the float index -- calculated on the basis of real transactions -- lost 2.37 points to 69.74 points from last week's closing of 72.16 points. Similarly, the sensitive index -- a barometer of group-A companies -- also plunged by 7.07 points to slide down to 188.40 points from last weeks' closing of 195.47 points.
This week, Siddhartha Bank (with Rs 44.64 million), Nepal Development and Employment Promotion Bank (with Rs 29.16 million), Standard Chartered Bank Nepal (with Rs 24.04 million), IME Financial Institution (with Rs 21.76 million) and Annapurna Bikas Bank (with Rs 20.34 million) were the top scorers.
In terms of numbers of share units traded, Siddhartha Bank topped the chart with 41,000-unit shares while in terms of number of transactions Nepal Development and Employment Promotion Bank topped the chart with 653 transactions.