Investors are, unlike previous years, gradually shifting their focus on hydropower sector as it is becoming more lucrative in terms of dividends compared to the banks and financial institutions.
Due to decreasing dividends of banks and financial sector compared to previous years, investors are shifting their portfolio to other growing sectors like hydropower, according to market experts.
Out of 25 listed commercial banks, some 20 banks paid cash or stock dividend from the last year's profit. The average dividend of the listed banks has declined to 31.96 per cent from last fiscal year's (2010-11) profits from 38.93 per cent a fiscal year ago.
Banks and financial institutions are not only dominant players occupying around 90 per cent of total traded shares but also considered high dividend payers. But the declining dividend percentage has forced the investors to choose stocks that pay more dividends as it is the yardstick of a company's prospects for investors.
Though, companies that do not pay dividends are not necessarily without profits. If a company thinks that its own growth opportunities are better than investment opportunities available to shareholders elsewhere, it should keep the profits and reinvest them into the business. On the other hand the companies, while much of their profits may be distributed as dividends, still need to retain enough cash to cushion the market risk.
"The market itself has started to shift from banks and financial institutions to hydropower sector," according to share market analyst Rabindra Bhattarai. "Taking a cue from the trend, if the government gives a little policy push, the share market as a whole could start looking up."
The manufacturing industries dominated the share market initially when the Nepal Stock Exchange (Nepse) started transactions formally on January 13, 1994. The domination continued for about seven years to 2001, but the attraction started fading with the poor performances of the listed manufacturing companies. The investors then shifted to banks and financial institutions that have started distributing higher returns.
At one point of time, investors used to queue up for hours for banks and financial institutions shares. But their focus seems to shift again and may be for better this time. The latest attraction seems hydropower companies that are paying handsome returns, though there are only four listed hydropower companies. Chilime Hydropower distributed a total of 70 per cent dividend including cash and stock, Arun Valley distributed 15 per cent cash dividend and Butwal Power Company distributed 15 per cent cash dividend from the profits of last fiscal year.
Securities Board of Nepal (Sebon) has amended Securities Registration and Issuance Regulation – 2065 including mandatory primary issue by the hydropower companies for the locals. "A company has to float a minimum of 30 per cent shares of its issued capital, unless otherwise directed by the company’s regulatory body," according to the amendment. "Of the 30 per cent, five per cent has to be separated to the company’s staff; 10 per cent to the locals and remaining 15 per cent to the general public," according to the regulation.
But chairman of the Sebon Babu Ram Shrestha opined that any of the real sector company can help boost the market, let alone hydropower. "If more hydropower companies are listed not only the share market, the overall economy will get a boost," he said, adding that energy is an engine to the economic growth as it can attract more manufacturing industries apart from creating employment.
Currently, there are 25 listed banks, 63 development banks and 73 finance companies making a total of 162 listed banks and finance companies, which have around 90 per cent of the market share. But only 18 manufacturing industries are listed and out of them only three — Unilever, Bottlers Nepal and Bottlers Nepal (Terai) — are the active players.
If the government can encourage the hydropower companies to list in the market and mobilise the small savings of the common people in the hydel projects that will not only give boost to the share market by diversifying the market but also help economic growth.