Liquidity crunch may hit market

The market is likely to experience a liquidity crunch. As a result, the interbanking rate is expected to shoot up.
Unlike paper transactions earlier, the issue manager has to deposit the total collection at Nepal Rastra Bank (NRB) for at least three days. The recent directives of the NRB and Securities Board of Nepal (Sebon) dictate the financial companies to deposit the collection in an account in the central bank.
“The ‘cash’ has to be deposited in the central bank,” said Pravin Raman Parajuli, head-Merchant Banking Department of NMB Bank Ltd, the issue manager of the Clean Energy Development Bank (CEDB).
“Tentative Clean Energy Development Bank (CEDB) attracted Rs 4 billion that is around 42 times of what the bank had called for. CEDB floated its 9,60,000-unit shares worth Rs 9,60,000,00 for the public.
Similarly, Shikhar Finance Company floated 2,00,000-unit of shares worth Rs 20,00,00,00. It might have also collected more than triple the called for amount, Rs 60 million. Subekchhkya Development Bank floated 1,20,000-unit shares worth Rs 1,20,00,000 today. It is also expected to collect 10 times the call. Lord Buddha Finance Company is also floating 2,25,000-unit shares worth Rs 2,25,000,00, and is expected to collect some 10 to 12 times of the call money.
“This is a clear indication that there will be liquidity crunch in the market,” said Rabindra Bhattarai, a share analyst. The crunch may be really serious one as there are more companies in the pipeline to float public shares.
For example, Kaski Finance Company is floating 2,00,000-unit of shares worth Rs 2,00,000,00; Triveni Development Bank is floating 1,50,000-unit shares worth Rs 1,50,000,00; Pashupati Development Bank is floating 8,00,000-unit of shares worth Rs 8,00,000,00; Sagarmatha Merchant Banking and Finance is floating 2,00,000-unit shares worth Rs 2,00,000,00 and Reliable Investment Finance Company is floating 2,47,500-unit shares worth Rs 2,47,500,00.
There are numerous financial institutions in the pipeline to float public shares worth about half-a-billion rupees.
Due to the Initial Public offerings (IPOs) of huge amounts at the same time, the secondary market is bearing the brunt. Nepse registered a fall on the first three days of this week, Sunday, Monday and Tuesday, due to capital diversion. However, it recovered today.
During the first nine months of the current fiscal year, all major indicators of secondary market showed a substantial rise. During the period, the trading of equities rose by about 169 per cent to Rs 14.92 billion, while market capitalisation and Nepse recorded a sharp rise of 91 per cent and 51 per cent, respectively.
Similarly, market indicators registered a significant growth in March-April. However, monthly data for mid-March-mid-April compared to last month’s data (mid-February-mid-March) showed a sharp decline (42.4 per cent) in the trading amount and only a moderate rise in Nepse and market capitalisation.
The performance of the primary market was also encouraging during the first nine months of the current fiscal year in comparison to the performance in the same period in 2006-07.
The number of traded shares increased by 29.59 per cent and the traded amount also increased by 111.86 per cent during the month compared to the traded shares and amount of the same period last year.