NEPSE at a Crossroads: Industry Expert Outlines Path to Qualitative Transformation and Sustainable Growth

Nepal's stock market, NEPSE, currently hovers around the 2700-point mark, a level that might seem familiar to seasoned investors. However, beneath the surface of the index, the market is undergoing a profound internal shift, actively seeking a qualitative transformation rather than mere numerical fluctuations. This sentiment is particularly strong given the presence of a stable government that has demonstrated a positive outlook towards the capital market.

In an exclusive interview, Yuvraj Bhusal, CEO of Sunrise Securities (Broker No. 100), offered a comprehensive perspective that transcends the daily index movements, focusing instead on the market's structural evolution and future trajectory. Bhusal highlighted a significant change in investor confidence compared to previous periods when the index was at similar levels. He attributes this renewed optimism to the formation of a stable, two-thirds majority government, which has explicitly prioritized the capital market, with the Prime Minister himself showing keen interest. This political stability has fostered a more robust and mature investment environment.

Bhusal argues that for the market to achieve sustainable growth, the focus must shift from merely managing supply to actively creating demand. He draws parallels with past market booms: the 1800-point rally was aided by dematerialization, which streamlined supply, while the 3200-point surge was fueled by the widespread adoption of online Trading Management Systems (TMS), boosting demand. For the current phase, Bhusal proposes a multi-pronged strategy to stimulate demand:

Firstly, the full implementation of margin lending could inject an estimated NPR 100 billion into the market, significantly enhancing liquidity and investment capacity.

Secondly, activating major institutional investors such as the Employees Provident Fund (EPF), Citizen Investment Trust (CIT), and other social security funds is crucial. Their long-term investment horizons can provide much-needed stability and depth to the market.

Thirdly, and perhaps most critically, is the long-awaited entry of foreign institutional investors (FIIs) and Non-Resident Nepalis (NRNs). Bhusal acknowledges that policy instability has historically deterred these investors, but with the current government's strong mandate, he believes the time is ripe for action. He dismisses fears of capital flight, asserting that investors are driven by profit and will invest where opportunities and clear exit policies exist. Resolving tax ambiguities and establishing transparent exit mechanisms are paramount to attracting substantial foreign capital within the next 12-18 months.

Countering the often-heard narrative of the capital market as mere 'speculation,' Bhusal passionately articulates its vital role in national economic development. He cites the hydropower sector as a prime example: the end of 18-hour load shedding was facilitated by the capital market, which provided an exit mechanism for promoters to reinvest in new projects. He advocates extending this successful model to other productive sectors like manufacturing, agriculture, tourism, and IT. By enabling companies in these areas to list and raise capital, the capital market can directly contribute to GDP growth and alleviate challenges in other sectors like real estate and banking.

Bhusal also addresses pressing market anomalies and proposes reforms. He highlights the significant challenge posed by unregulated pre-IPO trading, often conducted through informal channels like WhatsApp groups. This practice not only leads to substantial revenue loss for the government but also exposes investors to immense risks, as companies are traded at inflated valuations without guarantees of future IPOs. He suggests bringing this activity within the regulated system, for instance, by mandating TMS transactions for any trading above par value.

The Nepali market, according to Bhusal, is also ready and in need of mechanisms like share buybacks and stock splits. Buybacks allow companies with surplus cash to repurchase their own undervalued shares, thereby creating demand and stabilizing prices. Stock splits, conversely, enhance market liquidity and make expensive shares more accessible to a broader base of small investors.

Furthermore, Bhusal advocates for the abolition of the locking period, which restricts the tradability of promoter shares for a certain duration. He argues that allowing all shares to be tradable from day one would prevent artificial scarcity and manipulation, ensuring that share prices reflect true market dynamics rather than being influenced by controlled supply before large investors offload their holdings.

As a bank-subsidiary broker, Sunrise Securities is focused on evolving beyond mere transaction facilitation. Bhusal emphasizes a commitment to corporate governance, compliance, knowledge sharing, and corporate advisory services. He believes brokers must educate and provide sound advice to investors, preparing for services like margin lending once regulatory clarity is achieved.

Finally, Bhusal offers crucial advice to retail investors: avoid making investment decisions based on social media rumors, Facebook live sessions, or WhatsApp group tips. He urges investors to conduct thorough due diligence, examining fundamental metrics such as book value, earnings per share (EPS), and dividend history. While the market is in a positive phase, he stresses that study and patience remain the hallmarks of successful, long-term investors. The renewed optimism among business leaders, evident after recent meetings with the Prime Minister, further underscores the positive momentum and the government's commitment to fostering a vibrant economic environment.