NEPSE Grapples with Investor Confidence Amidst High Supply and Regional Tensions: An Expert's Market Outlook

The Nepal Stock Exchange (NEPSE) has been navigating a challenging period, marked by a palpable lack of investor confidence and persistent selling pressure. Despite intermittent attempts by market operators to drive prices higher, any modest gains of NPR 10-20 are swiftly met with a wave of sell orders, effectively stifling upward momentum. This struggle is compounded by various factors, including the ongoing unrest in Eastern Nepal, which some market participants believe is contributing to the subdued sentiment. Furthermore, stringent government policies and administrative actions have been cited as deterrents, overshadowing recent policy easements that might otherwise have bolstered market activity.

In this complex environment, technical analyst Rajan Subedi offers a nuanced perspective on the market's current trajectory. Subedi highlights a significant "supply heavy" situation, where the sheer volume of shares available for sale outweighs demand. Technically, the market had shown signs of breaking a downtrend but failed to sustain momentum, notably failing to respect the 2560 order block based on the Smart Money Concept. Instead, it dipped further to 2545, a move Subedi describes as a "liquidity sweep." While the market did rebound from the crucial Fibonacci 0.5 to 0.618 "golden ratio" or optimal trade entry zone, it has since encountered strong rejection at higher levels, forming a "break-away gap." Subedi anticipates a potential correction, with the NEPSE index possibly retreating to the 2630 or 2610 levels. He attributes the operators' diminished confidence partly to increased scrutiny and actions from the new government and the Balen Shah administration, which has initiated investigations and crackdowns on market manipulation. Despite these headwinds, Subedi suggests that the market is unlikely to establish a new low, indicating a potential floor in the current correction.

For individual investors, Subedi strongly advises against solely focusing on the NEPSE index. Instead, he recommends a meticulous examination of individual stock technicals and fundamentals. He points out that stocks showing volumetric activity in demand zones or undergoing prolonged accumulation phases are poised for upward movement. Citing examples like HPPL and NRN, where institutional investment and profit-boosting strategies yielded positive results, Subedi emphasizes the power of institutional demand. He suggests that investors should daily analyze the top 40 stocks by gain, turnover, and volume from the Nepal Stock Exchange website. Rather than diversifying across 30-40 stocks, which might not yield significant returns even if the market reaches 3200, Subedi advocates for tracking a select few (4-5) quality stocks where "smart money" is active. The focus, he asserts, should be on momentum-driven stocks rather than passively observing the broader index.

Subedi also shares insights into his personal trading strategy, which primarily involves identifying areas where sell-side liquidity has been taken and observing bullish divergences in the Relative Strength Index (RSI). He places significant importance on the Fibonacci 0.786 level for entry and exit decisions. His approach is to enter positions when the market revisits "unmitigated order blocks" (areas where selling occurred but have not been retested) and to exit if targets are met or stop-loss levels are breached. Essentially, his strategy revolves around buying in demand zones and selling in supply zones.

Regarding the activities of "smart money," Subedi reveals that institutional players are currently seeking opportunities to exit positions where they might be "trapped." He explains that smart money typically engages in "silent accumulation" and "loud distribution." A key indicator for retail investors to watch out for is when positive news about a particular stock becomes pervasive across various platforms; this often signals that the stock is in its distribution phase. Operators, he warns, frequently utilize charts and news to entice and trap retail investors. Therefore, he advises investors to analyze charts and volume patterns to discern whether a stock is in an accumulation, manipulation, mark-up, or distribution phase.

Despite the prevailing challenges, Subedi believes that opportunities always exist for astute traders. Even during periods when the market index hovered between 1800 and 2200, sectors like hotels and finance witnessed rallies. The crucial skill, he notes, is the ability to shift focus to stocks exhibiting significant volumetric activity. Currently, he observes accumulation in the hydropower and some microfinance sectors, and he anticipates a potential "small rally" in the banking sector. However, he reiterates that the fundamental issue remains investor confidence. He urges the government to foster an environment conducive to investment and business, rather than intimidating investors and entrepreneurs.

A major contributor to the current market supply, according to Subedi, is the influx of Initial Public Offerings (IPOs). Many investors who initially invest a modest NPR 5,000 tend to sell their shares as soon as their investment reaches NPR 50,000, often using the proceeds for consumer goods like mobile phones, rather than reinvesting in the secondary market. This trend prevents capital from recirculating within the market, disrupting the demand-supply balance. To address this, Subedi stresses the importance of educating investors about the "power of compounding." He also advocates for reputable companies to enter the market through "book building" processes and for regulatory bodies to prevent struggling companies from launching IPOs, which often end up burdening retail investors.

Subedi identifies several common mistakes made by investors, with "overtrading" being the most significant. He advises patience, suggesting that if a favorable market setup isn't present, investors should be prepared to wait for up to six months. However, many investors, driven by the availability of funds, prematurely force setups, leading to undue stress. Another prevalent issue is greed, which prevents investors from booking profits on small gains (NPR 10-20) and a reluctance to implement stop-loss orders. He emphasizes that adherence to a well-defined system, strategy, and discipline is paramount to success. Investors should learn to filter out market "noise," especially rumors from social media groups, and instead rely on official media and their own technical analysis.

Looking ahead, Subedi does not foresee an immediate breakthrough to the 3000 or 3200 levels, primarily due to the absence of strong accumulation. While discussions around intraday trading and short selling are positive developments for experienced traders, he cautions that these can be highly risky for uninformed retail investors. Therefore, he underscores the importance of continuous learning, viewing expenses incurred for education as an investment rather than a loss. His final advice is to avoid excessive optimism in the current market. For those who are currently "trapped" in positions, he suggests using any market rallies as opportune moments to exit. He concludes by reminding investors that market operators are often waiting for buyers, urging everyone to trade with utmost caution and awareness.

Amidst this detailed market analysis, it is worth noting that Sanima Bank Limited (SANIMA) has recently published its unaudited financial statements for the fourth quarter of the last fiscal year. The report indicates an improvement in the bank's core income, net profit, and dividend capacity compared to the previous fiscal year, signaling a positive corporate performance in an otherwise challenging economic landscape.