Prime Minister Balen Shah Intervenes in Nepal's Stock Market Woes, Promises Reforms After High-Level Meeting

Nepal's stock market, which had seen investors dream of a bullish trend following the formation of a new government, has recently been drenched in a "red rain" of declining prices. Amidst this challenging backdrop, a high-level delegation of prominent stock market figures recently convened with Prime Minister Balen Shah at Singh Durbar, the nation's administrative hub. This crucial meeting, lasting an intense ninety minutes, marked a significant moment for the Nepali capital market, signaling a potential shift towards much-needed reforms.

The delegation comprised key leaders from the financial sector, including Gopal Bhatta, Chairman of the Securities Board of Nepal (SEBON); Amrit Lamsal, Chairman of Nepal Stock Exchange (NEPSE); and Sagar Dhakal, President of the Stock Brokers Association of Nepal. They were joined by other seasoned market experts such as Sandeep Jalan of NASA Securities, Sitaram Thapaliya, former CEO of NEPSE, Navaraj Silwal, Chief of Nepal Life Insurance, and Maheshwar Lal Shrestha, CEO of Citizen Stock Dealer Company Limited. Veteran investors Ambika Prasad Paudel and Priyaraj Regmi also lent their invaluable experience to the discussions.

Upon their entry into the Prime Minister's office, a palpable silence filled the room. Breaking the quiet, Prime Minister Shah rose from his chair and directly posed a pointed question to the assembled experts: "What did I do wrong that the market has turned so red? What are your problems, and why are they not being resolved?" This direct and unexpected inquiry initially created a momentary silence, underscoring the gravity of the situation and the Prime Minister's immediate engagement with the market's struggles.

Initiating the dialogue, Prime Minister Shah reassured the delegation, stating, "We are private-sector friendly. My government will not engage in intimidation or suppression. Speak openly about how we can uplift this market." This commitment set a constructive tone for the ensuing discussions, encouraging an open exchange of long-standing grievances and proposed solutions.

One of the primary concerns raised by the participants was the outdated regulatory framework governing the market. "Our market still operates under 'stone age' rules," one participant lamented, highlighting the current three-day settlement period for share transactions. The delegation strongly advocated for the introduction of modern trading mechanisms such as 'intra-day' trading and 'short selling,' which are standard in developed markets. These features are crucial for enhancing market liquidity, improving price discovery, and providing investors with greater flexibility. Prime Minister Shah, upon hearing this, turned to SEBON Chairman Gopal Bhatta, who confirmed that SEBON's recently unveiled roadmap includes these provisions and that NEPSE and CDS (Clearing and Settlement System) have been instructed to prepare for their implementation. However, the delegation emphasized the need for written directives rather than mere verbal instructions to ensure timely execution.

Further discussions revolved around the 'book building' process for IPOs, with SEBON proposing a 40% allocation for institutional investors and a six-month lock-in period. Stock Brokers Association President Sagar Dhakal countered that this alone would be insufficient. He stressed the importance of allowing at least 20% of a new company's shares to be traded on the first day to facilitate genuine price discovery, arguing that without it, an artificial scarcity of shares is created in the market.

The conversation then shifted to the restrictive monetary policies implemented by Nepal Rastra Bank (NRB). Concerns were raised about the six-month lock-in period for banks investing in shares, which has significantly drained market liquidity. Additionally, the imposition of a 5% minimum limit on share-backed loans has made it challenging for investors to secure financing. Recognizing the severity of these issues, Prime Minister Shah immediately instructed his aides, stating, "This is a serious matter. I will personally summon the Governor to discuss this. Coordination between the central bank and the government is essential to keep the economy dynamic." This firm stance instilled a renewed sense of hope among the brokers and investors present.

Priyaraj Regmi, another broker, proposed a system where brokers could receive 'wholesale' loans through banks, enabling them to offer margin facilities to investors. This, he argued, would alleviate the shortage of funds in the market and boost trading activity.

Ambika Prasad Paudel addressed what he termed the "biggest ghost" haunting the market: Capital Gains Tax (CGT). He highlighted the perceived unfairness of the current system, where the government levies tax on profits but offers no adjustment for losses. He noted that investors were content with the previous tax rates of 5% and 7.5%, and the current rates (which he cited as 10% and 33%, though the latter might refer to a broader tax bracket or specific corporate rates, rather than general individual CGT) have sent a negative message to the market. Prime Minister Shah immediately cross-questioned the Finance Ministry Secretary on this point, demanding a scientific approach: "If someone incurs a loss, why should they only pay tax on profit? Make this scientific. A clear tax methodology is also needed for intra-day and short selling."

As one point after another was raised, time flew by. The Prime Minister listened intently, frequently interjecting with cross-questions, demonstrating a deep curiosity and commitment to understanding the intricacies of the market's challenges.

Emerging from the intensive ninety-minute deliberation, Sagar Dhakal expressed satisfaction, telling reporters, "The Prime Minister was extremely positive and inquisitive. He cross-checked every point, asking 'Why hasn't this happened?'" The meeting also reportedly reached consensus on broader strategic initiatives, including the restructuring of NEPSE, attracting foreign strategic partners, and opening the secondary market to Non-Resident Nepalis (NRNs).

As the market veterans departed Singh Durbar, there was a collective feeling that this was not just another meeting, but rather the laying of a foundation for a new era in the stock market. Dhakal smiled, stating, "The reform points we presented will no longer remain just on paper; under Balen's command, they will be implemented." With expectations that NEPSE's graph will soon shift from "red rain" to a "green morning," the market's stalwarts left with renewed optimism for the future.