The general investors have understood that by buying shares at a lower price in the stock market, the selling capital will be gained at a higher price. Nowadays, investors are scattering in Nepal’s stock market saying that the price goes up and money is earned by pressing on the mobile.
However, for those who understand the reality of the stock market, investors are limited to looking at the earnings, financial statements, operating risk, and return on investment of each company. These limited investors are the ‘lead’ of the market. They are the leaders of the stock market. Not only do they evaluate the company they are investing in, they also have information about the relationship with those companies.
The market is affected by two things. First company valuation and second information. Even in the matter of information, those limited investors are in the forefront. They have historical, public, inside information. Which they add to the price. It doesn’t matter if the limited people do the quilting in the capital market.
They are the ones who lead the market towards imbalance and bring destruction to the market. This is very possible in a country like Nepal. No matter how many capital market studies have been done in Nepal. There is little possibility of share cornering. In a country like Nepal, there is no operationally, efficiently efficient market. Therefore, information is more likely to leak in the ineffective market. The leaked information has resulted in investors taking unnatural investment in the market. Ineffective return means taking more returns than the natural return of the market.
If there is a lot of potential in Nepal’s capital market, that is what we are seeing now. Looking at the natural returns of the market now, the average interest rate on deposits is 4/5 percent and the return on bonds is not more than 3 percent. There is not much real estate business right now. While investing in treasury bills is negligible, those investing in gold and silver are now declining.
Mutual funds, bonds do not have good returns. Everyone has invested in the equity of the companies. Since July 2020, the average return on equity has been 3/4 percent. Looking at the average returns of telecommunications authority, insurance companies, salt trading in trading groups and large market companies, the increase is unnatural. Investors have received up to 400 percent return from these companies in the last one and a half years. The returns of previously reserved banks are also low. Other sectors have surpassed the banks. If such returns are found in those markets then naturally people run towards it. Is that race normal or not? We have to pay attention to that. There should be no association of investors in the market mechanism.
A group of investors are catering to the stock market. Market mechanism means that the price of goods and commodities is determined by the market on the basis of supply and demand. Is there an association of buyers in any supermarket? However, there is an association of those who buy shares in the capital market. If there is an association of people who buy goods and goods, they will determine the price that suits them. The prices of goods and services are determined on the basis of supply and demand in the worldwide market. Demand for goods and services is invisible and created. Nepal’s capital market is said to be theoretically based on the demand and supply of shares of any company. But, in reality, such 15/20 people are being determined by the association members. Discussions will take place between their associations, working committee meetings or other meetings to decide on the purchase and sale of shares.
The problem for the members of such associations is that the share price of any company rises or falls. In that, the share price fluctuates due to the activities of some people of the same association. The principle of the market is that pricing should be determined by the discretionary valuation of the shares of the company by the investor and the decision he makes in buying and selling based on his discretionary valuation, information and expectations. Share prices should be determined by the behavior of individual or institutional investors.
Why are the government and related bodies giving official recognition to such associations in Nepal?
Negotiate with them? They have access not only to the Securities and Exchange Board but also directly to the chief executive of the state system of the country. The country’s finance minister. There is no insider policy in Nepal. At present, most government employees are in the stock market. People in the regulatory body, how can there be no information leakage when they have close family members in the stock market? A wide range of regulatory body insiders have gained access to such information.
In such a situation, the Nepali capital market is not fully involved in any policy directive. If the stock market continues to operate in the current situation, there are clear signs that Nepal’s economy will collapse in the future. In such cases, the concerned bodies and stakeholders have to take necessary steps after timely assessment.