Recently in the past few years, we can see many people being interested in the Nepali stock market, with even youngsters showing interest and investing in the Nepali stock market.
Many got introduced to the stock market of Nepal during the covid-19 pandemic. One of the main reasons behind this is that most of the businesses were closed, many people were out of their jobs and there were fewer opportunities for people to earn revenue during the pandemic. Even as businesses were closed, the stock market remained open, and people intensified their investing habits. Many who never invested began doing so.
At that moment of lockdown during the covid -19 pandemic, the Nepali stock market was very bullish as many people were investing and trading in the Nepali stock market.
How has the market evolved?
There has been a drastic change in the Nepali stock market in the last 10 years.
Back then, people use to talk less about the stock market of Nepal, there were fewer people who use to invest in the Nepali stock market and that is why the allotment of any share was easier before.
The traditional way of applying for an IPO and transfer of a share was paper-based but now we have websites like meroshare and NEPSE Nepal stock exchange.
It was not that easy to learn even the basics of the stock market from any institutes or over the internet. But now, we can find the contents of the stock market easily on the different platforms of the internet.
We can even find out the news and announcements of when a company is giving its bonus and dividend that are involved in the stock market of Nepal through news portals like sharemandu.
Even during public issues ten years back, there were instances when 100% shares were allotted for people who applied for IPOs which means people could make a good investment size by only investing in IPOs. However, with the entry of a sizable population in the stock market today, being allotted 10 shares in an IPO is comparable to a lottery.
Who invests in the stock market?
Generally, there are two types of people entering the stock market. They are :
- Investors
Investors are those who invest in the stock market for the long term, they gain through regular bonds and dividends from the company. Investors hold their stocks for a long period of time.
- Traders
Traders are those who trade the stocks and gain the possible highest amount from them in a short period of time. Traders do not hold their stocks for a long time, they sell their stocks whenever they see profit opportunities.
Whereas Investors are more ‘passive’, traders are more “active” and spend considerable time in the stock market. For example, investors may choose to ‘invest and forget’ but traders are active during ‘active market hours’ 11 am -3 pm.
What is the stock market and how does it work?
The stock market is a marketplace for buyers and sellers who trades in shares of publicly held companies.
Since there is a large number of buyers and sellers in the stock market, it is regulated and controlled by the Securities Board of Nepal (SEBON) in Nepal and in the US it is regulated by the Securities and exchange commission (SEC).
Stock market and stock exchange are words that are used simultaneously, but there is a huge difference between them. The stock market is basically an umbrella term for stocks, and the stock exchange is a marketplace for trading stocks.
For example stock exchange in Nepal is called Nepse Stock Exchange also known as NEPSE.
All the financial activities of trading in the stock market in Nepal are conducted in NEPSE, through different mediums like banks and brokers. The stock market enables a large number of buyers and sellers to meet at one place, discover different prices, and trade with each other.
Due to the huge number of buyers and sellers in the stock market, the stock exchange has to maintain fair pricing and transparency of all the financial transactions while trading the stocks.
A country can have one or more stock exchanges according to its requirements.
Before the modern stock exchange like NEPSE existed, people use to trade physically through banks and physical certificates of shareholders.
A stock market is a place where anyone can be involved, an individual does not need to be an expert or have much experience to enter the market.
There are many newbies in the Nepalese stock market who only have basic knowledge, some are old players with much experience, some know well enough to gain profit out of it, some are long-term traders and some are short-term.
The stock market is very systematized and secure as it keeps track of every transaction and turnover in the market.
NEPSE shows us the share value of every company listed in it, NEPSE also shows us how many points of a company’s share value increased or decreased every time the market is open.
In Nepal, the stock market (NEPSE) is closed every Friday, Saturday, and also on special occasions or public holidays. Other than that, NEPSE stays open every Sunday-Thursday.
Let’s also talk about other stock markets globally, for example, if NEPSE is the only stock exchange in Nepal, India has more than one like the Bombay Stock Exchange(BSE), and National Stock Exchange (NSE), and the US has the American stock exchange (ASE), national association of securities dealers (NASDAQ) and New York stock exchange (NYSE).
Types of Share Market
There are mainly two types of share market in Nepal, primary market and secondary market. It is seen that people who have less knowledge about the share market in Nepal tend to stick in the primary market and feel skeptical about going into the secondary market.
But recently people are investing in the secondary market too, there is a large number of traffic entering into the secondary market as people are getting to know the benefits of investing, seeing other people doing it, and gaining profits from it.
Let’s talk about what’s inside these two markets.
1. Primary Market
In the primary market, a company opens an initial public fund (IPO) to publish itself in the primary market and sell or issue its shares to the public.
By opening an IPO a company can get the needed capital for further growth of the company, people who buy share of the company are also known as a shareholder of the company but the power of making decisions stays in the hand of the people who has the highest share of the company.
A company can go for an IPO passing some criteria, the criteria are listed down below:
- Shares offered for IPO should make up to a minimum of 10% of total capital and a maximum of 49% of total Capital.
- A company should be In operation for a minimum of 1 year.
- A company should complete its Annual General Meeting.
- A company should have the infrastructure for example Building.
- A company should appoint an Issue manager company.
- The promoters of the company should have deposited committed money for their share capital.
While opening an IPO, a company divides its shares into parts. For example, A company has 5 lakh shares, and it sells only 2 lakhs to the public through IPO at Rs. 1000 for every 10 units.
A company can also limit its share to each individual for example a person can only apply for a minimum of 10 Kitta (shares) to a maximum of 60 kitta (shares) only.
Through this process, a company can get its required capital from an IPO, and people who applied for the company’s IPO might get a share of the company.
The process of getting an IPO of a company for an individual is like getting into a lucky draw competition, not all who applied will get a hold of the shares.
The investors who got the allotment of the applied share of a company can either hold it for the long term or sell it after recognizing a profit in short term. But an individual can only buy and sell if he/she has a secondary account.
To enter the primary market, you need to have a bank account and a Demat account. Also through a mero share account, you can apply for the IPO through electronic devices.
We will be talking about this process insightfully furthermore in the section below “HOW TO INVEST IN STOCK MARKET”.
2. Secondary Market
The Primary market is the place where people can only apply for a company’s IPO but in the secondary market, an individual can buy and sell the shares of the company that they own.
In the primary market, the mero share was the marketplace where people applied for an IPO of a company but in the secondary market, NEPSE is the marketplace where people trade the shares that they have.
In the secondary market, investors or traders buy and sell the shares between different traders and investors rather than one single entity.
One of the main reasons for the increase and decrease in the share prices in the stock market is the secondary market.
The prices are determined through the demand and supply of the shares in the market which drives the share prices to their actual value.
The share prices are very much fragile, in the Nepali share market for example if a bank is in news for doing a good job or big achieves something big then the probability of increasing the number of the share prices will become high.
Also if the majority of the traders believe that a stock price will increase and many people will buy it then the high demand for the share of a particular company will increase automatically and vice versa.
The procedure of getting into the stock market requires pre-existed primary accounts and some detailed information about the account.
There are many brokers in the stock market, and while entering into the secondary account you have to choose one to do all the financial transactions from.
Brokers are categorized from the numbers in Nepal for example, broker no.41 and broker no. 31 are two different brokers and an individual has to choose one while entering the secondary market.
We will be discussing in more detail how to enter into the secondary market in the section below “HOW TO INVEST IN STOCK MARKET”.
Why Invest in Stock Market
It is said that always start investing early, that’s for a reason. Every individual might have a different vision to enter the stock market. Some might invest in the stock market to earn high profits in short term, some might want to invest for their future as a long-term investor and some might just love trading the stocks.
Many gain high profits from the stock market but some also lose a lot of money in the stock market. Today let’s talk about why we should invest in the stock market.
There are many reasons why someone should invest in the stock market right now. Let’s take a look at a few of them.
- Earn Passive income
By investing in the stock market, an individual can gain passive income through bonuses and dividends.
If you own stock in a particular company, then the company will give you a bonus which is the stock of the company, the amount of the bonus depends upon the number of shares you own of a company.
Dividends are the profits that are divided among the shareholders of the company on a quarterly basis.
The money from dividends is directly transferred into your bank account. Dividends and stocks are given on the basis of the number of shares you own, the more share you own the more bonus and dividends you get back from the company.
But of course, you have to invest in the right stocks by investigating and analyzing the company’s performance how it did previously and how it might do in the future.
- Average returns are better than saving
If you save your hard earn money, it will remain the same for the next 10 years. But if you invest your money in the stock market and hold it for the next 10 years in the right company then you can get even 5x more than what you invested.
You can also gain from the regular bonuses and dividends provided by the company to its shareholders. So investing your money is much better than just saving your money, because eventually the value of the money also decreases.
Rather if you save and then invest that money, you can build your wealth. Reinvesting in the income can also be a great idea, you will be needing patience in the beginning but apply the rule saying “invest and forget” to get better returns from your investment rather than saving.
- Investing with good analysis can help you become wealthy
If you have good knowledge about the stock market, its fundamental analysis, and technical analysis, and if you invest in a good company then, the higher the number of stocks you have bought, the higher returns you will get from it.
- To become “partners” in companies whose vision you believe in
If you are a fan of a company’s work and also want to be associated with them, buying the stocks of that company can make you a shareholder of the company.
If you see the company can do much better in the future and can gain a higher position and stock value, you can simply become part of it by owning a share in the company through the stock market.
How to Invest in Stock Market
As we have discussed below that there are two types of markets in the stock market of Nepal. One is the primary market and another is the secondary market.
Let’s take a look at the procedures of entering into a primary market first.
Step 1: Firstly before investing in the stock market, you need to have a bank account if not, then you need to open one. You can also open a Demat account by visiting banks, but some banks also provide online services.
Step 2: You need to open a Demat account from the same bank or the bank from where you want to have your financial transactions of the stock market to be done because it is a much easier way to open a Demat account.
But you can also open a Demat account from financial institutes and brokers. This is the List of Depository participants from SEBON.
Through a Demat account, you can enter the stock market, it is basically like a bank account for your shares.
Requirements to open a Demat account are that you have to be a Nepalese citizen, and you can be an adult or a minor. If you are an adult you will need a citizenship certificate original and photocopy. You also need a passport-size photo of yourself.
If you are a minor who is under 18, then you will need a birth certificate and a photo of yourself with a citizenship certificate of your guardian.
Step 3: Fill up the form for the meroshare account and personal KYC and submit it to the bank or other channels from where you opened a Demat account.
Meroshare provides all your Demat and stock details online. Through a meroshare account, you can apply for the IPO from your electronic devices. You can also apply for the IPO without the meroshare account but that will be done by filling up the papers and forms.
Step 4: Get your BOID number and mero share details
Within a week of filling up all these forms and submitting them to the bank, the bank will provide you with a CRN number which is a customer relationship number that you need while applying for the IPO. The bank will also provide you with your BOID number and mero share account username and password from which you will be applying for IPO.
How to apply for an IPO?
Go to mero share and log in with the details provided by your bank. Then go to my ASBA, and you can see four categories:
- Apply for issue
- Current issue
- Application report
- Old application report
To apply for an IPO, you should go to the third section “Application report” where you can see the open IPO of the companies, and click on ‘apply’ which is on the right side of the section.
Then there appears a detailed information section where you need to fill in your current bank name, bank account number, and CRN number. Then click on ‘proceed’ by agreeing to the required policies.
After going through all these processes, you might or might not get allotted the applied share because it is like a lucky draw some might get an IPO and some might not. There is no specific reason why an individual doesn’t get an allotment for an IPO except if a person applies for an IPO from 2 different accounts with the same details.
Basically, these are all the procedures that you have to go through for entering the primary market.
Now let’s talk about the procedures for entering the secondary market.
The secondary market requires much more investigation and research about the companies. You should have basic knowledge of how the trading of stocks works because if you enter into the secondary market with very less knowledge, you can lose a lot of money. But if invested wisely, you can get back a lot more than invested.
If you have a primary account then you can easily apply for a secondary account. But there are a few requirements to enter the secondary market like the connect IPS and collateral which will help you while buying or selling any stocks.
- Step 1: Find a Broker
There are many brokers in the stock market and choosing the right broker might help you a lot in your investing journey.
Here are some tips on how to choose your broker:
- Do proper research, and ask past customers their history.
- Understand how the broker works.
- Look for a broker who provides the kind of service you want and like.
- Choose a broker who is punctual and on time when it comes to payment and share transfers in your account.
- Choose a broker who is located near you.
The brokers are determined by the numbers in Nepal for example broker no.34 and broker 42 are two different brokers. You need to find a trading account that is authorized by SEBON.
With the help of a broker, you can open a secondary account that will help you trade your shares.
There are currently 50 brokers operating in Nepal and from that, you can choose one for trading in the secondary market.
- Step 2: Apply for the secondary market
You have to fill up the forms for the secondary market in the broker house which is individual offices of brokers. Then after you submit the form with all your details like your BOID number, CRN number, and account number, within a week you get a username and password details to your email.
- Step 3: Enter into NEPSE (Nepal Stock Exchange)
After you apply for the secondary market, you can get access to your secondary account which is called NEPSE Nepal stock exchange, there are many traders who buy and sell their stocks online. You can also trade your stocks physically but trading online is a much easier way.
How to trade in NEPSE?
This is a much more complex process than just applying for IPOs, you have to study the market very carefully before and after selling a stock. You have to be aware of all the recent prices of the company’s stock that you are buying or selling.
Before selling a stock, you have to study and research about the company a lot, you have to consider if the company is going to do better in the future, if the company can gain higher value in the future or if the company has reached the highest value of all time. By considering all these factors then you will be able to sell a share with less doubt.
Before buying a stock, you have to make sure that the price is low enough so that you can extract a high profit. If the price of the stock has already reached its highest, then you might not gain higher returns.
Now how can you ensure that you are buying and selling at the perfect time and price? To understand further how to invest in the Nepali share market, and how buying and selling is determined we have to know how fundamental analysis and technical analysis work.
How to do Fundamental Analysis
Fundamental analysis is a process of analyzing the actual value or price of a stock. The fundamental analysis mainly looks over the external factors that influence the stock value, major events of the company, and industry trends.
The fundamental analysis basically overseas three factors, that are:
- Previous data
The fundamental analysis includes the research of the history of the company, how it performed in the past, and its financial statements.
- Public details
Fundamental analysis also looks at publicly known information like the recent news about the company, its announcements, and other publicly known news.
- Private details
In fundamental analysis, some private details are also analyzed such as how the company handles its operation, how it performs in crisis, and other internal factors.
In fundamental analysis, it analyzes overall performance, how the company operates, how they handle leadership, their working policies, internal and external political environment. fundamental analysis also looks at external factors like the company’s recent news and competitors analysis. Main events and announcements
If all the results of these analyses, come negative then the value of the stock eventually decreases but if the outcomes are positive, the value of the stock might increase.
There are 2 types of fundamental analysis one is qualitative and the other is quantitative.
The Qualitative analysis Includes more external factors like the brand image management decisions their financial performance How they have performed in the past and other similar factors.
In the quantitative analysis, Search is based more on the numbers like the financial performance of the company.
In the quantitative analysis, the study is based more on the numbers and the financial statements of the company.
How to do Technical Analysis
Technical analysis is a method or study to find out the trading opportunities of the stock. Technical analysis involves more mathematical and statistical analysis than fundamental analysis. Technical analysis needs to be done through the study of the current and historical chart patterns, market trends, and statistical figures.
Technical analysis is done through the statistical trends of trading activities. Historical data matters more in technical analysis, to understand the market trend because the trend repeats over time. Trends are repetitive in the technical analysis, for example: if a stock value goes from 1-2-3 then when the line comes to 3, it will repeat itself from 1.
Past stock charts, volume, price, and trends are the factors that help us determine the stock value and trading opportunities in the market.
Where fundamental analysis focuses more on the sales and earnings of the businesses, technical analysis focuses more on the price and volume of the stock.
Who uses technical analysis?
It is seen that most of the traders are involved or more engage with technical analysis, and people who want to generate profit in the short term, are also known as the short term investors.
Long-term investors generally do not use technical analysis, because they trade less often and hold their stocks for a long time.
Future and Growth Potential of NEPSE (Nepali Stock Market )
Recently we have been seeing huge growth in the Nepali stock market and it is still growing. Nepali people are gaining more interest in the stock market, in the last few years. And with this trend, we can expect that there is big growth potential in the future for the Nepali stock market.
There will be multiple stock exchanges so that there is more competition among brokers as well as exchanges. This will create more liquidity for stocks in the market, and this will be better for investors.
Intra-day trading which is also known as day trading will also be introduced which will increase the transaction in the market, and this will help investors settle transactions on the same day.
The price of the share keeps fluctuating in a day and the intraday traders intend to earn more possible profit by buying and selling the stocks within a day. This will make investment more attractive for traders.
Margin lending that is provided by banks, can be instead provided by brokers in the near future. Margin lending is a type of loan by which you can borrow money to invest, this type of loan is for individual customers to refinance against marketable securities of listed companies in the Nepal Stock Exchange NEPSE.
In the future people are going to be introduced to better technology. NEPSE and Brokers should be using better technology to make the trading system run efficiently.
There are currently 50 licensed stock brokers in Nepal, but in the future, you can see the addition of brokers in Nepal. Banks and Financial Institutions could be brokers which will reduce pricing, increase transactions, make trading professionals, and improve the settlement.
Conclusion
The stock market is a very good platform for that allows many people who wants to earn passive income, trade stocks, or for someone who wants be become shareholders of the company they believe in.
There are two types of market in Nepal’s stock market, that is, the primary market and the secondary market, where people enter with different intentions.
Some are short-term investors and some are long-term investors. People who invest for a short period and trade stocks frequently are called traders and people who hold their stocks for a longer period are called investors. Investors and traders in the stock market use fundamental and technical analysis to understand their stocks, and their past and future trends to gain profit from the stock market.
