Kathmandu. Even at a time when the stock market is green, the loan going towards share securities has not increased as expected. At present, the interest rate is low and the government has taken various policy initiatives to reform the capital market, but its impact has not been seen on the behavior of investors.

According to the data of Nepal Rastra Bank, the margin loan issued by banks and financial institutions has increased by only Rs 68.10 lakh from July to August of the current fiscal year. According to Rajan Lamsal, vice-president of Nepal Investors Forum, investors have not shown enough interest even when the stock market is considered favorable for investment expansion.

Generally, the period from April to July is considered as a favorable season for the stock market. With the end of the financial year, the listed companies are expected to publish financial statements, declare dividends and come up with investment plans for the new financial year.

However, this time, despite low interest rates and efforts for policy reforms, the stock market has not seen the expected enthusiasm, says Lamsal. According to him, the lack of confidence in the investors even at a time when the market should have a positive impact indicates that there is still a lack of confidence in the market.

According to the Nepal Rastra Bank, the share mortgage loan issued by banks and financial institutions has reached Rs 144.46 billion till mid-August of the current fiscal year. Such loans stood at Rs 144.46 billion in mid-July of the current fiscal year.

Share mortgage loans increased by Rs 68,10,000 in a month. According to the data of the Nepal Rastra Bank, the share loans of five commercial banks decreased in August compared to July.

Shares of Everest Bank fell by 9.89 percent. Similarly, Nepal SBI Bank fell by 5.81 percent, Citizens Bank by 3 percent, Siddhartha Bank by 2.68 percent and Nabil Bank by 0.48 percent.

However, the share loans of some other banks have increased. The highest increase has been seen in Machhapuchchhre Bank. According to the data of the Rastra Bank, the share loan of the bank has increased by 7.89 percent in a month.

Similarly, Laxmi Bank surged 1.78 percent, Global IME Bank 1.65 percent, Himalayan Bank 1.48 percent, Nepal Investment Mega Bank 1.13 percent, NIC Asia Bank 0.65 percent, Rastriya Banijya Bank 0.74 percent, Nepal Bank 0.40 percent, Kumari Bank 0.28 percent and Agricultural Development Bank 0.07 percent.

Four banks have not increased their share mortgage during the month. Prime Commercial Bank, NMB Bank, Prabhu Bank and Sanima Bank have not seen any increase in their share loans during the period.

Lack of confidence in investors despite policy reforms

The government and regulatory bodies have taken various reform programs for the development of the capital market and for the protection of investors’ interests. Finance Minister Dr. Swarnim Wagle has also released a 21-point action plan for the reform of the stock market. Finance Minister Wagle had already announced to bring reform plans and reduce capital gains tax in various public programs. The government has also reduced the capital gains tax.

The action plan unveiled by Minister Wagle has prioritized structural reforms in capital market, modernization of transaction system and expansion of investors’ participation.

The action plan also includes restructuring of the Nepal Stock Exchange (NEPSE), reforms in pricing system for initial public offering (IPO), margin trading, intraday trading and providing legal basis to short selling.

Likewise, expansion of participation of Non-Resident Nepalis (NRNs) and institutional investors, development of bond market, modernization of broker system and protection of investors are also prioritized.

Although such reforms are expected to help make the capital market systematic and competitive in the long run, their impact is not immediately visible in the behavior of investors, says Lamsal.

Low interest rates could not increase investor enthusiasm

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In recent times, the interest rate of loans given by banks and financial institutions is very cheap. At present, the average base rate of banks and financial institutions is 6.38 percent. Similarly, the loan-deposit ratio (CD ratio) of banks and financial institutions is much lower than the 90 percent limit set by the Nepal Rastra Bank.

As of mid-August, this ratio stood at 71.21 percent. Lamsal says that despite favorable conditions for investment in the market, investor confidence is weak and there is no enthusiasm.

“Investors have not seen immediate returns from the market even though the policies and regulations are in favor of the investors,” he says, “Investors are in a wait-and-see situation due to the festive atmosphere and the financial statement of the first quarter.” ”

According to Lamsal, due to the Dashain and Tihar holidays in the month of Kartik, the number of days that the market opens is also less. “Shares are traded only for 12 days in Kartik,” he says.

Informal transactions and government surveillance also affect investment

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An expert says that the share of informal transactions in Nepal’s capital market is more than that of formal. According to him, the government’s increased surveillance on the investment of the informal sector in recent times has also prevented a large amount of money from entering the stock market. The experts say that the government has started looking for sources of income and money, which has scared the investors.

“Now there is a situation of not borrowing money from anyone, not bringing money from outside, and waiting for some time without investing in the market. Investors are watching to see what steps the government will take and how it will move forward,” he says. According to him, some investors have also felt that the government has put unnecessary pressure on the investors in recent times. This has weakened the morale of the investors, he said.

Despite policy reforms, low interest rates and adequate liquidity in the banking system, the lack of significant growth in equity mortgages indicates that it is challenging to restore investor confidence. Investment expansion can only pick up pace if investors can realize policy stability and a clear prospect of returns along with long-term market reform efforts.