Fundamentals of Nepali Stock Market

stock market 101

Is it possible to make money on the stock market as a side hustle? What is the best way for me to grasp the essence? Is it deserving of a place in the competition? Is it true that if I start investing and trading, I will become wealthy?

These are some of the issues that come to mind for anyone considering entering the stock market with the intention of profiting from share investment and trading. These are logical issues to arise because investing, earning, and receiving a return appeals to many people, and the potential returns are unimaginably huge for some. The Nepalese Share Market has recently attracted a lot of attention due to its steady rise.

Understand the Fundamentals of the Stock Market

If you want to get started, you must first understand what a share is. Stock, also spelled “shares,” is a financial instrument that reflects ownership in a firm or corporation and a proportionate claim on its assets and earnings. The Par Value of Shares is NPR 100 for a single common share. However, Rs 10 has been used as a par value and securities of units issued at Rs 10 have also been seen.

The stock market, which is a subset of the wider economic market, is where people purchase and sell stocks. There are two sorts of markets in Nepal: wholesale and retail.

Primary and Secondary Markets

Many people, however, who hardly understand the basic terms of shares are also active participants in the stock market, whether it is main or secondary.

The primary market is where the general public can buy shares (securities) of a company registered under Public Limited. The initial public offering (IPO) market is a market where securities are issued to the public for the first time (Initial Public Offerings).

The Secondary Market is a struggle for traders. A secondary market is where securities (shares) that have been issued on the primary market are traded.

When learning about the Nepalese stock exchange, it’s important to realize that it’s known as NEPSE (Nepal Stock Exchange Ltd.). NEPSE was founded in 2006 under the Company Act and is administered by SEBON (Securities Exchange Board of Nepal).

The first stage in entering the stock market is to open a bank account, a demat account, and a brokerage account.

How is Stock Price Determined?

We constantly follow the demand and supply rule in business and in everyday life. Similarly, the depth of the stock market is determined by secondary market price determination while applying and comprehending basic demand and supply flows.

The combination of demand and supply of that particular script determines the price of a stock in any market (stock, shares, securities). When demand is high, the price is high; when demand is low, the price is low. Similarly, the lower the price, the higher the supply, and the higher the supply, the lower the price.

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When it comes to shares, we may observe a lot of complication. However, why do some people with money in hand who appear to have little or no understanding of the stock market appear to be making a lot of money? What is it about the stock market that makes it so appealing to non-financial investors?

The stock market, in general, operates on the perceptions of investors, which could be the answer. Some investors may believe that a script is overvalued and decide to sell, while others may believe that the script’s value will rise in the future and opt to buy.

Another reason is because of the publicity! The Nepalese stock market is a hot topic on social media these days. Many people are displaying their interest and engagement in public social media platforms as a result of pandemics and people living behind closed walls.

What are the types of Securities Analysis?

Regardless of hype and perception, the money-finance cycle is based on analytical waves, techniques, and qualities, which are critical to achieving a win-win situation in share investment and trading. Before selecting any script, it is necessary and good to conduct study and analysis.

The analysis can be carried out in one of two ways:

  • Fundamental Analysis
  • Technical Analysis

Fundamental Analysis in Stock Market

In simple terms, fundamental analysis is an examination of a company’s financial health with an emphasis on economic indicators and the environment. The fundamental analysis entails examining the company’s financials and forecasting the balance sheet, dividends, and management’s future prospects. As a result, before selecting whether or not to invest in a certain script, a fundamental analyst undertakes a detailed review of the balance sheet. EPS, PE Ratio, Book Value Analysis, Graham’s Value, and other fundamental analysis methodologies are some of the most popular.

Technical Analysis of Stock Market

The purpose of technical analysis is to examine the price movement of a specific script. It’s a tool that uses historical data to forecast the price of any script. Technical analysts look for price patterns to determine whether or not to invest in a specific script.

The financial condition of the corporation has little or no role in technical analysis, which is predicated on the basic adage “History repeats itself.”

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MACD, Trend Analysis, Moving Average Analysis, Inverted Hammer, Shooting Stars, and other technical analysis techniques are employed.

The Nepalese Stock Market’s Longevity is a Growing Economic Indicator

The Nepalese Stock Exchange, like any other stock exchange in the globe, has had its ups and downs. There are numerous adjustments that must be made in order for the market to operate well.

At the moment, there are more than 35 lakh Demat Accounts, with around 60% of them participating in the Primary Market. The Secondary Market, on the other hand, attracts 6 lakhs of investors. According to the number of investors/traders and the current level of NEPSE, Nepal’s stock market appears to be growing. However, more work remains to be done in order to ensure its long-term viability and development.

The stock market is one of the country’s economic indicators. Despite Pandemic, the Nepalese Share Market, in contrast to other sectors, is gaining new highs every day in terms of the index and volume, which are key features of a Bull Market.

Political concerns used to propel the Nepal Stock Exchange higher in the past. Though, in recent years, political unrest has had little impact on the stock market. This is a gain for the stock market, which was previously influenced by even the Finance Minister’s words. Well! This could also be due to the analytical effectiveness and awareness colliding with the perception and mapping of education. Even yet, political influence exists, although its impact appears to be little.

The market is gaining traction with the implementation of an online system (TMS) and T+2 settlement. In any case, the existing share market in Nepal is on a razor’s edge due to insufficient market action by the Governing Body (SEBON, NEPSE).

Investors and the Governing Body’s Role In Boosting The Stock Market

The types of investors also have an impact on the Share Market’s ability to survive. Typically, there are two sorts of investors in the stock market:

  • Investors – those who are are looking to make a long-term investment in the stock market
  • Traders– those who invest in the market for the purpose of making a quick profit.

Both can benefit from the market, but they need to understand the principles of investing.

In the current state of the Nepalese stock market, it appears that ‘Traders’ have surpassed ‘Investors,’ which is not a bad thing; but, this condition has considerably raised the risks of people losing their hard-earned money.

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As a result, for every share market trader, a suitable investment strategy from the investor/trader is a must, and sufficient guidance and check and balance mechanisms must be provided by the regulating body.

In the case of the Nepalese stock market, the regulating body has played a little part in the market’s check and balance. Many believe that when a well-known person on social media, who has been labelled with numerous labels based on his or her portfolio and earnings, begins publicly condemning market malfeasance, the SEBON or NEPSE will respond. As a result, perceptions of the governing body, as well as share investors and dealers, must significantly improve.

The governing authority of the Nepalese Stock Exchange must be reactive rather than proactive.

In the stock market, the regulating body’s role to reduce future potential losses is just as vital as the study and analysis done by investors/traders who are entering or currently in the market. Following the advice of others can sometimes lead to disappointment.

Yes, the Stock Market is Highly Attractive!

After a prolonged negative market of more than 5 years, the market is reaching new highs and has entered a bull phase, which has brought hope and attracted more individuals. The market may reach a new high in the next days as a result of arrangements such as T+1 settlement, the development of a broker settlement fund, more advanced technology, and, most likely, intraday trading.

The key to grasping the stock market is to realize that the market, or any particular stock, does not increase or decrease on a consistent basis. This indicates that for every bull market, there will be a bear market, and for every bad market, there will be a bull market. To be a reliable investor and profit from the market in the long run, it is critical to make the right investing selections, choose the right script, and rely on your own understanding rather than what others say.

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