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Performance of Stock Market and Reforms in Nepal

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Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

Stock Market Reforms in Nepal

Bharat Ram Dhungana 1

Abstract
This paper explores an empirical analysis of Nepalese stock market and their performance during the period
of around two decades till 2011. The study has been basically focused to the secondary market however; the
primary market is also under the scope of the study. The recent scenario of Nepalese stock market seems to be
hopeless and unable to maintain the public faith. The capital market should be developed as a sustainable
and trustworthy medium for capital mobilization through institutional arrangement for conducting continuous
studies, researches, investor education, public awareness, and training programs. The sound investment
environment, political stability, stable government and effective regulatory framework are the major factors
that help to enhance the degree of confidence toward the Nepalese stock market. The regulatory institution
should play a crucial role to reform the stock market by developing sound policies and appropriate
mechanism to develop efficient stock market in Nepal.

Key Words: Capital mobilization; primary market; regulatory framework; secondary market

Stock Market Development in Nepal

Stock market is one of the significant components of capital market that plays a crucial role in the economy
by channelizing the funds from savers to the investors. The trading of securities in the stock market is
extremely important for the efficient allocation of capital within economies. If the financial transmitting
mechanism is inefficient, the flow of funds to real investment will be impeded, and the level of activities will
fall below the potential. The well-functioning of stock market ensures economic development through the
prompt capital accumulation and tuning it through better resource allocation in productive and basic
infrastructural sectors of the nation.

The historical background of stock market in Nepal starts with the establishment of Biratnagar Jute Mill in
1936 A.D. and Nepal Bank Ltd. in 1937 A.D. Securities Exchange Centre was established in 1976 with an
objective of facilitating and promoting the growth of capital market, before conversion into Nepal Stock
Exchange Ltd. (NEPSE). It was the only stock market institution undertaking the job of brokering,
underwriting, managing public issues, market making for government bonds and other financial services.

1
Lecturer of Finance, School of Business, Pokhara University, Kaski, Nepal.
Corresponding address: dhunganabharat.pu@gmail.com

Page 1 of 16
Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

NEPSE opened its trading floor for its members first on January 13, 1994, which could only accommodate 50
members adopting an open out-cry system, which later on replaced by the partial automation system for the
transaction of securities.

The Automated Trading System (ATS), an internationally compatible trading system was inaugurated on 24
August 2007. The system eliminated all possible human errors as seen in the open out-cry trading procedures.
Several international practices have been incorporated to make the system internationally compatible and
modifications have also been made to customize the existing rules and regulations of the country. After the
introduction of the ATS and with the initiative and guidance of NEPSE, member brokers of NEPSE started
online trading through Wide Area Network (WAN) from their own office from 13 October 2007. Because of
this facility, stock brokers can now sell or buy shares from their office. The brokers who have the necessary
infrastructure prescribed by NEPSE will get access to WAN.

Under the program of establishing Central Securities Depository System (CDS) that makes the transfer of
share ownership prompter and more efficient and protect ownership rights, necessary works are being done
during the review period subsequent to the registration of CDS Clearing Ltd. Company under the sole
ownership of NEPSE. CDS is expected to come under implementation in Nepal from the beginning of next
fiscal year 2011/12. In the review period, NEPSE has provided secondary market transactions facility by
enlisting 28 more companies. In addition, NEPSE has expanded its Kathmandu centered share transaction
facility in major cities of Biratnagar, Birgunj, Butwal, Pokhara and Narayangargh as well. In the review
period, NEPSE has organized investors awareness program together with interaction program entitled 'Risk
Management and Steering Committee' in participation of listed companies and other concerned bodies.

The NEPSE index is considered as the measure to show the economic phenomena of Nepal. Stock market
index and economic performance should have positive relationship but in Nepalese context, it seems that the
NEPSE index is guided by political factors and fraudulent practices including pooling, warehouse, organized
runs, ramping, wash sale, matching, and insider trading. The Nepalese stock market is characterized by a low
trading volume, absence of professional brokers, early stage of growth, limited movement of share prices, and
limited information available to investors. Most of the Nepalese stock investors are involved in hunch.

The Securities Board of Nepal (SEBON) is regulator of the capital market that regulates issue and trading of
securities and market intermediaries, promote the market and protect investor's rights. The Governing Board
of SEBON comprises seven members representing various government and non-government sectors. The
duties and responsibilities of Securities Board are to register securities and approve prospectus of public
companies, provide license to operate stock exchanges, provide license to operate securities businesses,
permit operation of collective investment schemes and investment funds, draft regulations, issue directives

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Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

and guidelines, and approve bylaws of stock exchanges, supervise and monitor stock exchanges and securities
business activities, take enforcement measures to ensure market integrity, frame policies and programs
relating to securities markets and advise to the government.

During the last one and half decade, stock market in Nepal has made some noticeable progress. The number
of listed companies in Nepal Stock Exchange Limited increased almost two-fold from 62 to 135 and the value
of stock listed rose almost by seven times from Rs.14 billion to Rs.96 billion between 1993/94 and 2005/06.

Likewise, the number of securities listed with the exchange has increased five times from Rs. 43 million to
Rs. 226 million and the number of annual transactions increased 600 times from around nine thousand to 5.8
million. During this period NEPSE index jumped to 386. Despite this, stock market in Nepal is yet at a
developing stage and has yet to make its presence felt in the overall economy of the country. The level of
stock market development and its impact on the national economy can be measured by using various
indicators such as size of stock market, liquidity, concentration, and volatility (Economic Survey, 2010/11).

NEPSE index has been falling despite efforts on maintaining coordination between the regulatory entities of
the financial sector and necessary amendments in securities related laws and regulations. As such, sustaining
the confidence of investors towards the capital market remains a challenge. Commodities exchange
transactions are being conducted through some commodity exchanges. However, issues like lack of awareness
among the investors toward such market system, unbridled trading practices, and lack of confidence has come
in the way of the growth of this type of market. Institutional development of a regulatory system is felt
necessary for the opportune promotion and safeguarding the rights and interest of investors.

The objective of the study is to examine the Nepalese stock market and their performance during the period of
around two decades till 2011. The stock market is one of the crucial components of the financial market and
still not developed in the context of Nepal. The major reasons behind the poor growth and development of
stock market in Nepal are lack of investment environment, political instability and unstable government, lack
of rational investment awareness and ineffective regulatory framework. As a result, the degree of public
confidence toward the Nepalese stock market has been worsening. The aim of this research is to develop an
appropriate remedial measure that how the recent scenario of Nepalese stock market can be improved and the
public confidence can be enhanced.

Review of Literature
Although stock market development is a common feature of financial and economic development, many
analysts view stock markets in developing countries as 'casino' that have little positive and potentially a large
negative impact on economic growth. Other analysts argue that, because not much corporate investment is

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Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

financed through the issuance of equity, stock markets are unimportant for economic growth (Mayer, 1988).
Various conceptual arguments emphasize the potentially positive, neutral, or even negative implications of
stock market development for economic growth.

Fama (1970) classified the market efficiency into three levels on the basis of the information: (1) weak form
efficiency where stock price fully reflects historical information of past prices and returns; (2) semi-strong
form efficiency where stock prices fully reflect all information known to all market participants, i.e., public
information; and (3) strong form efficiency where stock prices fully reflect all information including public
and private information, known to any market participant.

Fama (1991) proposed to change the categories of market efficiency, namely: (1) Using tests for return
predictability instead of weak-form tests, which are only concerned with forecast power of past returns, i.e.,
how well do past returns predict future returns? (2) Using event studies instead of semi-strong-form tests of
the adjustment of prices to public announcements, i.e., how quickly do prices reflect public information
announcements? And (3) Using test for private information instead of strong-form tests of whether specific
investors have information in market prices or not, i.e., do any investors have private information that is not
fully reflected in market prices?

Bhattarai and Joshi (2007) indicated that the Nepalese stock market is not efficient in weak form with respect
to the one (cloud cover) of the three mood proxy variables and thus support the arguments for the inclusion of
this mood proxy variable in the models of asset pricing. The practical implication is that investors can benefit
from becoming aware of their moods, in order to avoid mood–based errors in their judgments and trades.
Many things are correlated with the seasons and it is hard to distinguish among them while trying to explain
seasonal pattern in stock returns. Moreover, as many behaviorists point out, a useful direction for future
experimental research will be to examine the effects of mood or weather on trading behavior (buy and hold
decisions) and the extent to which investors who are primed to attend to their moods can make better
decisions.

Dangol (2008) focused on market reaction to announcements of new unanticipated political events using the
event analysis methodology. The findings of the study provided a consistent conclusion regarding the
existence of information content hypothesis in the Nepalese stock market. The study reveals that good-news
(bad news) political announcements generate positive (negative) abnormal returns in the post-event period.
The data present important evidence on the speed of adjustment of stock prices to new political information,
i.e., in as many as 2 to 3 days from the announcement date. The research concludes that Nepalese stock
market is inefficient at a semi-strong level, but there is a strong linkage between political uncertainty and
common stock returns.

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Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

Bhatta (2010) analyzed Nepalese stock market and random walk. The analysis of random walk hypothesis
shows that Nepalese stock market is not weak form efficient. This implies that the stock prices in Nepal show
a systematic pattern that is valuable for observing the behaviour of past price movements to predict future
price. The market returns as measured by NEPSE index is negatively skewed and leptokurtic irrespective of
the daily, weekly or monthly interval of returns. This result is also supported by the return behaviour of
majority of the enterprises. The available evidences on market returns suggest that the random walk
hypothesis does not seem to fit on Nepalese stock market.

Bhattarai (2010) stated on the behaviour of international trade, monetary policy and stock market of Nepal by
using descriptive and causal-comparative research designs. The findings indicate that the NEPSE INDEX,
total stock volume, balance of payments is overwhelmingly explained the exogenous variables like money
supply, import and export level, total income, saving rate and price level. National income and money supply
are strong determinant variables to explain the NEPSE INDEX and also highly influencing variables to
explain the stock volume of Nepal. Similarly, NEPSE INDEX and money supply are strong exogenous
macro-economic variables to respond the fluctuations of balance of payments of Nepal.

Joshi (2010) analyzed stock market development and economic growth in the case of Nepal. The study finds
that in the first stage mid July 1994 to mid-July 2000, stock market development is not significantly
associated with economic growth. In second stage- mid July 2000 to mid-July 2008, there is positive relation
between stock market development and economic growth. The findings indicate that stock market has positive
contribution on economic growth of Nepal.

Amgain and Shrestha (2011) stated the stock price movements in Nepal. The result revealed that observed
Nepse index over the period of study is not stationary at the level and stationery at the first difference level,
which supports the independence of changes in stock market index as suggested by weak form of stock
market efficiency. In Nepalese stock market, past movement in stock prices cannot be used to predict their
future changes and investors cannot devise various trading rules or techniques to make abnormal returns from
transactions.

Mainali (2011) stated Problems and prospects of stock market in Nepal. The increasing number of listed
companies, market capitalization ratio, turnover ratio, and value-traded ratio indicate that the stock market is
developing steadily. The results of primary data analysis indicate that the poor co-ordination among SEBON,
NEPSE, NRB and Insurance Board; insufficient information of stock market; poor institutional strengthening
of SEBON; low instrument diversification; mal-practices on stock transaction; frequent changes on policies;
poor attention of government for its development are the major problems of Nepalese stock market.

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Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

Shrestha (2011) analyzed stock returns and trading volume in Nepal. The relationship between stock returns
and trading volume form the basis of profitable trading strategies and this affects the efficiency of market.
Stock returns and trading volume are two major pillars, around which entire stock market revolves. There is a
positive contemporaneous relationship between stock returns and trading volume. There is an asymmetric V-
shaped relationship between positive and negative stock returns and trading volume.

Data Sources and Methodology

This paper is based on the secondary data provided by different government institutions. Most of the data
employed in this study has been obtained from various issues of Economic Survey of Ministry of Finance,
Quarterly Economic Bulletin of Nepal Rastra Bank (NRB), Banking and Financial Statistics of NRB,
Economic Reports of NRB. The researcher has taken relevant data for the period of around two decades till
2011/12(first eight months). Descriptive statistics, trend analysis and other relevant statistical tools have been
applied for the analysis of data.

Stock Market Development and Nepalese Economy

Indicators of Stock Market Development
The development and growth of stock market is determined by various indicators such as market size, market
liquidity, market volatility, market concentration, asset pricing efficiency, regulatory and institutional
development, and the stock market indexes. The research has been basically focused towards the recent
scenario of Nepalese stock market and how reforms can be made to enhance the stock market.

Stock Market Size

The capital mobilization in the primary market through the issue of securities in 1993/94 is Rs. 244.4 million
and Rs. 2295.5 million coming to the 2006/07 million. Afterwards the trend of increment of capital remained
sharply increased till 2008/09 at Rs. 16828.5 billion and started to fall sharply each year and remained at Rs.
724.3 million in 2011/12 during the first eight months. The figure 1 depicts the primary market and issue of
securities.

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Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

Figure 1: Primary Market and Issue of Securities

1800
Capital Mobilization (in Rs

1600
1400
1200 Capital
1000 Mobilization
ten million)

800 (Rs ten

600 million)
400
200
0

Fiscal Year

* First eight month

Source: Securities Board of Nepal, Nepal Stock Exchange and Central Bureau of Statistics

The secondary market and market capitalization value has been presented in figure 2. The market
capitalization value in 1993/94 is Rs 13,872 million and this value remained Rs 61,365.9 million in 2004/05.
The market capitalization value was Rs 512,989 million in 2008/09 and considered as the highest
capitalization value in the history of Nepalese secondary market till the date. Afterwards this value has been
sharply decreased in each year and remained at Rs 293,556.4 million in the first eight months of 2011/12. The
poor investment environment, political instability, unstable government and ineffective regulatory framework
may be the major reasons of losing the public confidence towards the Nepalese stock market.

60000 Figure 2: Secondary Market and Market Capitalizaton Value

Value (in Rs ten million)

50000
Market Capitalization

Market
40000 Capitalizaton
30000 Value (Rs in
ten Millions)
20000
10000
0

Fiscal Year
* First eight month
Source: Securities Board of Nepal, Nepal Stock Exchange and Central Bureau of Statistics

Page 7 of 16
Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

The market capitalization ratio equals the value of listed shares divided by GDP. Analysts frequently use the
ratio as a measure of stock market size. In terms of economic significance, the assumption behind market
capitalization is that market size is positively correlated with the ability to mobilize capital and diversify risk.
The figure 3 portrays the market capitalization ratio for around two decades. The market capitalization ratio in
1993/94 is 7.24% and this ratio remained double coming to the 2005/06. The stock market size was highest in
2008/09 in the history of Nepalese securities market but sharply decreased afterwards and remained at
18.48% in the first eight months of 2011/12.

Figure 3: Market Capitalization Ratio ( as a Percent of GDP)

60
50
Capitalization (% of

40
30 Market
20 Capitalization( as
Market

GDP)

10 a% of GDP)
0
1993/94
1994/95
1995/96
1996/97
1997/98
1998/99

2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
1999/2000

2011/12*
Fiscal Year

* First eight month

Source: Securities Board of Nepal, Nepal Stock Exchange and Central Bureau of Statistics

Liquidity
Liquidity is an important attribute of stock market development because theoretically liquid markets improve
the allocation of capital and enhance prospects of long-term economic growth. Since liquidity allows
investors to alter their portfolios quickly and cheaply, it makes investment less risky and facilitates longer-
term, more profitable investments. Total value traded/GDP equals total shares traded on the stock market
exchange divided by GDP. The total value traded ratio measures the organized trading of equities as a share
of national output, and should therefore positively reflect liquidity on an economy wide basis. The figure 4
shows the traded value of share and GDP ratio during the period of around two decades. This ratio was 0.23%
in 1993/94 and fluctuated during the different period. The trend of this ratio continuously increased since
2003/04 and remained the highest in 2007/08. Afterwards, it has been continuously decreased in each year.

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Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

Figure 4: Traded Value of Share and GDP Ratio

3.50
Traded Value of Share and

3.00
2.50
2.00 Traded
GDP Ratio

Value/GDP
1.50 (%)
1.00
0.50
0.00

Fiscal Year

* First eight months.

Source: Securities Board of Nepal, Nepal Stock Exchange and Central Bureau of Statistics.

The figure 5 shows the share transaction value during the different periods. The value of share transaction was
441.6 million in 1993/94 and fluctuated during the different period. The trend of this transaction value
continuously increased since 2003/04 and remained the highest value of Rs 22,820.8 million in 2007/08.
Afterwards, it has been continuously decreased in each year. It means that the traded value of share in the
secondary market is decreased due to loss of public confidence over the securities market.

Figure 5: Share Transaction Value

2500
Share Transaction
Value(in Rs ten

2000 Share
1500
millions)

Transaction
1000 Value (Rs in
500 ten Millions)
0

Fiscal Year

* First eight months.

Source: Securities Board of Nepal, Nepal Stock Exchange and Central Bureau of Statistics.

A second measure of liquidity is the turnover ratio. Turnover equals the value of total shares traded divided by
market capitalization. High turnover is often used as an indicator of low transactions costs. A small but active
market will have small market capitalization but high turnover. Although total value traded/ GDP captures

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Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

trading compared with the size of the economy, turnover measures trading relative to the size of the stock
market.

Figure 6: Percent of Transaction in Market Capitalization Value

10
Percent of Transaction in

8
Market Capitalization

Percent of
Transaction in
6
Market
4 Capitalization
Value

Value
2
0

Fiscal Year

* First eight month

Source: Securities Board of Nepal, Nepal Stock Exchange and Central Bureau of Statistics

Concentration
In some countries a few companies dominate the market. High concentration is not desirable because it may
adversely affect the liquidity of the market. To measure the degree of market concentration, we compute the
share of market capitalization accounted for by the ten largest stocks and call this measure concentration. As
per July 2012, on the basis of share transaction value of this month, Everest Bank Limited (Rs. 27,17,00,000),
Chilime hydropower Limited (Rs. 12,12,00,000), Bank of Kathmandu Limited (Rs. 10,61,00,000), NIDC
Capital Markets Limited (Rs. 8,79,00,000) and Laxmi Bank Limited (Rs. 8,64,00,000) are the top five
companies (SEBON, Monthly Report July, 2012). It shows that high concentration of Nepalese stock market
is towards the banking and financial sectors. More than 90 percent of companies listed in the securities market
are banks and other financial institutions. As the presence of real sector companies remains minimal in
securities market, it is very necessary to create congenial environment for entry of such companies in this
market (Economic Survey of Nepal, 2011/12).

Volatility
Volatility of stock returns is another attribute that has received significant attention in the literature and is of
great interest to practitioners. This indicator is a twelve-month, rolling, standard-deviation estimate based on
market returns. Greater volatility is not necessarily a sign of more or less stock market development. Indeed,
high volatility could be an indicator of development, so far as disclosure of information implies volatility in a

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Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

well-functioning market. Here we refer to 'less volatility' as reflecting 'greater stock market development' for
simplicity.

There is the absence of real price and stability in the secondary market of securities and lack of necessary
facilities in major cities of the country for securities trading. In such a situation, it is a difficult and
challenging task to avail investment opportunities by making the investment education nationwide. In view of
rapid expansion of commodity market in Nepal, establishment of a separate regulatory agency has become
utmost necessary. Due to the continuous slip in the transactions of citizen unitary plan of CIT, there is a
probability of losing the confidence towards the trust fund being collected under the Plan.

Regulatory and Institutional Indicators

Regulatory and institutional factors may influence the functioning of stock markets. The mandatory disclosure
of reliable information about firms and financial intermediaries may enhance investor participation in equity
markets. Regulations that instill investor confidence in brokers and other capital-market intermediaries should
encourage investment and trading in the stock market. The firms that are listed in a stock market publish
price-earnings information. The second indicator measures accounting standards that should be maintained
by the firm. The third indicator measures the quality of investor protection maintained by the regulatory
agency.

Absence of legal provision for regulating a trustee, despite imperative necessity of such an arrangement for
securing the interest of beneficiaries of institutional bonds, mutual investment fund and depository service is
adversely affecting the development of securities market. There is a need for a separate legal provision to deal
with this shortcoming.

Correlations between Various Indicators of Stock Market Development

Many stock market indicators are significantly correlated in an intuitively reasonable. The market size is
significantly positively correlated with total value traded/GDP and the average institutional indicator, and
significantly negatively correlated with pricing error and volatility. Countries with big stock markets have less
volatile, more efficient stock markets with a high volume of trading relative to GDP. Countries with highly
concentrated markets have markets that are underdeveloped. Market concentration is significantly negatively
correlated with market size and market liquidity, and significantly positively correlated with pricing error.

The figure 7 shows the number of listed companies and transaction. The number of listed companies in
1993/94 was 66 and this figure is higher by 3.26 times in 2011/12*. Likewise, the number of companies under
transaction in 1993/94 was 38 and increased by 5.55 times in 2011/12*.

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Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

Figure 7: No. of Listed Companies and Transaction

250 Number of
Companies and
200 Listed
No. of Listed

Transaction
Companies
150
100 No. of
50 Companies
under
0
Transaction

Fiscal Year
* First eight month
Source: Securities Board of Nepal, Nepal Stock Exchange and Central Bureau of Statistics

NEPSE index indicates the status and development of the entire secondary market in Nepal that has been
presented in figure 8. This index was 226.03 points in 1993/94 and decreased each year till 1997/98 and then
gradually increased each year up to 2007/08 but sharply increased since 2005 to 2007. The highest point of
NEPSE index was in 2007/08 at 963.36 points but afterward it has been gradually decreased in each year and
remained at 313.92 points in mid-February of the fiscal year 2011/12. This trend of index shows that
Nepalese stock market is in the situation of crumbling and need to reform by the regulatory agency to enhance
the public confidence towards the securities market.

Figure 8: NEPSE Index

1200
NEPSE Index (in point)

1000
800 NEPSE
600 Index (In
400 point) **
200
0

Fiscal Year

* First eight month

* * Base Year 1993, Point 100
Source: Securities Board of Nepal, Nepal Stock Exchange and Central Bureau of Statistics.

Concluding Remarks

Page 12 of 16
Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

Capital market helps flow of non-productive small savings spread among the people to the productive sector
through mobilization. Capital market establishes working relationships between the people engaged in saving,
mobilization, and investing capital. It plays a vital role in the economy as it mobilizes the unproductive
financial resource remaining scattered among various sectors and encourages investment in productive sectors
of the economy.

The market index of Nepalese Securities has been continuously decreased since 2007/08. This trend of index
shows that Nepalese stock market is in the situation of crumbling. The recent scenario of Nepalese stock
market seems to be hopeless and unable to maintain the public faith. Ordinary shares occupying a major place
out of security instruments available in the market and lack of developed instruments like future option index
as well as internet-based trading and unavailability of supplementary business broker services are the other
roadblocks on investment promotion.

It has been a challenging task of upholding the confidence of investors in the capital market with its
sustainable development. It is necessary to make institutional sector transparent through implementation of
international financial reporting standards (IFRS). The regulatory authority should develop and instill
principles and pride of a credible, reliable, and institutional good-governance amid absence of institutional
culture in many of industrial enterprises and even in public companies. Moreover, the capital market should
be developed as a sustainable and trustworthy medium for capital mobilization through institutional
arrangement for conducting continuous studies, researches, investor education, public awareness, and training
programs. Finally, the sound investment environment, political stability, stable government and effective
regulatory framework are the major factors for enhancing the degree of public confidence towards the
Nepalese stock market and the combined effort of each participant is essential.

References

Amgain, J. and B. Shrestha, 2011, Stock Price Movements in Nepal, SEBON Journal – V, pp 96-108.
Bhatta, G. P., 2010, Does Nepalese Stock Market Follow Random Walk? SEBON Journal– IV, pp 18 -58.
Bhattarai, B. N., 2010, Behaviour of International Trade, Monetary Policy and Stock Market: An Application
to Nepalese Economy, SEBON Journal– IV, pp 59 -69.
Bhattarai, R. C. and N. K. Joshi, 2007, Stock Returns and Economically Neutral Behavioural Variables:
Evidence from the Nepalese Stock Market, Economic Review (19), pp 43-58.
Dangol, J., 2008, Unanticipated Political Events and Stock Returns: An Event Study, Economic Review (20),
pp 86-110.

Page 13 of 16
Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

Fama, E. F., 1970, Efficient Capital Markets: A Review of Theory and Empirical Work, Journal of Finance
25 (2): 383-417.
Fama, E. F., 1991, Efficient Capital Markets: II, Journal of Finance 46 (5): 1575-1617.
Joshi, L. R., 2010, Stock Market Development and Economic Growth: A Case of Nepal, SEBON Journal– IV,
pp 70 -76.
Mainali, P. K., 2011, Problems and Prospects of Stock Market in Nepal, SEBON Journal – V, pp 35-58.
Mayer, C., 1988, New Issues in Corporate Finance, European Economic Review 32, pp 1167-88.
Ministry of Finance, Economic Survey, Various Issues, Kathmandu.
Nepal Rastra Bank, Quarterly Economic Bulletin, Various Issues, Kathmandu.
Nepal Rastra Bank, Banking and Financial Statistics, Various Issues, Kathmandu.
SEBON, Monthly and Annual Reports, Kathmandu.
Shrestha, S. R., 2011, Stock Returns and Trading Volume in Nepal, SEBON Journal – V, pp 79-95.
www.mof.gov.np
www.nepalstockexchange.com
www.worldbank.org

Appendix 1: Status of Primary Market Trend of Nepalese Financial Market

Capital Citizen's
Mobiliza Ordinar Right Preferent Debentu Unitary Mutual
Public tion (Rs y Shares Shares ial Shares res (Rs Plan (Rs Funds
Issue ten (Rs ten (Rs ten (Rs ten ten ten (Rs ten
Year (NO) million) million) million) million) million) million) million)

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Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

1993/94 16 24.44 22.69 0 1.65 0 0 10

1994/95 10 17.4 17.4 0 0 0 5 0
1995/96 12 29.37 22.47 6.9 0 0 0 0
1996/97 5 33.22 5.7 27.52 0 0 0 0
1997/98 12 46.24 11.94 25 0 9.3 0 0
1998/99 5 25.8 14.8 3 8 0 0 0
1999/200
0 6 53.71 41.25 12.46 0 0 0 0
2000/01 9 63.43 26.85 36.58 0 0 0 0
2001/02 12 141.66 52.87 38.79 14 36 0 0
2002/03 18 81.37 55.15 16.22 0 0 0 10
2003/04 14 109.04 65.75 7 0 30 100.38 0
2004/05 14 167.23 37.75 94.93 0 30 121.56 0
2005/06 29 244.33 57.98 101.35 0 85 148.63 0
2006/07 34 229.55 38.02 126.53 40 25 170.23 0
2007/08 64 996.82 92.48 609.34 0 295 98 0
2008/09 64 1682.85 181.57 1426.3 0 75 95.34 0
2009/10 61 1082.24 264.93 817.3 0 0 100.88 0
2010/11 47 685.4 172.88 507.52 0 5 31.54 0
2011/12* 7 72.43 12.35 20.08 0 40 33.08 0
* First eight month
Source: Securities Board of Nepal, Nepal Stock Exchange and Central Bureau of Statistics

Appendix 2: Status of Secondary Market Trend of Nepalese Financial Market

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 Dhungana, B. R. (2013). Performance of stock market and reforms in Nepal. SEBON Journal, 6: 43-53,
Securities Board of Nepal, Kathmandu, Nepal.

Percent of Market No. of

Market Transactio Capitalizat Share Number Compan NEPSE
Capitalizati n in Market ion Value Transaction of Listed ies under Index
on (as a% Capitalizati (Rs in ten Value (Rs in Compan Transact (In
Year of GDP) on Value Million) ten Million) ies ion point) **
1993/94 7.24 3.18 1387.2 44.16 66 38 226.03
1994/95 6.17 8.13 1296.3 105.43 79 53 195.48
1995/96 5.14 1.71 1229.5 21.56 89 59 185.61
1996/97 4.7 3.3 1269.8 41.62 95 67 176.3
1997/98 4.9 1.4 1428.9 20.26 101 68 163.3
1998/99 7.1 6.4 2350.8 150 107 69 216.9
1999/200
0 11.8 2.7 4312.33 115.5 110 69 360
2000/01 11.8 5.1 4634.94 234.42 115 67 348.4
2001/02 8.4 4.4 3470.38 154.06 96 69 227.5
2002/03 8.22 1.6 3524.04 57.58 108 81 204.86
2003/04 7.72 5.18 4142.48 214.43 114 92 222.04
2004/05 10.41 7.34 6136.59 450.77 125 102 286.67
2005/06 14.8 3.56 9681.37 345.14 135 110 386.86
2006/07 25.6 4.48 18630.13 836.01 135 116 683.95
2007/08 44.9 6.23 36624.75 2282.08 142 136 963.36
2008/09 51.91 4.23 51293.9 2168.11 159 170 749.1
2009/10 32.15 3.14 37687.13 1185.11 176 198 477.73
2010/11 19.48 2.06 32348.43 666.53 209 222 362.85
2011/12* 18.48 1.8 29355.64 527.57 215 211 313.92
* First eight month
* * Base Year 1993, Point 100
Source: Securities Board of Nepal, Nepal Stock Exchange and Central Bureau of Statistics

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