Intro to Nepal’s Stock Exchange with Sharesansar
We had the opportunity to interview, Sandeep Bikram Rana, Managing Director of Sharesansar.com, an online platform for investors and the only way to get information and financial data on the Nepali stock market.
Sandeep was very gracious with his time and we encourage you to take a hard look at Nepal. Nepal has the fortune/misfortune of being sandwiched by the two most populous countries on earth. If Nepal was located anywhere else, it’s ~30mm population and its natural resources would attract significantly more interest.
We are very bullish on Nepal long-term. Next week, we will have a piece focusing on how you can invest in Nepal. It is one of the best-performing markets this year, and we thought it was time to do a deep dive on Nepal.
Without further ado, please see our conversation below.
Q: The NEPSE is up +65% in USD terms in the year-to-date, what are the major factors that have resulted in such strong equity performance?
A few reasons.
- Favorable political environment after the successful constitution assembly which provides hope amongst investors and democrats (Nepali Congress Party) lead the government which builds confidence among investors
- Excess liquidity in the market creating low market interest rate resulting massive flow of money from banks to the stock market.
- Inflation is the major problem; we are facing a double-digit inflation since long which is a discouraging factor for people to keep money in their bank account. More recently, the average interest rate is 3% and the inflation rate is around 10%.
- Recently, Nepal Stock Exchange has implemented Central Depository System (CDS) which replaced a 22-year paper-based stock certificate system. Now, settlement has became quicker and an ownership transfer can be done within 5 days but this process took a month before the implementation of CDS.
- After the great April 2015 earthquake, there has been a lot of sympathy from the international community toward reconstruction and the government is also disbursing significant sums on rehabilitation and reconstruction resulting in an excess of opportunities for companies. After the earthquake, there has been a large surge in awareness of insurance ( Life and Non-Life) among people. The government has also brought many insurance-related policies like compulsory insurance for home and health insurance resulting in massive optimism among investors pushing insurance sector into a hyperbull market.
- Awareness and financial literacy among investors about share market is increasing resulting in many new investors entering the share market lately.
- Institutional investors like Mutual funds, Insurance Companies, Banks (without cross holdings) are also investing directly and indirectly in stock market resulting excess demand for stock.
- One year back, the Central Bank of Nepal (Nepal Rastra Bank) brought a mandatory paid up capital increment policy for banks and financial institutions which resulted in positive vibes in the market due to possible bonus shares and right share declaration for capital increment.
Q: Nepali stocks have been electronically traded for almost 10 years. Yet, it has managed to have a limited profile and share information is not available on Bloomberg, why is this?
- To date, our trading system is not automated.
- Nepal Stock Exchange (NEPSE) was established way back in 1994, to date, there is only one stock exchange in Nepal ie NEPSE.
- From 1994-2007, our trading system was an open outcry system. Investors and Stock brokers need to visit the premises of NESPE for trading purposes.
- After 2007 NEPSE Automated Trading system was adopted this converted manual trading to electronic trading. Now the investors need to visit broker offices for buying stocks.
- Till date NEPSE has not adopted online trading system but NEPSE has already planned to launch online trading system in near future.
- Since we are a private company, we are totally unaware about any tie-up between NEPSE and Bloomberg.
Q: Who is Sharesansar’s target market? What services that you do not offer currently would you want to offer in the next 10 years?
- Sharesansar is the financial web portal for Nepal; currently we have more than 50,000 daily visitors. We are providing recent news and research based data and analysis to stock investors of Nepal. We provide almost all the financial data, stock market news, investment opportunities data and overall stock market data and also we are actively providing stock market training (fundamental and technical training) to stock investors of Nepal. In fact, we are a pioneer in technical training in Nepal.
- Our target is to become a number one financial information provider like Bloomberg, Reuters
Q: What factors make you optimistic about Nepal?
- Nepal is the land-locked country surrounded by China and India. We are rich in water resources resulting in huge potential for hydropower projects. We are rich in natural beauty making Nepal one of the world beautiful place. We have huge potential in developing the tourism sector.
- Since we are an under-developed country, there are a lot of opportunities available for local and foreign investors. If the government is able to attract local foreign investors in the hydro and tourism sector then we can be assured for our future.
- There are a lot of hydropower projects that are under construction which will surely contribute the economic prosperity of Nepal.
- We can also be a transit point for both economic giants; China and India.
Q. What factors in Nepal make you nervous and cautious?
- Unstable Political environment; one of the major hurdles for economic prosperity in Nepal.
Q. What should foreign investors in Nepal be most concerned about? What is a concern about Nepal that is exaggerated internationally?
- There is really a good opportunity for foreign investors mainly in hydro, hotels, tourism, and the infrastructure sector. But the main concern is that about security, the government is still unable to win the trust of foreign investors. It’s mainly due to the unstable political environment.
Q. How deep is the institutional investor base in Nepal? What needs to be done to further strengthen the base?
- Institutional Investors like Mutual fund started entering the stock market after 2012. Now there are 7 Mutual funds investing approximately US$ 4.7 million and the are also a lot of insurance companies, banks and private investment companies investing in the stock market.
- To date, we don’t have any market maker and stock dealer.
- Institutional Investors are trying to get a hold of the market but the size is still small. So till now major players are big individual investors as well as retail investors.
Q. Trading and execution costs remain quite high, what needs to be done to bring these costs down?
- No doubt broker commission is one of the main expenses; investors need to earn at least 2% to cover the cost of buying. This is hindering the development of the stock market. The regulator must slash the broker commission at least by 50%.
Q. Why was Sharesansar started?
- Sharesansar was started 5 years back; at that time there were very limited resources from which investors could gather information about the stock market and its companies. Seeing this gap, we started a web portal giving all the information required for investment in Nepal’s stock market.
Q. How do you see the role of Sharesansar evolving over time?
- There is the saying that information is the key to any stock market so the need for Sharesansar will be evolving in the future as well.
Q. What message would you like to leave with our readers?
- Nepal is an under-developed country but we have great potential, so invest in Nepal.