Business Advisory for the week starting 31 August 2014

Rajesh Sharma



Business Advisory for the week starting 31 August 2014
Overall: BUY/HOLD
I have mentioned a few companies below. The list below is not exclusive. Please do your homework properly before making any investment decision.

Best buys for better immediate capital gain: SBL, NBB, Nabil, NICA, NLG, AHPC, TDBL, JFL, HBDL.

Best buys to hold for one year or more: Nabil, EBL, Chilime, SCB, NICA, RMDC, SWBBL, BPCL, CBBL, GBIME, HBDL, GRAND, HBL.

P.S. Friends,
Please suggest which company you think better to buy, hold or sell. If you could give reasons, that would be much better.

About Big players in Nepali capital market

Rajesh Sharma
There are questions raised in many forums about BIG players. Some have simply blamed them; some are questioning their existence. Hence, I thought to share my perspective, which is based on my perception/experiential learning.
There are 3 types of Big players here.
1. Cartel of NRB - finance ministry officials. They play with policies. In the recent NRB directives or at least in its ambiguous formulation, these officials played badly. They double as employees and investors.
2. Cartel of a few Big brokers - All brokers do not do share business. A few among them double as investors/traders individually or collectively together with 4-5 brokers. They play with information and procedures. Misinterpretation of policies/procedures/information is what they do to play in the market.
3. Cartel of Big investors/traders - These people help to formulated policies or procedures or even sponsor buying/selling by payment. They have money and they play with that money. There are familiar names in these groups. The informal "New Investor Group" is one among them.
I agree with the comments of many friends that market prices are determined by market forces - demand and supply. But, that happens in free market economy and free market atmosphere. In country like ours, where bottled water and surface transports are run by cartels and government officials patronize them and the leaders have pets in the form of dons; the market forces have limitations in their freedom to function. Hence, while looking at things, we have to differentiate between normal atmosphere and the polluted one and interpret accordingly. Therefore, sometimes here market forces work fairly free and in some other times market forces are just to free in an environment made ready by the clandestine cartels.
P. S.: The above text is my perception based on my experience of past several years. Hence, please take it in that light and not, in any way, as the conclusion of any empirical/quantitative/qualitative research.

Best utilization of the darkness of night is "TO SLEEP WELL."

Rajesh Sharma

Below, I have posted one of my previous comments dated 16 Aug 2011, time 11:16 AM , when the market was at its nadir, the lowest level, index around 300.
"Let's share our perspectives and let's accept limitations of our access to information and analysis. Some people like the rose, some others orchid and others may like GULABAKKAVALI, a flower in folktales. Let them select their own flowers. No script is too good or too bad. Even if someone dares to buy NHPC at 42 RS who knows, he or she may double the amount in one year or may loose entire amount. The more the risk, the more the benefit could be there. SCB being a company with 2 Arab 87 Corer in its reserve is least risky. The high risk, high return type could go for NHPC and the low risk, low return type could buy SCB. There is everything in the market for all type.

There are several factors to decide. We go our own way, and let's neither try to dominate or allow somebody to dictate our intentions.
Moreover, how one of our seniors Voicerji (post no 217) could predict that the Index will go down to 200 and bull market will not be there for another 3 to 10 years?
Voicerji has said the following:
"Accumulate as much cash as you can, because the right time to buy stocks is yet to come. The lowest point, in my opinion should be 200. The maket is still bearish. Before reaching 200, the market will experience a few ups and downs because of political incidents, starting of CDS, rumors, etc. People are saying that CDS system will boost the market. But, I don't believe that. It might only increase the transaction voulme. But what we are looking for is increase in price, which will not happen. Let's try to accept the reality that the market is in bearish trend and for the next bull we might have to wait 3 to 10 years."
If any AIRE, GAIRE, NATTHU KHAIRE like me will say something like this, nobody will raise question thinking that that is simply rubbish. But when people like Keshav ji or Voicer ji or Deepa ji say such thing we take things seriously. If you seniors have no facts to support your conclusion, please, please restrain yourselves from making loaded statements. This is my humble request."
http://www.nepalsharemarket.com/jambforum/Default.aspx?postid=28070#28070
P.S.: May be, it has some relevance today. In 3 years time when Voicer ji had predicted, it could see another bull phase starting, if at all it would start at its earliest, now it is more than 3 times higher the index already. When there is darkness, we got nervous. This is human. But, at the end of night, there is morning. The best utilization of the darkness of night is "TO SLEEP WELL."

BusinessAdvisory - 23 August 2014

Rajesh Sharma

The week starting tomorrow will be crucial week for the market to take its course. There are three probabilities - UP 50%, STABLE 30% and DOWN 20%. This is my opinion based on subjective qualitative assessment.

Broadly looking at sectors - Most BFIs:  UP, Majority of Insurance, Micro-finance and Hydro power: STABLE or DOWN.

Companies of first choice: Mid cap commercial banks, small cap development banks and finance companies.

Most attractive 3 companies for investment: CHCL, EBL and NBB.
Most attractive 3 companies for trading: NCCB, SWBBL, HBDL.

The market movement: May go up.

 Note: The market is too turbulent to make reasonable prediction. Therefore, please take the advice here, simply as reference. 

New NRB Directive regarding limiting BFI's short term investment in Shares

Rajesh Sharma

New NRB Directive regarding limiting BFI's short term investment in Shares

1.       1. In the beginning, the directive created lots of confusion about this 1%. Now it is clear that the regulator has kept intact the 30% limit of the BFI's core capital for investment in share markets including in "held for trading" (includes direct share purchase for short term trading), "held for maturity" (such as bonds and Mutual funds) and "available for sales" (buying shares for long term such as promoter shares that could be sold when the BFI has cash crunch). This 1% limit is for share purchase for short term within that 30%

2.       The directive discourages BFIs being major share market investors as their primary role is banking. Rather than providing loans, they seem interested in purchasing shares. This process must be discouraged. In this background, the directive sounds good for long term. However, it fall down from heaven as a surprise, in this context, it is suspicious.

3.       May be the central bank employees (doubling as share market investors) finished their stocks of hydro-power and insurance sector shares and are ready to grab shares from these sectors. After a year, by allowing opportunity to grab as many shares as possible to its investor-employees, the central bank may change its policy in this or that name and could provide its employees doubling as investors a window to collect unimaginable returns. If this happens, it would be a major policy level corruption.

4.       The impact of NRB directive should be in limited scale, if it was introduced in a transparent way giving enough time to be prepared for such directive. But, when the regulator dropped as a bomb shell, the market reacted in a nervous way, giving players to terrorize plenty of weapons to grab shares by interpreting/misinterpreting the directives. May or may not be so, in a falling market, introducing policy in hest could invite "conspiracy theory."

5.       Nepal has become a paradise for anarchists and ultras – be they in politics or economy; governance or judiciary; regulators or autonomous bodies and an as well as many others. The same practice was continued by NRB.

In conclusion, I found the policy not harmful for the growth of the capital market on long term, but the way it has been introduced brings several questions. And, if I conclude that NRB is in hand-in-glove with the bad guys, who make the market turbulent, certainly, I do not feel that I have overstated, nor many among the readers would feel so, I hope.

Social Darwinism and Nepali Share Market

Rajesh Sharma

Here, I have reproduced one of my previous posts from by blog. This sounds relevant in this new situation that we are witnessing since recent past.
Social Darwinism and Nepali Share Market
Posted on May 2, 2013

Rajesh Sharma
“Social Darwinism is a belief, popular in the late Victorian era in England, America, and elsewhere, which states that the strongest or fittest should survive and flourish in society, while the weak and unfit should be allowed to die..” http://failopages.wordpress.com/2011/03/09/social-darwinism/
In Nepali share market, the old principle is quite relevant. Those who lack capacity to hold are most vulnerable people in the market. They suffer tremendously. The capacity to hold depends upon financial situation and psychological state. Panic and dire need of fund make investor nervous and when a large number of such market participants reach to the broker’s firm physically or by other means of communication, the whole scenario becomes gloomy. Market starts to fall and it continues. Then buyer’s greed, generally who are better off financially and psychologically move into action to collect the bumper harvest.
Several times, it has happened in the past and this week also the same has been happening. The market is standing in the same foundation fundamentally and technically. Hence, there is no other major reasons other than cultivated by the greedy buyers to influence the market heavily negatively. These greedy buyers are like a hungry cow. They eat grass in unbelievable speed and chew that grass afterward at leisure slowly and tastefully.
Therefore, being strong psychologically and at least being okay financially matters to stand in this tempest of Social Darwinism, where smaller fishes are being eaten continuously by big fishes. Those who are unable to withstand this unnatural cyclone may disappear. The market is ruthless and hoping kindness here will invite death. In my opinion, we should understand this simple phenomenon.
http://www.nepalsharemarket.com/JambForum/Default.aspx?postid=49542#49542
http://sharenepalcomments.wordpress.com/2013/05/02/social-darvinism-and-nepali-share-market/

Market Turmoil in this week (16-21 August 2014)

Rajesh Sharma

1. Market clearing process has been going on. The BT factor (not that of ours' - small investors but of big players/some brokers) is in full action. May be, the clearing process is beneficial for long term market health. This was the main reason behind blocking CDS by Big players/some brokers. This clearing helps to remove the final hurdle. Now, the brokers also have completed the bank guarantee procedure and connectivity.

However, buy time means generally red NEPSE may continue till tomorrow or even in initial days of next week due to continuing BT factor and profit booking.

The following part is written and posted Today
 

2. Yes, we were not accurate in market prediction. However, it is a complex process and difficult to have correct prediction. Certainly, we had and have some blurred vision. Therefore, we could not foresee the mega factors, such as probable policy interference from NRB, Big players' planned and massive attack, pressure of BT clearance, terror among investors due to sudden and excessive fall of market, etc. Traditionally and also logically, this was the time for market to move up. Without any major deterioration at micro or macro level, the market came down heavily. Partly, we failed to understand the market and partly this was beyond our strength of influence to assure our fellow small investors as they were in panic mood.

Let's look at first 6 transactions of Chilime yesterday: 1. 20 kittas at 2347, 2. 10 kittas at 2301, 3. 10 kittas at 2255, 4. 10 kittas at 2210, 5. 10 kittas at 2166 and 6. 20 kittas at 2155. Then mostly small investors lined up to sell at 2155. Another 90 transactions continuously had been at 2155. In this way, social Darwinism got present and accelerated and this phenomenon swept away many small fishes.

Business advisory - August 18, 2014

Rajesh Sharma

Business advisory - August 18, 2014

Buying is the key word for initial days of this week too. Most probably, confusion, bewilderment and environment that promotes indecision would continue. The signs are there, the market will stabilize or move up. Grand Bank's performance may affect banking stocks. However, mid cap shares like SBL, NBB, LBL, Mega, KBL could attract the attention. As usual, Nabil, EBL, SCB may be volatile but profitable though marginally. Chilime may have some loss but may start recovering by the end of this week.
Small companies like Prudential Finance (Price 180, EPS 27, write back 231 million, only one question is: will it sustain?), HBDL (loss decreases substantially to 9 corer), etc may also come into center stage.
The insurance sector will remain basically stable and micro-finance companies may see some profit booking.
Hydro-power companies index may go down because of the Sunkoshi flood as it revealed the risk in this sector vividly, Chilime's performance is subdued, and some companies have gone too high in comparison to their performance.

The talks of this week will be dominated by guess works and speculations about dividend, particularly bonus shares from different companies and Tamakoshi. Tamakoshi is a big company, we should realize that big companies not necessarily provide big return. Hence, the euphoria may not translate into reality when Tamakoshi starts giving return back. Yes, applying in IPO is good as there will be big capital gain for this.
Overall, the market will remain so-so as we have not properly understood the importance of buy time, when it gets RED, bonus shares will be the leading discussion topics followed by Tamakoshi. Grand Bank will be the whopping boy.

Disclosure: This is just my opinion. Please park your money at your own

Some Reflections on Share Market in Nepal

Note: I have written this article for a journal to be published by CA students staying and studying in Delhi. Hence, please do not reproduce the article in any form in any media including social sites, portals, newspapers and any other form of mass media before it has been published in that journal as mentioned above.

Some Reflections on Share Market in Nepal

Rajesh Sharma

1.  Biratnagar Jute Mills and Nepal Bank Ltd were the first companies, which floated shares in 1937. In 1964, the Company Act came into existence. This Act, first time in Nepal, provided legal framework for the companies. The same year, the Government Bond was issued.  The Securities Exchange Center was established in 1976. The Securities Exchange Act was promulgated in 1983. The Securities Board of Nepal (SEBON) and Nepal Stock Exchange (NEPSE) were established in 1993 by splitting Securities Exchange Center and making them two different entities one as a regulator and the other as a stock exchange.

Securities Board of Nepal (SEBON) functions as capital market regulator as per the provisions in the Securities ACT 2006.[i]

Nepal Stock Exchange (NEPSE) works as stock exchange and it has 388 listed companies and 50 brokers.[ii]

Now, under NEPSE, CDS and Clearing Ltd has been established and that does clearing and settlement business.[iii]  CDS stands for Central Depository System that stores share ownership data electronically and transfers ownership as well.

The legal and organizational initiatives as briefly mentioned above provided the foundation for the development of capital market in Nepal.[iv]

2         Nepali share market, though, more than 76 years old, is still in its childhood. It works under the load of papers. The investors and traders could not place order electronically, nor is the clearing and settlement process computerized yet. Though, there is fully ready-to-function CDS Company in place but several hurdles are compelling it to sit in waiting for the last two years.  The recent clearing and settlement mess has discouraged many investors. Even brokers are facing difficulties to comply with the provisions of settlement in relation to cash and papers. As soon as CDS becomes fully operational, that would certainly streamline the process of settlement and would help to increase the trading volume and also will attract more investors and traders to its fold.

3. Nepali share market has been dominated by traders for a long time. As a result, most of the time companies go down without any understandable cause and also sometime jump wildly, again, without any understandable reason.  Hence, wild speculation and sudden flow of resources targeting in a single or a few companies by the BIG speculators makes the market vulnerable. The Nepali share market, thus, makes movement either side amazingly and ruthlessly.
4. Rumor plays here vital role. It takes the routs of sponsored news items in major economic and financial dailies or web portals. To support such sponsored reporting or news items, the discussion forums also are extensively used. Foot solders spread rumors as wild fires when a BIG speculator wishes to do so. People take such news cautiously but seldom get control over their own greed. Hence, rumor functions here as part of a well thought out strategy. Any investor or trader, if thinks himself/herself as a horse of a long race, should understand this rumor phenomenon.
5. Many investors and traders are the darlings of bonus shares, right shares and merger among and between companies. These words are like the music coming out of Krishna's flute for the worshipers of Krishna, the Hindu God. Many investors/traders have not much knowledge about the dynamics that the market operates with. Therefore, they are after understandable bench marks. In this context, the phrases as motioned above work for them. Due to this phenomenon, the market index moved up between 2006 and 2008. It reached to all time high of 1175 (August 31, 2008). This happened as there were wild expectations of right and bonus shares. Suddenly the index started to reverse and the same fall down to 292 (June 15, 2011). Notwithstanding how much we are educated in market mechanism and how good strategist we are, if we fail to understand the environment we operate, we may not be successful. Therefore, till the market gets maturity and education and strategy start playing their roles, there are compelling reasons to take into consideration the 'prime movers' of the market like bonus shares, right shares and mergers in Nepali market now. These 'prime movers' may change. This logic may not go well with many enlightened friends, but this is the ground reality as of now. Most of the time no fundamental analysis, no technical analysis and no good performance of a company work. May be, this phenomenon has shorter life, but it is still here very much present - healthy and smiling.
6. The above analysis may put the market in darker context, but that is not the whole of a single object. Though until now in minority, the other side is also very much present – rational investors/traders. They not only could differentiate between facts and fictions, they could devise strategy to utilize rumors for their benefit. Interestingly, they do not spread rumor. This is due to some ethics and some professionalism.  Like a Buddhist, they do not kill the animals, but if somebody has already killed an animal and if that person gives to Buddhist monks or Buddhist persons, they do not mind to eat. Utilizing this provision in Buddhism, the meat-loving Chinese brought several Muslims in several villages to kill animals. They made the meat ready for the Buddhists. This way, the Buddhists were not involved in the business of killing. Test and temperament go together. Great Chinese intelligence!

Really, many well informed new investors with critical understanding of the market are entering into the market and also are thriving. For example, there are quite a good number of final year/or just graduated MBA students in the market. They sound happy with their own performance. Many share dons of today succeeded learning by doing; this new breed has academic and professional insights too.

7. More recently, the regulators, particularly, SEBON have become active. In the past SEBON was functioning like a clerk who factions within the limit of procedures. However, more recently, it has started to show its teeth. That was seen in the case between Nirmal Pradhan and Laxmi Bahadur Shrestha. SEBON made strong moves, though after it felt tremendous pressure from the investors and brokers, and finally made Nirmal Pradhan complying with its order in share transactions related to Nepal Bangladesh Bank. (For details, please Google the incidence). NEPSE also has become more assertive. That has been seen in its action about suspension of brokers for a day or two, if they fail to comply with settlement of papers or cash. The central bank – Nepal Rastra Bank has taken control of the management of a few banks or development banks or finance companies. And, the insurance board also has become more vigilant. These are good signs that in future the market could function smoothly and investors as well as traders could feel much assured.
8. In conclusion, I summarize that the market is still in its childhood with large number of investors/traders unaware of market dynamics, the papers are still nurturing situations, where human energy and potentials are draining unnecessarily, rumor works as part of an investment strategy and most of the time regulators are sleeping or their staff members are making money for them by buying and selling shares and in-between influencing the policies for their own personal benefits. However, this is just one side of the coin. On the other side, the new market entrants are intelligent, educated and risk taking brighter brains, technology, particularly computerization of the whole process including CDS coming soon, some new energy seen in the acts and actions of the regulators and somehow super active anti-corruption agency called Commission for the Investigation of Abuse of Authority are all heralding to a new possibility, new period of time – a bright and signing tomorrow.

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[i] http://www.sebon.gov.np/

[ii] http://www.nepalstock.com/

[iii] http://www.cdscnp.com/

[iv] JB Gurung has studied Nepali Capital market. His well researched 92-pages book/extensive article is available at: www.nepjol.info/index.php/JNBS/article/download/43/125