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

Business Advisory for 13 and 14 August

Rajesh Sharma

HOLD/BUY

Market: Clearence sell mode

Rajesh Sharma

The market is in "clearance sell" mode. This is neither pure correction nor start of a new bear phase. This is some kind of flood of shares from alien direction, that is from broker's safe deposit vault, which includes genuine BT shares and another type of not-so-genuine broker-purchased share for them by them. Clarence of such second type (not so genuine type) of BT shares will bring better health to the market in near future.

Uniliver's dividend of 860%

Rajesh Sharma
Uniliver's dividend of 860%
If we calculate using share price of August 4, 2014 (the last trading day of Uniliver shares), the percentage is: 860/14596x100 = 5.9%. By using 180 days trading average price, it is 860/12979x100 = 6.6%. If we calculate using the price one year ago, it is 860/10098 (August 12, 2013, closest trading day one year ago)x100 = 8.6%. Really, it is more glamor and less money. These fancy companies pay less in real term.
Let's see capital gain. Let's forget about any major companies, just compare with Nabil MF.

Uniliver's capital gain in one year is: 45%.
NBF1's capital gain in the same period is: 68% (16.80 - 10 = 6.8/10x100 = 68%. its price was Rs 10 in August 12, 2013 and 16.80 in August 7,2014.)
Source of base data: Nepse website