BT is a platform for manupulation

Rajesh Sharma

Many friends have asked about risk in BT. Long time ago, I had a brief comment stating that "BT is a cancer of Nepali share market." This is the platform where several orchestras have been staged /organized. The mother of many manipulations is BT. Beside playing with our money for around 10 days, the following are other risk factors in BT.
Below, I have copied and pasted my answer to a friend.
1. "Tapaiko share becheko huna sakchha. 2. Tapaiko shareko certificate nakkali huna sakchha, 3. Tapaiko share rokka bhayeko hunasakchha.
2. Ahile BT kai karan le pani CDS lagu huna sakeko chhaina. Charwata brokerko kamko chhanbin hudai chha. NB group sanga sambadhdha companyko pani sandehko abastha chha. nagarik lagani kosh le kati shareko namsari gareko chhaina. Karan thaha chhaina.
3. Yi sabai kharab sambhawana bata inschinta hune tarika bechne wa namsari garne nai ho.
4. Tyasaile safe side ma basnu ramro. Broker sanga tapaiko kati biswas chha, tesle pani kehi pharak parchha. Broker mathi purai bharosa chha bhane BT mai rakhnu bhaye pani hunchha."

Hence, it would be wise to revalidate the BT document physically. If it is sold by NB Group affiliates, Pradhan Group affiliates, NB Group companies, Pradhan Group companies, splinted share documents (part of shares of original share certificate sold by using another slip/paper), and so on, please verify with the Right to Share (RTS) of that company, if you like to continue to hold in BT. Ask for both, authenticity of the document and if that has been in Rokka (collateral against loan/ held to sell as per court/Nepse/SEBON order) or not. Otherwise, selling or transferring ownership are better options.
Let's try to dig out further but we should not be in panic mode. This should be for reassurance/reconfirmation not for panicking. Better sense should prevail upon us.

Villains in Nepali share market

Rajesh Sharma

It is surprising to see political villains around share market in Nepal. The most influential role of a villain was played by BBR when he compared share market with gambling den (Juwa Ghar). Being afraid of such comparison, many investors did Harakiri (conscious suicide). After that, another villain appeared in the form of YRK (Governor of NRB). He did everything at his disposal to pull the market down. Even Dr. Dari sir (Finance Minister) was helpless to rectify something bad to help share market. And, came the turn of PKD. Making constitution drafting process difficult and throwing Andolan (agitation) as his weapon to do this, he terrorized many vulnerable small investors. Now, KPO has turned to a new villain, who could obstruct the process of constitution writing as his ambition to grab the chair of PM sounds derailed.

Hence, in Nepali share market, political villains have always been present since formation of PKD government. And, those villains are blocking the course of growth for a long time. Still, market is not only surviving but a bit growing too, which is good to note.

Some comments on share market sectors/companies

Rajesh Sharma

Some comments regarding sectors/companies, I have written in the course of replying the quarries of friends through FB message box.

1. Micro-finance companies are performing well till now. However, these companies' performance heavily depends on the policy of the central bank as they get funding from commercial banks which is highly subsidized in rate of interest. We could see this as escape route for commercial banks not to invest in priority sector but to get hefty return as investment in Micro-finance companies. Hence, for long term investment, these companies could be more vulnerable. But, for trading, they are fine.

2. Insurance companies are less understood. Their balance sheets are difficult to read for many investors. Hence, the rate of dividend, particularly bonus share part and possibility of rights shares are the parameters people understand easily. Hence, it is absolutely necessary for long term investors to understand the mechanism how insurance companies operate through and to enhance capability to know the performance indicators of the insurance companies. For trading, it is still fine again.

3. Hydro-power companies lack effective regulatory mechanism. The large hydro-power projects may suffer from Melamchi syndrome and many take several years for completion. Upper Tamakoshi could suffer from such syndrome. If a company has majority government shares, it could suffer from Radha Gyawali syndrome, means gross political interference like in Chilime. If it has been promoted by crooks, you could again loose money. This phenomenon could be called as NB Group syndrome like in NHPC. Some glimpses of this syndrome could be already seen in other companies also. The sector overall is not only profitable but very good for long term investment. Hence, long term investors should be better informed on such probabilities and should diversify their portfolio so as to mitigate any bad happenings.

4. Small companies of any sector could be targets of syndicates to increase or decrease prices and to control management. Hence, who holds shares of such companies should keep close watch.

5. Companies with foreign investment could be better managed. However, their primary interest is dividend in cash. Bonus share is further investment for them, hence, they are not inclined to bonus shares. Therefore, if you put money in Standard Chartered Bank, you should be mentally prepared to get cash dividend as high as possible and some nominal dividend in the form of bonus shares. Let's be aware and let's not be frustrated.

6. Banking is well regulated sector, but it is service sector. The highs and lows in regard to performance of a company in this sector is quite normal. This is high risk sector than real sector like hydro-power. Predictability in this sector is much less than in real sector companies. We have already seen some development banks and finance companies perishing. Even, commercial banks have gone to near collapse. KIST and Grand are two such examples. Prabhu could suffer one day badly as it has been eating contaminated cheap foods like KIST and Grand. Alternatively, it could do wonder if it could use KIST and Grand as nutrient rich fertilizer. However, it is more risky option anyway. Hence, long term investors should take into account that that banking sector companies also should be scrutinized properly.

In summary, we should develop our capacity and capability and should invest after basic understanding of the sectors and the companies. We should be clear if we are trading or investing for long.

For trading, understanding trend and behaving accordingly is more important than going through all short of analysis. Even rumor could be best utilized, though small traders have limitations in manufacturing and spreading rumors as truth. However, when big traders start some drumming, we could very well utilize that window of opportunity to buy or to sell. Technical analysis, to some extent, also may help to understand the trend. To be a good trader in Nepali market, at least for the time being, we should have a political analyst within us or with us. This will give us some additional advantage.

For long term investors, in my experience, there are three critical factors - 1. fundamental analysis of the company, 2. risk distribution (portfolio management) without stretching too much, and 3. courage to buy when the market is going down, particularly, sharply and holding the shares for long.

Note: The above mentioned opinions are not new as these are copied and pasted here from my mail box with some contextualization.

Probable political scenarios and share market

Rajesh Sharma

My comment on Gautamraj Rai ji's post about probability of formation of NC+UCPNM+Madhesi goverment
1. UML out of power is unthinkable as it has been glued to power. Bamdev will play spoiler to any change and Oli needs now to be wait-listed.
2. In case Congress decides to part company with UML, Koirala may not be the PM again. So, Koirala will play the role of spoiler of such arrangements at least till September.
3. In share market, win-win in politics would contribute a lot. Rather than taking side for this or that arrangement, we should stand for a government of national reconciliation participated in by all major political forces till the constitution is promulgated.
The danger here is that all of them could be busy competing in looting the state resources rather than promulgating the constitution.
Anyway, the third alternative is worth taking risk for now as the other two may impact in snatching peace for long.

Micro Finance Companies vs Hydro-power

Rajesh Sharma

Some friends have asked me, which company is better to apply in IPO - Barun hydro or Januthan Laghubitta. I send some replies throw messages, but the number now is considerable. Hence, I thought to post my opinion here.
Micro-Finance Companies (MFIs) are like instant noodles. They provide taste and energy instantly. Hence, the investors if they get any share could start enjoying lives immediately. The profit is there. However, they are small and vulnerable. Also, they are subsidized through low interest rate funding. If the central bank makes change in policy, the effect could be higher on MFIs. But, for now they are the best bet. Therefore, they could be most preferred companies for trading.
Hydro-power companies, particularly the project specific companies operate with some limitations - local pressure, not so clear regulatory framework and product diversification, no clarity about ordinary shareholder's ownership after handover to government. For, big conglomerates, they could diversify products and could survive for long. Still, regulatory as well as policy framework are the weak links. The larger projects like Upper Tamakoshi may become mini Melamchi and may get delayed by several years. Hence, barring the effects of concerted rumor, there is less chance that hydro-power project could give instant profit. Therefore, these companies better suit to long term investors, who do not wish windfall gain the next day. However, in Nepali market, which is in infancy stage rumor, sky-high expectations, herd mentality and many other uncritical and no real factors rule the market.
My final advice is that Nepali market generally does not follow the rules of the game. Politics plays more effective role here than performance of the economy and rumors influence more than companies' performance. Hence, we should park our money at our own risk.

Hydro-power companies vs BFIs

Rajesh Sharma

My comment on LI FA DA YAN ji's post about BFI's and hydro-power companies
In Nepal, hydro-power companies own hydro-power projects. The hydro-power mother companies are like Chilime, BPCL, AHPC etc. These companies get dividend from sister companies/subsidiaries/affiliated projects entities. Hence, buying shares of such companies is less risky than projects of 2 Megawatts or even 25 Megawatts. Therefore, I advise friends to invest in conglomerates such as above mentioned companies if you wish to take less risk compare to individual project companies or the subsidiaries of such conglomerates. However, individual project may do better and you may get higher profit also.

Now, coming to your question of investing in 2 MW/25 MW hydro projects as promoter, the lock up period is generally that of 6 years - about 3 years before IPO and another 3 year after IPO. One major benefit compared to banks, all its shares become ordinary shares after the locking period and market price will be better in comparison to BFIs.
However, always return depends on performance of a company/project.
There are 3 factors that help us building our portfolio - 1. our understanding of the core business of a company/sector, 2. growth prospect of the sector/company, and 3. our portfolio preference - diversification or concentration.
Hence, I advise you to reassess your situation and decide.
Just food for thought -
Banking institutions are better regulated and there is policy clarity. Hydro-power companies are relatively new entities and could be more vulnerable/might have better prospects, when policy framework becomes more complete.
If you have higher risk appetite, hydro-power companies are better. In any context, notwithstanding risk factor, hydro-power companies could be far better in regard to return, if you could hold for 3/4 years. If you just compare between promoter shares of BFIs and hydro-power companies, certainly hydro-power companies could be far better in 3/4 years holding period. For me, I have made a balanced portfolio mixing primarily BFIs and hydro-power companies.

Nepse Index Calculation and NTC's impact

Rajesh Sharma

My reply to Santosh Raj Bajgain ji on his comment on my own post.
Santosh ji,
NEPSE has adopted value weighted method to calculate the index. In this method, market capitalization is very important factor. (See http://topicbin.blogspot.com/…/how-is-nepse-index-calculate… and http://202.11.2.113/SEBM/ronso/no9_4/10_CHHATKULI.pdf).

NTC's paid up capital is 15 Arab and its Market Capitalization is 94 Arab 20 corer at the share price of Rs 628. Out of about 100 Kharb total market capitalization, NTC has nearly 1 Kharb, means about 10%. A single company having 10% of market capitalization, it is huge. Hence, it has a big impact on overall index.
Other big companies may neutralize NTC's impact.
But, the index for individual investor is just something not real. Many times, when market nose dives, I stay in profit and sometimes, when market jumps, I stay bleeding. Therefore, my experience as an individual is that not on index, we should be putting our information, time, energy and resources on selecting and investing in companies.