A few notes published on FB forum - Nepalese Investors' Bandstand from September 21 to October 5, 2016

Rajesh Sharma

1.    1. It is all about expectation when the dividend has been declared. If it is more than what was the expectation, the price increases, if it is less, the price decreases. SICL gave bonus beyond expectation, the price increased. SBI also gave comparatively good dividend, but the price decreased as it did not declare rights share as that was expected. For investors, it is no big deal, but for traders it makes lot of difference.

2.    NLIC and NLICL

Now, NLIC's FPO and NLICL's bonus shares are the talk of the discussion forums.

The FPO pricing method is very clear in alphabets but is vague in sentences, paragraphs and directive. Hence, it is only natural to guess with big differences. Some speculate 1000 and some others believe that that will be above 2500. However, it will not directly benefit current shareholders as that additional premium money will go to reserve fund and sometime in distant future the amount will be distributed, probably in the form of bonus shares. Yes, it will make the financial position of the company strong. Hence, current debate will have limited significance for current investors of NLIC but will be useful for them who are planning to apply for FPO. Anyway, by rejecting NLIC's first proposal SEBON tried to make the management accountable and transparent.

Regarding NLICL's 30%, many have passed the judgement that it is too little too late. Yes, it is too late but not too little. This bonus share is just for FY 71/72. As reported by sharesansar.com, yes it is from the earning of 2071/2072. (http://www.sharesansar.com/c/national-life-insurance-propos…) For 72/73, there will be next offer may be this year, may be next year.

In case of FMDBL, they played trick by just declaring 15% bonus initially and added 50% right afterward. Their strategy failed flat as pessimism run high and also the market started falling down. The same trick may have been played by NLICL management. Such activities need to ban by SEBON to discourage insider trading.

3.    The market is moving towards stabilization. In this process, B. K. Shrestha and his associates played significant role. Particularly, B. K. Shrestha checked the pace of downward journey of the market by playing master stroke of "increasing greed among others" strategy. Some people use rumor for this pleasant phrase . But, I think, this is greed manufacturing strategy.

He presented already beautiful EBL with bride-like make over using some cosmetics with magnetic field. In the false or real hope of high bonus shares, many investors lined up to grab EBL shares. This led the market to optimism and gave relief to thousands of investors.

Although, B. K. Shrestha and his associates minted, perhaps, millions of rupees in this process but their contribution to market stabilization was too greater than the profit they made.

The pace of fall has already been checked to single digit and may start the upward journey though insignificantly but confidently. When the festivals of Dashain and Tihar would be over, the market may increase its speed for forceful upward journey. The positive first quarter reports of companies and money coming back to financial system once again, when festivals would be over are some indications of such possibility.

4.    The companies' performance during last year was by and large commendable. Notwithstanding the severe impact of the devastating earthquake and the blocked, a large majority of companies performed well and offered attractive dividend. The fundamentals of the companies and their growth prospects are strong. The overall economy also is expected to grow comparatively better than last year. In political front also there is relative stability. In such situation why market has been falling continuously down?
The market had jumped high in a short period of time. Hence, a major correction is not an abnormal phenomenon at all. Therefore, a normal major correction was underway. In the mean time, the central bank Governor's opinion about the price of microfinance companies' shares and the NRB's caution about difficult days ahead added fuel to fire by inducing FEAR factor. Many investors, particularly traders hear loud, listen less and understand far less. Hence, FEAR gripped the market and free fall ruled the day. 
Now, when FEAR has taken over the market sentiment, it may take time to stabilize. However, there are no strategically influencing negative factors that lead to a prolong bear phase. Hence, after a short period of major correction or shallow bear phase, the market should stabilize and upward movement of strong bull may commence once again with full force. However, the market may be in nominally red or in weak green till the major festivals are over.

5.    When the market goes down, it offers opportunities. Only because many among us follow the crowd and panic, and so fail to exploit the opportunity. We should simply buy and if we have no resources ready, we should hold. If the down trend continues and mass investor psychology is at panic mode, we have to sell even some good shares to increase the same shares within a week or month.

There are two ways to build resource base for good profit - increased price or increased number of good shares. We have to generate new ideas to survive or even flourish when the market is in panic mode.

We can not change the course of the market, but could change our investment behavior. There is always risk in the share market. This is a given fact. Hence, we should calculate not only dry figures but also risk involved.

When, have free resources and we could take heavy risk, it is fine to go for any charming but risky company. But, if we are in a situation of risk saturation, companies with far less risk such as NIBL, GBIME, NTC or even Nabil could be best. Slow moving shares have comparatively less risk than fast moving shares like NLIC, CIT etc.

Now, the market has been continuously moving downward. May be this trend will continue in slower pace. Or, will start the reversal. Even objective and historically sounding correct analysis are not passing the test. Now, it seems that only demand-supply factors have been dominating the market. Hence, we should plan accordingly.

Reposted from Nepalese Investors' Bandstand (NIB)

Rajesh Sharma

When there are several negative rumors at a time, we should wait for a while. When rumors start to evaporate, we should buy. Again, when rumors start making round, at the very beginning we should sell. Th at could be a better strategy in dealing with negative rumors.

Now, no fundamentals in economy and for major companies have gone negative. Hence, some procedural things like decrease in percentage in margin lending etc. are minor regular activities and may affect for short period of time.

Update

Rajesh Sharma

After a long time, I have updated this blog. From now on, I will write my opinion here on this blog.

A Few comments posted on Nepalese Investors' Bandpost

Rajesh Sharma

1.    Quite a good number of friends have asked me if I was serious in regard to selling insurance shares selectively. My logic system has told me to sell insurance and move to banking. But, my motivation to maximize profit asks me to stay with insurance.

To balance both scenario, I finally decided to HOLD both at least for the next one week. However, it is also due to the spread of my portfolio that is heavy on banking side.

A friend has asked me what I mean by "selectively". Without going by financial logic, I had used this term thinking to sell shares of 2 insurance companies, which grew in price by more than 100% within a few months. (Now, I have shares of 5 insurance companies.)

We should see our portfolio, risk taking capacity and conditions, health and prospect of the company the shares we have and the trend that is related to the company, etc and such factors could influence our decision. Hence, buying or selling or holding is a unique individual phenomenon and it differs like the faces of human being - total more than 7 billion but all different.

2.    The heavy volume of transaction and large spread of companies present daily in the market have been signaling the increase in nepse index significantly, till it reaches another landmark, say 2000.

The heard mentality of we Nepali people also has been contributing to this increase. Once, we were after boarding schools, and they mushroomed all over Nepal. We moved to co-operatives and they are too many now. Even our enterprising ladies started a few beauty parlors and we have signboards hanging everywhere.

The crowd seen in the IPO queue, perhaps, heard about secondary market and it gate crashed to several brokers chambers. Now, we old and experienced fellows are busy minting money.

However, everything has its life and so is moving market - up or down. We should keep this bitter truth somewhere at the sense of reasoning center in our brain. Good luck, Nilesh Manandhar ji.

FPO: Fooling Public Overtly. FPO has become the instrument of fooling public at large that too overtly by saying even a lousy company also will issue X% of FPO. We should know that, for now, FPO will be issued only to correct the promoter and ordinary share ratio at 70:30,Top of Form

3.    Issuance of Rights shares has become one driving factor to take the market steep up. However, without a sustainable growth plan, the increased capital will be a burden for the company and its profit could fall down. A healthy profit making company also could fall in a trap of high capital burden and dividend may fall sharply.

For traders, the day is most important followed by a week and a few months. They could afford enjoying the benefit created by the sentiment of higher Rights Shares. However, for investors, even one year period is nothing as they invest for far longer period of time. Hence, they should examine the issuance of Rights Shares of a company against its realistic as well as sustainable growth plan.

4.     Market has been in galloping mode. Optimism is so strong, yesterday, there was not much negative impact of nlic case even in insurance sub-index. In insurance, there was only marginal decline, whereas banking glittred.

The market has been expanding. The volume has been going up daily generally. Everything sounds great and growing.

However, market is unpredictable and it balances itself during bull or bear or in-between.

Hence, we should remain alert and should go by individual company and the prevailing trend.

We should keep in mind when a strong bull gets succeeded by equally or even greater bear, several investors loose their sense of judgement, assets and social standing. This is high time to be aware of and carry out business as usual not being overly excited. We should have our feet on the ground and temperature of the body and mind as cool as possible but not freezing.

5.    As things sound murcky and the act of disclosing the FPO price most unethical; it would be strongly desirable and compatible with prevailing sentiment of the investors to derecognize all transactions of NLIC done last Thursday.

6.    Banking now is an active sector, insurance is super active and hydropower is dull. Manufacturing and hotel sectors are guest participants. Other or ntc is a partcipant that is always invisible.

Among the active banking sector too, some are good but relatively dull like gbime and some are supper active like nbb. Hence, we have choices - dull sector and companies are less risky and also less profit making, whereas the super actives are highly risky and could bring higher profit.

In present market, risk takers could move to insurance, moderate risk takers could assemble around banking and low risk takers could be with hydropower. In general, this sounds better. However, when we actually move to companies, we have to do the risk assessment.

7.    There is no guideline/regulation to govern FPO/Premium issues in Nepal. Generally talked about practices are three times of net worth and average base price. In absence of clear governing regulations, anybody can interpret in any way.

Now, NLIC FPO has raised issues, which may settle many absent/unsettled/ambiguous practices/provisions/rules. Hence, till it is approved by regulators like Insurance Board/SEBON, the proposed price is just a proposal. All investors should understand that this could be different in its final phase.

There could be two ways to address this issue - X times of net worth or free pricing. Both for FPO and premium shares could be governed by the same regulation/guidelines/rules. Or for FPO, it could be X times of net worth and for premium share that could be free pricing method.

Moreover, FPOs and premium shares could be sold through auction.

This is high time for regulators - NRB/Insurance Board/Energy Department(?)/SEBON to address this issue promptly to safeguard the interests of all - investors, companies and regulators themselves.

Till the dust settles down, better we be cautious in running for shares of companies, which are issuing or planning to issue FPO/premium shares

8.    My reply to a post by Bhola Subedi in Share Bazaar: Political, Social and Economic Environment about CHCL

As the company was very good, I hold its shares the whole period of its journey from 2700 to 1200. When it fell below 1200, realizing that mass investor preference had moved away from chcl, I sold most of Chcl shares and moved to other companies. I did course correction with great reluctance. It helped me to recover partly. Hence, sticking to good company also sometime becomes unhelpful.

Please analyse once and make decision.

Media and Market

Rajesh Sharma

Posted on November 24, 2015 on Small Investors Creative Ideas/NEPSE Discussion Forum/FB

A few journalists are working over time to magnify facts, manufacture rumors and sell this time roses and next time thorns according to the need and instructions of their pay masters. This is more true about EBL. For a long time, I have been following articles, news items and opinions in discussion forums of financial portals as well as social networking sites about EBL. My time and energy that I put following these media produces led me to the conclusion that they are highly motivated. The officials at the central bank also sound party to production of falsehood. They do not clarify and keep things in ambiguity so as to help creating panic among investors. Hence, I have made a conscious decision for myself that I will read stuff available but do not believe till I verify facts and evidences myself or read such facts, evidences and analysis by other friends who are trust worthy like Purusottam Raj Chimouriya ( Puru R. Chimouriya ) ji.

Nepse in auto pilot

Rajesh Sharma

Posted on November 22, 2015 in Nepse Discussion Forum/Small Investors Creative Ideas/FB

Now, NEPSE is in auto pilot. The command and control system is politics. Though the bad shape of economy will influence the market, but this would be a peripheral factor if investors see better prospects in future. Therefore, the auto pilot function has been blended with politics.

Not a good time for traders particularly. Investors could increase the number of shares if downward movement continues. Five things we could do now. 1. Sell and wait to increase the number of shares by buying a few days after. 2. Move from non promising company to promising companies by selling and buying as soon as possible. 3. Hold firmly and be ready to wait longer period of time - may be a year or more. 4. Sell and exit from the market, and 5. Finally, buy being selective and buy in small installments fully knowing the risk and opportunities.

Personally, I was buying in installments in moderation. After averaging a few times, I calculated now and all scrips are in loss. As a "never say die" optimist, I have decided to HOLD and may be add a few if my finances allow and the price is too tempting. If political situation turns to positive, I will be a winner. If it goes to further hostile territory, I may be in greater loss. But, this is how we go on - by stepping into zones of ambiguities and uncertainties.

Control over emotions

Rajesh Sharma

It is absolutely necessary to control over our emotions while making investment decisions particularly when the market is sliding down or galloping up. This is the time to test ourselves to know if we are mature enough or still are armature ones.