Why Nepal's stock market is booming amidst a pandemic

Riya Shrestha has been investing in Nepal’s share market for the past five years or so. 

"When I started working, I decided that I wanted to make sure my money was going to the right place, and there’s no better option than investing in the share market," said Shrestha, a 23-year-old educator, who had been encouraged to participate in the trade by her mother since she was 18.

But her interest in the Nepali share market started peaking more in 2020 -- the year the market suddenly boomed with an exponential surge of new investors. According to a report by SEBON, the apex regulator of the country’s stock market, last year alone, the number of MeroShare accounts has increased from 7 lakhs to 26 lakhs, and Demat accounts have doubled to 36 lakhs. MeroShare is a platform to participate in the primary stock market, while a Demat account is derived from bank accounts and can hold shares and securities in electronic format. They are both essential for stock trade.

"I believe the pandemic has played a part in the growth of Nepal’s share market," said equity analyst Dimpi Singh. "It was the major reason that caused different factors to come into play. For instance, with the lockdowns, there was a dearth of investment opportunities elsewhere so people started investing in stocks. The pandemic also encouraged a rapid adoption of online trading. Also, the rising index itself attracted new investors."

This rising index refers to the bullish trend Nepal’s market has been witnessing since 2020, and investors are optimistic that there will be a sustained rise in share prices in the long run.  

 Despite Nepal’s economy suffering under the strain of the pandemic since it started last year, with economic activities estimated to have contracted by 2.1 percent in 2019-20 and expected to grow at only around 2 percent in 2020-21, the ongoing growth of the share market has left even insiders surprised.

"With the country in lockdown, many Nepalis have channelized their money into the capital market, creating a push in demand and induced the current bull run," said Shashwat Pathak, another equity analyst, who also believes Covid-19 has led to an increase in market participants. A bull run or a bull market refers to a stock market that sees a sustained rise in share prices.

"The bull run naturally attracts new investors and a young population that was left with more leisure time at disposal. They have used the capital market as a tool to generate or even substitute some level of income." 

In addition to the pandemic creating a more active stock market, the implementation of online trading systems (NOTS) and easy online payment systems have also facilitated the participants, says Pathak. The primary market participants -- people who apply for the Initial Public Offering (IPO)-- have an annual growth rate of 157 percent, rising from 0.7 million to 1.8 million. In the past eleven months of the current fiscal year, 2020/2021, the total turnover has increased by a whopping 812 percent from Rs. 135 billion to Rs. 1.2 trillion, according to Pathak.  

Rojesh Shakya, 27, learned about the digital stock market and began trading stocks because of its convenience after the first lockdown in March 2020. Shakya had previously tried his hand in investing in the stock market almost six years ago, when he was 21, but he had lost interest due to the hassle of long queues. "Back then, when I first started, I had to stay in long queues to fill the IPO, and when I got allotted an IPO, then again I had to stay in the long queue to collect the certificate. It wasn't as simple as it is today, so I had taken a gap of around six years," Shakya said.

 Earlier, there were many processes to follow to buy and sell the stocks by being present in the broker's office, says Shishir Gyawali, who has been investing in the stock market since 2014. "But now it is just a matter of a few clicks with the help of online platform integration of NEPSE [Nepal Stock Exchange Ltd]," said Gyawali.

In his early days in the share market, Gyawali lost a significant amount of money, he says. "Initially, I was investing without studying the market trends, and I lost a lot of money. But in the past year alone, I have generated more than 50 percent of my capital investments," said Gyawali, 31, a real estate manager. 

 According to Singh, it’s not just individuals who are flocking to the market. Educational institutions are also educating and encouraging students to trade stocks. According to Singh, BBA and MBA students from various business schools in Nepal, such as KCM, KUSOM, and Rajdhani Model College, have been running stock market sessions and training.

"It's effortless to open a Demat account these days, which has helped increase young people investing," said Singh. "Capital market posts have been circulating on social media and some colleges have run stock market sessions and online stock trading classes are also on the rise."

Equity investment training and financial literacy campaigns have also been conducted by different companies. “Such training, like the one conducted by Nepalipaisa, an online platform for the stock and share market, has helped them realize the importance of long-term equity investment to build a sizable nest egg," said Pathak. 

Gyawali had also attended courses to invest in the stock market and take advice from other investors. However, unlike Gyawali, many investors like Shrestha and Shakya have not taken any formal classes on online stock trading.

"With easy information access, it is much easier now to accumulate information on the stock market to make the right investment decision," said Shrestha, who has been learning how to trade stocks from YouTube and taking advice from family and friends.

Likewise, Shakya has also been conducting his research regarding the stock market and learning from his father. "My father guided me as he was always involved in the stock market, so I followed in his footsteps and got into it," said Shakya. "As I was so curious, day by day, I started researching about it and gained more knowledge regarding it."

According to Pathak, young investors have a high-risk appetite which attracts them to the current bull run. However, he also warns that they might be gullible in this risky period.

Similarly, Shakya warns about the risks of investing as it can also be addictive. 

"There's a saying 'Money attracts money,' and I think investing in the stock market is the best place to earn some money. Once you are into it, you tend to be more addicted to it, but everything has pros and cons. One must be proficient enough to know when to take an exit," said Shakya.

Shakya says that there are obvious benefits in investing in the primary market, but investors need to be calm and patient while investing in the secondary market.

"As time passes by, I learned that it's one of the platforms where I can make money, learn about businesses, industries and gain much more financial knowledge, which would be very helpful for my existing businesses," said Gyawali.