Stock market swings with political developments

KATHMANDU, Aug 9: Nepal Stock Exchange (Nepse) saw unprecedented upheavals during the 2008/09 fiscal year, as a series of political developments - mainly the formation of Maoist-led government and its strict income disclosure policy - took toll on investor´ confidence, affecting the country´s sole secondary market.The year saw the formation and fall of the Maoist-led government, and analysts tie up the market´s performance with it. Statistics too show that market lost over 400 points in between the formation and fall of the Maoist-led government. The Nepse, the barometer of the investors´ confidence, dropped to its lowest 609.46 points on January 22, when Maoist-led government decided to investigate on sources of income going in the shares. It reached a record high of 1175.38 points on August 31, 2008 just two weeks after the former rebels formed the government.Share analysts point out three major reasons behind the upheavals: low investors´ confidence in the Maoist-led government; policy decisions such as hike in capital gain tax and stringent VDIS enforcement measures, which investors saw hostile to stock market; and the impact of global meltdown.“Rise in capital gain tax on share transaction by the erstwhile government and subsequent controversial remarks by then Finance Minister Dr Baburam Bhattarai on capital market disturbed investors and created selling pressure that dragged down the share prices,” Nanda Kishore Mundada, president of Nepal Stock Brokers´ Association, told myrepublica.com.The Maoist-led government had raised capital gain tax from 10 to 15 percent in the budget for the 2008/09 fiscal.The Voluntary Disclosure of Income Scheme (VDIS) that troubled the business community, albeit temporarily, pushed the Nepse further down. The Nepse dipped to its lowest at 609.46 points after the Nepal Stock Exchange Ltd provided a list of 300 individuals, whose share transactions exceeded Rs 5 million in a single trading, to the Inland Revenue Department.“In the beginning of the fiscal year, the market had blown out of proportion with the investors wildly putting their money in shares after most of the listed companies submitted high profit status report at the Securities Board of Nepal, the stock regulator,” said Mundada. “However, Nepse took the corrective path in the days that followed.”The new UML-led government, formed on May 23, lowered capital gain tax to 10 percent and also promised some market-friendly programs like Central Depository System (CDS). The decision made immediate impact on the stock market.The upheavals over the year dragged Nepse´s turnover down by 4.99 percent to Rs 21.68 billion in 2008/09 fiscal year, compared to Rs 22.82 billion in the preceding year. Most of the trading groups saw decline in their shares transactions, including the commercial bank group, the most sought after group in the secondary market.However, total market capitalization rose by 40.05 percent to Rs 512.93 billion during the year as shares of new companies entered in the secondary market.