Kathmandu, Sept 29: Despite efforts by the government and regulators to create a favourable environment for the stock market, investors have yet to respond with the expected enthusiasm.
The government has cut capital gains tax, regulators have eased some rules for institutional investors, interest rates remain low and listed companies have started announcing dividends. Yet their combined impact on the market has remained limited.
After investors protested against an increase in capital gains tax introduced through the current fiscal year’s budget, the government reversed the decision within two months and lowered the rates below their previous levels. Capital gains tax now stands at 3.75 cent for shares held for more than a year and 5 per cent for those held for a shorter period.
Nepal Rastra Bank has also reduced the minimum holding period before banks and financial institutions can sell shares in their investment portfolios from six months to 45 days, giving institutional investors greater flexibility.
Deposit interest rates at banks and financial institutions have remained low for nearly two years, while lending rates have fallen to historically low levels. Lower interest rates would normally be expected to attract more investment into equities, but the market has shown little corresponding enthusiasm.
Dividend announcements have also failed to generate a strong response in share prices.
So far, 27 listed companies have announced dividends, with 16 proposing returns ranging from 10 to 20 percent.
However, compared with their prices before the dividend announcements, shares of only three companies have risen by more than 10 percent. Snow Rivers, Sarbottam Paints and Siddhartha Bank have gained 18.23 percent, 10.66 percent and 15 percent respectively.
Some companies have already closed their shareholder books, while dividend adjustments have been reflected in the prices of several companies, including major commercial banks. As the eligibility period for receiving dividends has ended for these companies, an immediate additional impact on their share prices may not be expected.
The dividend season, however, is not over. Many listed companies have yet to announce their payouts, making it too early to determine the overall impact of dividends on the market.
Still, weak investor sentiment has prevented the broader market from finding a clear direction. Lower capital gains tax, cheap credit, easier institutional investment rules and improved dividend rates have so far failed to generate the momentum policymakers and investors had expected.
A stockbroker said investor confidence remains the main weakness.
“The market has rarely had such a favourable environment. Perhaps it is now time to look for the reasons outside the market rather than within it,” the broker said.
According to him, government employees and major businesspeople who were previously active in the stock market have become largely inactive. The market has also struggled to gain direction because confidence among large investors remains weak.
The broker claimed that the arrests of businesspeople soon after the new government took office last March created concern within the business community. Subsequent arrests, he said, have further affected confidence among major investors, limiting their willingness to return to the stock market.
People’s News Monitoring Service
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