A reader friendly guide on the Nepal stock market with a primary focus on buying and selling of shares.
What we’ll cover:
- What is the stock market?
- How do you invest in the stock market?
- How do you earn money in the stock market?
- How is Nepal’s stock market structured?
- What are the requirements for investing in the Nepalese capital market?
- How to invest in Nepal’s share market?
- How to trade online on the Nepal Stock Exchange?
- How are buy and sell orders processed on NEPSE?
- How long does it take for settlement?
- FAQs: Nepal Stock Market
What is the stock market?
According to Investopedia, “The stock market refers to the collection of markets and exchanges where regular activities of buying, selling, and issuance of shares of publicly-held companies take place.” The stock market is also called the equity market or shares market.
In simple terms, the stock market is where you can buy and sell shares. There are other financial instruments that are traded in the stock market like debentures, bonds, mutual funds. But, we’ll primarily be focussing on shares here.
How do you invest in the stock market?
There are two primary ways of investing in the stock market: the primary market and the secondary market.
The primary market is where securities are first created. When a company wants to raise funds they can issue new shares to the public. An Initial Public Offering (IPO) is an example of a primary market activity so are Rights Issues and Further Public Offerings.
Then once the shares are issued and listed on the Nepal Stock Exchange then they can be freely traded in the secondary market.
How do you earn money in the stock market?
There are two main ways to earn money in the stock market: dividends and capital growth.
Dividends are profits earned by a company distributed to its shareholders in proportion to the number of shares held. Dividends are paid out of profits so they’re never guaranteed.
Capital growth refers to the increase in the value of assets or investments over time. If you bought a share at NPR 200 and the value of the share increases to NPR 250, your capital has grown by NPR 50.
How is Nepal’s stock market structured?
Key market players in the Nepalese Capital Market:
- Securities Board of Nepal (SEBON) is the main regulator of the Nepal Stock Market.
- Nepal Stock Exchange Ltd (NEPSE) is the only stock exchange in Nepal. NEPSE’s main objective is to impart free marketability and liquidity to government and corporate securities by facilitating transactions in its trading floor through member, market intermediaries, such as brokers, market makers etc.
- CDS & Clearing Ltd provide centralized depository, clearing and settlement services in Nepal.
- Merchant Bankers conduct underwriting and fundraising services for companies. They provide issue management for Initial Public Offering (IPO), Further Public Offering and Right Shares.
- Credit Rating Agencies provide a credit risk rating for individual companies, stocks, bonds etc. Currently, there are two credit rating agencies operating in Nepal. They are ICRA Nepal and Care Ratings Nepal Limited (CRNL).
- Stock Brokers are intermediaries for buying and selling securities in the stock market. Currently, there are 50 licensed stock brokers in Nepal.
What are the requirements for investing in the Nepalese stock market?
To invest in Nepal’s stock market, individual investors need to have a:
- Nepalese citizenship,
- Bank account, and
- Demat account, short for dematerialised is an account to hold your financial securities in electronic form.
Institutional investors will need:
- To be a registered company in Nepal,
- Bank account, and
- Demat account.
How to invest in Nepal’s share market?
To invest in the primary market such as IPOs, FPOs and right issues, investors will need to:
- Open a Demat account
- Take login credentials from Meroshare
- Take C-ASBA registration number (CRN) from your bank
- Apply for IPOs, FPOs, Right Shares through Meroshare
To invest in the secondary market (buy and sell on NEPSE), investors need to:
- Select a stockbroker
- Open Demat account and Broker Trading Account
- Place buy/sell orders:
- Online via broker provided Trade Management System or
- On the phone, by calling up the broker and making buy or sell orders.
- Make/Receive payments or transfer/receive shares
How to trade online on the Nepal Stock Exchange?
To start trading online through the Trade Management System (TMS):
- Sign an online trading agreement with your broker.
- Get login credentials for the Trade Management System.
- Deposit collateral for availing trading limit.
- You can make payments online via Connect IPS. This is highly recommended.
- Enjoy hassle-free trading.
How are buy and sell orders processed on NEPSE?
When buyers and sellers give their buy or sell orders to their stockbrokers. The orders are then placed into an order matching engine. An order matching system or engine is an electronic system that matches buy and sell orders for stock markets. Once orders are matched, the trade files are sent to CDS and Clearing Limited (CDSL) for settlement and clearing.
And on settlement day, CDSL will pull funds from the buying brokers and securities from selling brokers. Then the settlement is completed.
How long does it take for settlement?
The settlement cycle is:
- T+0 is the trade date
- T+2 is the cut off date for transferring sold shares through meroshare (if selling) or payment (if buying)
- T+3 is the settlement date.
- T+4 forwarding of payments for sold shares and forwarding of shares in case of purchase.
Please note that the transfer of shares or funds has to be completed by 12 noon.
Basically, if you were buying shares, you’ll have to make payment within 2 days of the trade date and the settlement happens on the third day after the trade date. The shares will arrive in your Demat account on the fourth day after the trade date.
What happens if you default or pay late?
Under current rules:
- If the seller defaults, a 20% penalty on the transaction amount is levied.
- If the buyer defaults, your shares don’t get credited into your Demat account on time and the broker can also charge interest on the delayed payment.
Please note that certain other terms and conditions may apply.
FAQs: Nepal Stock Market
How to analyse share market in Nepal?
There are two main methods of analysing share market in Nepal or anywhere else: fundamental analysis and technical analysis. Most investors use both when making an investment decision.
Fundamental analysis is a way to analyse a securities intrinsic value by looking at earnings, book value, valuation etc. If you’d like to learn more about fundamental analysis and in particular value investing, The Intelligent Investor by Benjamin Graham is a great starter book to read.
Whereas technical analysis seeks to predict the share price movements by examining historical data such as price and volume. To learn more about technical analysis, you can read Getting Started in Technical Analysis by Jack D. Schwager or William O’ Neal’s How To Make Money In Stocks.
What is AGM in share market?
AGM or Annual General Meeting is a mandatory yearly gathering of shareholders where the directors of the company present an annual report containing information for shareholders about the company’s performance. At an AGM, shareholders can also ask questions and express their concerns.
How big is Nepal’s stock market?
As of December 27 2020, NEPSE’s total capitalisation was NPR 2,688,523.84 million or 2.68 trillion. The highest singly daily turnover was NPR 9.2 billion which was reached on November 29 2020.
Nepal’s stock market is still developing and is currently relatively small compared to other countries.
What do bear and bull mean in the stock market?
A bear market is a market where share prices are falling and investors have a negative sentiment towards the market. Whereas, a bull market means a market where shares are on the rise and people are more optimistic.
One way to remember this is to imagine a bear swiping down which is alluding to downward pressure on stock prices. Similarly, a bull swings its horns up alluding to the upward mobility of stock prices.
Do you have any tips on the stock market? Feel free to leave your thoughts or comments below.