NepalStock Exchange (Nepse), the only stock market of the country, crashed on Mondayas the benchmark index plunged 51.89 points, or 4.25 percent, on a single dayto close at 1,168.55 points. The stock market which was on a downward trendsince the last few months went into a freefall on Monday as investors scrambledto sell their shares in the bearish market.
  
A statement by Minister for Finance, YubarajKhatiwada, who reportedly said onSunday that there is no reason why stock market should not fall, has been citedas the immediate factor behind the panic sell-off among investors. The secondstatement on the stock market by Finance Minister Khatiwada came amidinterpretation by many investors that his interview last month with the BBCNepali radio suggesting that stock market is an unproductive sector causedstock rout.
 
Due to rapid fall of the benchmark index, Nepse imposed a circuit breaker inthe market and suspended trading for 15 minutes. The circuit breaker is appliedas a measure to give investors a chance to pause and make trading decision whenthere is extreme volatility in the market.

Though theremark from Finance Minister Khatiwada has weakened the confidence ofinvestors, analysts said the major factor behind the stock slump is the hike ininterest rates by banks and financial institutions (BFIs). As BFIs starved oflendable fund have raised the fixed deposit rate to 11 percent, many investorshave now found bank deposits less riskier and more profitable investmentopportunity.
 
“Investors are not getting cheaper money anymore, which was the case until lastyear. Instead, interest rates are rising to an ultra-high levels which meanthose who were borrowing to make investment in the stock market have beenopting to offload,” said a merchant bank's CEO, requesting anonymity asSecurities Board of Nepal (Sebon) has ordered them not to speak to the mediaabout the stock market. “The market was bound to go intoa slump not matter who the finance minister,” added the CEO.

The stock routon Monday alone wiped out paper wealth worth Rs 60.8 billion as the marketcapitalization fell to Rs 1,368.94 billion. 

The marketremained on a bullish trend until last year when investors were enjoying bothcheaper financing facility from BFIs and stock dividend from BFIs and insurancecompanies who were under pressure to increase their minimum paid-up capitalrequirement multi-fold in line with the rule. Lured by the prospect of rightsand bonus shares from BFIs and insurance companies, investors went on a buyingspree which sent the stock market to a record high of over 1800 points.However, the stock market started to retreat when those rights and bonus sharesgot listed in the market, resulting into oversupply of securities.
 
“The stocks were on a peak even though the market fundamentals were notjustifying the price,” said the merchant bank's CEO. “The market has now notbeen able to suck up the supply of shares while investors are rushing to sellso that they do not lose everything when the market falls further.” 

Source : MyRepublica, 27^th March 2018