We must understand some basic things before entering the secondary share market in Nepal or Nepse. IF you are here then I assume you are already engaged in the primary market or you have already opened a D-mat account and obtain Mero share login credentials.
Must of us are engaged in the primary market for a long time but have no idea about the secondary market. Holding shares in Demat but confused about whether to sell or hold. Understand the financial statement and talk a lot about NEPSE but yet to start trading in Nepse or secondary share market in Nepal, etc.. etc…
I know, you have a hell lot of questions because I was also there, once.
I am not an expert to suggest whether to sell or hold and I am not going to do that but I will suggest about
- Information to be considered for decision making
- Source of information
- Book to read
Following are some of the things you should know before investing in the share market in Nepal
The procedural requirement
- Must have a Demat account and Mero share.
- The trading account with brokers
- Nepse TMS from brokers
You may like FAQ regarding NEPSE TMS
Source of Information
- Nepalstock, SEBON, and Website of the company for Raw information.
- Newsangalo, Merolagai, Nepali paisa, Sharesansar, etc for financial News and others
- you can update yourself from financial news or information from any news portal.
For primary and raw information we should always visit the site of Nepse or a particular company website. But for other financial news and update, we can visit any financial news site.
Never take the conclusion from a private news site and social media rumors. Just take the information and verify it from a reliable source, then use it in your decision making
Law and regulation
Securities act 2063, and all other regulation and bylaws, including Nespe Bylaws and company act
If you can then every law and regulation related to the regulatory bodies like BFI’s, NRB act, insurance, etc to understand the regulatory requirements.
It is almost impossible to go through all the law and regulation but you should understand some provision like
- The procedure of issuing the right share in Nepal.
- Compliance requirement to issue Bonus and dividend.
- Book closure and price adjustment.
- The time period for publication of the quarterly and audited financial statements.
(you should read some sections of the companies act (from ocr.gov.np,)and related regulation from the legal section of SEBON, to understand above, in due time we will also try to add information regarding the above)
Information to be considered before making a decision in the secondary market.
Performance of the industry
While analyzing share/Stock we must analyze the current performance, future prospects, and effect of regulation in the particular industry like…
Performance of the hotel industry (airline industry in case of international market) during the Covid-19 pandemic.
The future prospect of the IT industry (although we don’t have any listed company as of now)
Government subsidy for the particular industry etc
The ownership structure of the company.
- The entity’s primary going concern, long term vision depends upon owners or major stakeholders.
- Sometimes we find The dispute between owners, which leads towards the weak performance of the company and ultimately reflects in the share market.
- we should select a company where promoters have a major holding.
Along with ownership, we should check the background and performance of the management team and key decision-makers.
Information about the management team is available on the company website or annual report.
Basically the objective behind fundamental analysis is the identification of the actual value of a share. For that, we have to analyze the financial statement of the company. To understand the detail about fundamental analysis, you should visit Investopedia.com.
Here is the list of some fundamentals you should understand before starting investing in the secondary market.
Earning per share
You can find it in the financial report of the company.
If you want to calculate then divide the total profit of the company by the total number of shares. which is also available in the FS.
compare it with the EPS of last year/last quarter to understand the growth pattern and the future prospective.
Calculate by Dividing Current price by the share by EPS.
compare it with other companies or industry average (i.e find out the PE ratio of the banking industry and compare it with NIC Asia).
Find out the value of the share whether overvalued or undervalued to decide purchase or sale.
While analyzing EPS or PE always take a look at other income, and consider the effect because these are the income that helps to increase current EPS but may not be available in the future.
Book value of the share to know the worth in case of liquidation.
Reserve and surplus to know the capacity of bonus and dividend distribution.
The number of listed shares to understand market fluctuations.
These are so many ratios we should analyze to obtain the value of a share and projection like debt-equity ratio, loans, and deposit in case of financial institutions, etc
Shares should be valued on the basis of its underlying assets i.e company’s performance but when there is an open and free market place it becomes a separate commodity that’s why demand and supply play a vital role.
Because of that, we should understand some basic analysis.
For technical analysis, we need charts or Graphs of Nepse. For that either you should visit the new site of Nepal stock exchange and switch to advance chart or visit “Nepse chart.com” which allowed free access.
Some basic indicators to start
Understand some candle Pattern
Check the resistance and Support for the particular stock and overall Nepse
” The more you learn, the more you earn”Warren Buffett. “The more you read, the more you learn”unknown.
The Intelligent Investor is my favorite one, you have multiple choice.
Some Basic to start Secondary share market in Nepal
- Find out the company having a high number of share listing in the market to avoid huge fluctuation.
- Find the company having PE on an around 15.
- Check 52 weeks high and low.
- identify recent support and resistance (i.e the upper and lower share price from where the price is repeatedly reversed)
- Check upcoming Rights
Check effects in the market of the previous right issue.
Right, share issue steps: Board meeting – approval from member (AGM /EGM) – Preapproval from a regulatory authority-application to SEBON -SEBON approval-Book close-issue.
- Check some video in the SEBON Facebook page you will find useful tips from a recent training program.
- Market depth (from TMS account if you have if not then visit Nepal stock site) to understand buy and sell pressure.
Disclaimer: This content meant purely for educational purposes and may be useful for new investors. It contains only the writer’s understanding of the subject matter and intended for general information only. It shall not be treated as professional or other Expert advice.
CA Bishnu Prasad koirala