Featured, Market Watch

Late Night Edition: NIB kicks Bucket, NRB meets SEBON & Market Tumbles !

Published by Octron on August 25, 2009

NEPSE fell down 14.47 points on Monday, Aug 25th, 2009. The market has been going through the rough phase, despite good bonus share announcements from two major banks; NABIL & SCB. Nepal Share Market has been struggling to withstand the strong wind of political uncertainty and the news of 19% promoter shares being converted to ordinary shares. Today when the news broke out from the board meeting of NIB regarding 20% Cash Dividend, the market tumbled down like house of cards. The bank which made more than 1 Billion Rupees in profit last year was stingy & shameless enough to announce 20% Cash Dividend, not even Bonus Share.

As soon as the news marquee in the nepali share market and online websites, NIB sellers started offloading the crap out of their BT baskets. Angry investors in the broker rooms were shouting out and cursing the BOD of NIB calling them the biggest morons, who are killing the very shareholders who made the bank in the first place. Suddenly, NTC shares @ Rs. 560 seemed much more delightful than ‘A’ class banks like NIB. At least, you are sure it will give 25% dividend every year and its book value is much higher than any other bank shares.

NIB’s proposal of 20% cash dividend looks unreasonable when its EPS is above Rs. 32 and had made good profit last year placing it as 5th Most Profitable Bank of the year following NBB, RBB, NABIL & SCB. While NABIL & SCB has been pretty generous to give out 35% & 50% cash dividends apart from 50% Bonus shares respectively. NIB should have followed similar suit, at least that’s what the investors were awaiting for, but the history didn’t repeat this time.

The NIB proposal just raised question on every investor’s mind; Are we near the end (like we had written in Ice Age Chapter) of bonus and right shares. Will the market now correct itself focusing more on cash dividends? If so, then soon we will be seeing all major share price coming to just 3 digit figures and billions of rupees invested in the stock market will be lost in a thin air – Like a Magic!

While the above fear was taking over investors, the soon to be held meeting between NRB, SEBON & Promoters regarding conversion of 19% promoter share spread like wildfire. Imagine the market being flooded with huge block of shares (which are till now promoter shares) from big banks, finance, insurance and hydropower. As a result people sold off their holdings ahead to minimize the losses. The panic attacked sellers were throwing away whatever they had, at whatever price they were getting, which just brought down the NEPSE down by 14.47 points or 2.09 percent to 678.87 at the closing bell.

So, where do we stand now & what is the future like for the investors in the market?

NIB’s proposal of 20% cash dividend impacted heavily upon both big and small players. Be it investors or traders in the market everyone was disappointed to hear the BOD proposal. If NIB doesn’t rectify their proposal followed by some Bonus or Right Share, then there is very grim chance for the market to ever recover. Whole bunch of other banks that are in the pipeline for proposals might simply follow NIB suit by giving 10-20% cash dividends. So, if we were to get just 10%-20% dividend then why would we ever bother to buy shares at Rs. 1,000 to Rs. 6,000. Just deposit in FDs or saving schemes.
Unless NRB and SEBON jointly form strict policies for converting promoter shares to ordinary shares in terms of volume and duration this kind of situation will be arising every year. Nobody will be able to stop the market from collapsing. All the shareholders will just turn into sellers with no buyers in the market. The supply pressure will soon drive down the share prices near to IPO price (below 200 – 300, like NHPC).
Stop IPO Mania; From junior high school student to professors, engineers to labors, new born baby to senior citizens everyone is after these IPOs. In such environment, SEBON gives permission to release 5 IPOS in a month. Did they ever think where those IPOs will finally end up?
Does the secondary market mature and big enough to trade such volumes? In a market where hardly 40 – 50 transactions/scrip take place in a day, how would such huge volume of shares be traded?
Strict Regulation upon Bonus & Right Shares: Companies should not be allowed to distribute right and bonus shares every now and then, just increasing the quantity of shares by 50-100 folds every year. While the investors increase by 10%-15%, volume of the shares are increasing by more than 1000% contributed by Right Shares, Bonus Shares & not to forget IPOs. Instead of Bonus, Right Shares companies must be strictly motivated to provide good cash dividends (above >80%, not like NIB or CZBIL) instead of pooling the profit cash back to increase paid up capital.
Isolate from Politics: Though politics have strong impact upon market and economy in every country, investors in Nepal should now learn to isolate political tug-of-war from trading. We have been seeing political doldrums for pretty long time (since 2046 B.S. Revolution). As every other thing like load-shedding, water scarcity, high inflation now we should get used to it. Investors should not be bothered by these cats and dogs fight anymore, it will be going on whether you trade or not.