Featured, Market Watch

NEPSE Uprising ?

Published by Octron on May 12, 2010

“Within 2 days, nearly 40 points gain. ” a fellow trader called me up to announce me the news. Well, its always good to hear NEPSE rising up, but why this sudden upswing now?

After Maoist so called the THIRD revolution going tai-tai-fiss, is it the investors who is revolting against ever declining INDEX ?

What was cooking in the news that was so much positive about the economy, government or even budget?
Many of my peers who have been withholding shares which cost them millions of rupees (which currently isn’t worth more than couple of lakhs) were smiling from ears to ears watching NEPSE index and daily share price report at NepseGuide. So called business pundits will be eager enough to smear the economy section of national media citing various gullible reasons for the bullish run.

But after looking the transaction details of few days of the trading, things became more and more clear. All the explanations given by my fellow peers were just smoke and mirrors.

Just few days, I had watched one Hindi movie titled OMKARA, Shakespeare’s adaptation of Othello. The movie begins with an interesting dialogue;

A thin line (or thread) separates the fool from the moron. On one end of the line lies the fool and on the other, the moron. Upon snapping the line its a million dollar question as to who’s the fool and who’s the moron, my friend.

In this stock market, there is lot of people who falls into above categories. Herd natured and panic attacked people are the major victims of the market irrespective of bullish run or the bearish. Unfortunately, our market still has lot of investors like that who think themselves as Warren Buffet of Nepal but has zero knowledge about market function.

So, why am I so adamant not to accept the recent upward swing of the market as bullish trend?

Following are the reasons which have been presented by my friends & believe me will be presented by many so called national daily economy authors;

1. Maoist Downfall, Confidence Up rise: Many people who loves politics, specially the Valley denizens are not tired talking how Maoist were just goat under tiger skin. Constitutionally their government had already been kicked out by coalition of CPN(UML) & NC tag-teaming along with other smaller parties. Only other way they knew were through Mass demonstration and violence, alas both failed miserably this time. Investors gained tremendous confidence with Maoist calling off strike and heading through constitutional path to resolve the matter, which will never be solved. So let’s make hay while the sun shines.

Now lets clear the smoke from the mirror :

Yes, Maoist revolution didn’t turn out as they had expected but we are not too far away from another big demonstration coming on Jestha 14. Investors gaining confidence, after Maoist backing out is just a rumor being circulated in the broker’s room to bring in the investors to BUY IN not to SELL. How can any investor think of investment, when he had been locked down for a week in a house, not allowed to ride a bike, eat and drink out and more importantly SELL OFF his shares for one week.
Denezins saw epitome of ‘donation terror, extortion and outlaw ness’ like never before in the Valley. Aftermath of such terror can anyone think of buying shares, when the rebels (pun intended !) had already announced another such severe phase on Jestha 14.

2. Third Quarterly Financial Statements: Third Quarter un-audited report still showed most of the banks and financial institutions were making substantial to marginal profit despite so many warning signs of crash. Chiya-Coffee analyst blatantly ruled out previous warnings by NRB about most financial institutions were on the verge of collapse after reading the un-audited reports of financial institutions. After all, it has become like a bible for stock investors. The profits made by banks have encouraged the investors to jump back once again into stock market.

Now lets clear the smoke from the mirror :

Definitely, above statement is true, but it’s not the complete truth.

For anyone who have been reading financial statements for pretty long, its always important to compare the profit numbers of this quarter, last quarter, last year this quarter plus comparing them with its peer banks. There are many Mr. Harka Bahadur’s (sorry, its just common name, not intended to hurt anyone with the same name) who jump on seeing ABC bank makes 8.5 Million profit by third quarter end. He doesn’t even care to see that the same bank had made 8 Million in profits by second quarter itself. So, within last 3 months the bank made just 0.5 Million Rupees. What about the last year? What about its peer banks profit this quarter?
NET profit alone doesn’t account the company’s financial situation, its also equally important to know how profit is being made.

People hardly try to check the details.

Upon checking, we have found some of the banks specially the development banks didn’t make more than 2 Million profits this quarter. Also the ambitious banks that had been expansion spree like in some rat race also didn’t make any substantial profit even in the UN-Audited report published by them.

3. Cash Influx: Recently after NTC, NMB, NIDC and many other companies shed off peanuts to their shareholders. Investors are once again geared up to re-invest in the market.

Lets clear this one too.

Ohh.. ya, NTC alone distributed more than 5 Billion rupees, once again banks are getting the much needed oxygen from NRB in the form of A/C Payee deposit slips handed by their loyal customers. Definitely, some happy go lucky fellow investor might have pumped back some peanuts into the stock market but definitely not the billions will be coming back into the stock market.

In a country where tens of billions of rupees, the real paper money, is still missing how can you guarantee this five billion plus will also not go missing. Billions of rupees paper money which was released from NRB is already out of the regular financial transaction circuit; neither is it in any bank nor in NRB. Reason is pretty obvious, black marketers have stashed it some where pretty safe or have already off-shored for tax evading. Its not just black marketers even normal investors who have to deal anything above million rupees are being threatened with all kinds of tax, income source, property evaluation threats from the government. Government has made no effort whatsoever to encourage people to pay taxes regularly, give them some kind of incentives, instead been always busy creating TAX Phobia.

Another reason why investors are hesitating to invest into the stocks despite being all time low is another parallel government which is currently running in the country with violence, power, threat, extortion, and donation - Gundaraaj. Despite some cash influx through dividends, investors are immediately withdrawing it from the banks directly into their safe out of real government and Gundaraaj sight.

In such scenarios, how can any well educated investor be lured into buying the stocks?

Finally, one of the most striking feature of recent upswing which clearly indicates it is being staged to take-in the investors who believes in above three initial statements is the TRANSACTION AMOUNT.

9th May 2010: 20 Million
10th May 2010: 13 Million
11th May 2010: 20 Million
12th May 2010: 34 Million

A thin line (or thread) separates the fool from the moron. On one end of the line lies the fool and on the other, the moron. Upon snapping the line it’s a million dollar question as to who’s the fool and who’s the moron, my friend.

The thread seems to have already snapped !

Readers Rating: