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Harvest Time ?

Published by Octron on September 2, 2010

Normally if one person gains, another loses to maintain the natural equilibrium but in the share market if you think properly then you will understand in order for NEPSE to rise first country’s political stability is the must. If it’s bad time, then both the buyer and the seller will eventually lose. Unfortunately our country is running for years without any stable government.
How can we expect an economic prosperity?

Despite some good financial reports published by the banks this year, banks are still in the mood for the wait and watch. Even the ones who announced something are giving out dividends like pinch of salt (~10%). April Budget has been washed out with political doldrums. The Big Six (SCB, NABIL, NIB, HBL, EBL, BOK) are yet to make any kind of firm announcement, but as per their financial reports there wont be much of bonus shares this time. Even the dividend amount is expected to get lower this time. While one group of trade pundits are busy speculating their pessimistic views which is obviously mere reflection of the current state of country, another group is busy investigating FIs paradigm shift from deposits to the right shares. [click here to read an exclusive Deposits to Right Shares Strategy Adopted by Nepali FIs]

Looking just a year or two back, the bulk announcement of right shares by FIs in order to raise their capital rather than deposits and investments clearly indicates similar thing could repeat once again. Even the good banks like SCB, NABIL, HBL, EBL who have always been generous towards its shareholders by distributing Bonus Shares/ Good Dividends rather than right shares might come out with right share plan this year.
Considering the current liquidity crunch situation and festive season ahead traders are fearing instead of return from investment (in form of good dividend & bonus shares), they might have to once again shed off greens in the name of right shares.

If you think Right shares are good form of investment then please do think properly. Look, the current situation of KIST Bank and its future outlook.
Despite huge network around the valley, it has some of the lowest ROI in terms of net profit. Reason, huge operating cost. If today, KIST is to share its profit to its shareholders, they will face difficulty to give more than Rs. 2/unit of share. You think that’s good investment ?

Right share is like a trap.
If I would have to put it more loosely, its like a marriage for the guys. Those who gets married repents, and those don’t whines.

If you have a share worth Rs. 200 (On particular date) and right share of 2:1 is announced, as soon as the book closes the price will go down as low as Rs. 80-90 depending upon future volume of shares that will be floated after right share issue. Plus you will have to shed off extra 100 bucks for each unit to buy.
If you buy it you will eventually lose money, unless the company makes more than 100% profit next year so that it would be able to distribute anything to their shareholders. Looking, the current situation of the country that looks hugely unlikely.

Now, if you think why to waste another Rs. 100/share when it will eventually get below Rs. 100 in future and don’t buy it. Believe me you will find some other people who will be buying it for more than Rs. 100 in an auction released by the company for outstanding right shares that you didn’t buy. Plus whether you buy it or not your currently held share price will DEFINITELY go down due to the right share release.

Only question with the Right Share is would you like to be DUMB or the DUMBER ?

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