Market Spotlight: Stocks Trading Above the 3200 Index Peak During NEPSE’s 3000 Rally !!

After nearly three years, the Nepal Stock Exchange (NEPSE) has once again touched the 3000 index mark, a milestone that has reignited investor enthusiasm and brought the stock market into sharp focus. This achievement comes with an impressive trading volume of NPR 29.305 billion, setting a new all-time high in turnover. The NEPSE index’s journey to 3000 has not only marked a significant recovery but also spurred widespread speculation about the market's future trajectory. 

The Market Buzz and Expectations 

As the NEPSE index reaches this critical level, market sentiment is buzzing with optimism. Many investors and traders are eyeing the 3200-index level, which was the all-time high back in 2021, as a potential selling point. The psychological significance of the 3200 mark is drawing attention, with seasoned investors and traders strategizing around it. They believe that if the index hits 3200 again, it could be a prime opportunity to realize profits, given the market's historical performance at that level.

Stocks Trading Above Their 3200 Index Prices 

Interestingly, while the broader index is still shy of the 3200 mark, several stocks have already surpassed their prices from when NEPSE was last at 3200. This phenomenon indicates that certain sectors or companies are performing exceptionally well, driven not only by strong fundamentals, positive sentiment, or sector-specific growth but also by heightened speculation in the market.

 Some key stocks are currently trading above their prices from when the NEPSE index was at 3200, even though the index has now only reached 3000. The list of these stocks is as follows: 

What Does This Mean for the Market? 

The fact that these stocks are trading above their previous highs while the index is still below 3200 suggests a shift in market dynamics. It highlights the importance of individual stock performance and sector-specific trends over the broader market index. Investors are increasingly focusing on company fundamentals rather than just following the index, which is a sign of a maturing market. Additionally, speculation is also playing a significant role in driving these stock prices. 

Moreover, the current market rally, driven by high turnover and strong buying interest, indicates that investors are willing to pay a premium for quality stocks with solid growth potential. This is not only due to growth prospects but also influenced by speculation. This shift could lead to a more selective and potentially sustainable market rise, as opposed to the broad-based rally seen in the past. 

Will NEPSE Hit 3200 Again? 

As the market continues to climb, the big question remains: Will NEPSE hit 3200 again, and if so, when? While no one can predict the market with certainty, the current momentum and positive sentiment suggest that it is within reach. However, both investors and traders should be cautious, as the market can be volatile. Reaching the 3200 level might trigger profit-taking, leading to potential corrections. 

In conclusion, NEPSE’s resurgence to the 3000 index level has sparked significant excitement in the market. With several stocks already trading above their 3200 index high, the focus is now on whether the index can break through the 3200 barrier once again. Investors and traders are advised to stay informed and consider both market trends and individual stock performance not only when making investment decisions but also while trading in the market.

Will the Rally Continue After the Announcement of Monetary Policy 2081/82? A Look at the Last Five Years’ Market Reactions.

In the past five years, the NEPSE index has shown limited growth following monetary policy announcements, with the exception of one fiscal year. From fiscal year 2076/77 to 2080/81, the stock market has generally experienced a bearish trend after four consecutive fiscal years of monetary policy implementation, with only one fiscal year displaying a significant bullish trend. 

Fiscal Year 2076/77:

On July 24, 2019, Governor Chiranjibi Nepal announced the monetary policy for fiscal year 2076/77. This announcement initially caused a modest uptick of 6.90 points in the NEPSE index, which rose to 1284.07 points. However, this was followed by a prolonged downtrend marked by consecutive lower lows and lower highs. The NEPSE index took 176 days to return to the 1284.07 level. During this period, the index saw a notable drawdown, falling by 182.53 points to a low of 1102.46 points. 

Fiscal Year 2077/78:

The monetary policy announcement on July 17, 2020, by Governor Mahaprasad Adhikari led to a significant upward movement. The NEPSE index surged by 84.26 points to 1479.03 shortly after the announcement. This rally extended into a sustained uptrend, ultimately reaching an all-time high of 3227.11. The index climbed from 1460.15 to 3227.11 over 396 days, representing a gain of 1818.60 points, or a 129.12% increase. This period saw the implementation of an ultra-loose monetary policy designed to stimulate an economy weakened by the Covid-19 pandemic. This policy significantly increased market liquidity and fueled excessive credit flow into the stock market. While the expansionary monetary policy spurred credit growth, its broader economic benefits were limited, leading to substantial deleveraging. 

Fiscal Year 2078/79:

On August 13, 2021, Governor Adhikari announced the monetary policy for fiscal year 2078/79. The introduction of the 4/12 policy, which imposed stricter credit regulations, triggered a negative response from the stock market. The NEPSE index initially declined by 24.57 points. Although it later rebounded to 3180.86, this growth proved unsustainable. A bearish reversal ensued, characterized by a series of lower highs and lower lows. The market continued to fall by 1349.12 points over the following 340 days, reaching 2044.72 before the announcement of the monetary policy for fiscal year 2079/80. This decline represented 39.83%. 

Fiscal Year 2079/80:

The monetary policy announced on July 22, 2022, for fiscal year 2079/80 resulted in a market correction. During this period, the NEPSE index entered a ranging market, fluctuating between 1800 and 2200, with declining market breadth and negative sentiment.

 Fiscal Year 2080/81:

Similarly, the monetary policy for fiscal year 2080/81, announced on July 23, 2023, disrupted the market's prior upward momentum, leading to another downturn. The market broke out of the previous range of 1800 to 2200 upward before the announcement of the monetary policy for fiscal year 2081/82. 

Outlook:

Historical data reveals that the stock market generally trends bearish following monetary policy announcements, with the exception of the record-breaking year. Currently, the stock market is experiencing a notable pre-monetary policy rally, driven by bullish investor sentiment and positive technical indicators such as rising moving averages and increased trading volume. Investors are closely monitoring key support and resistance levels to assess future market direction. Given past trends, a post-monetary policy correction appears plausible. However, if the market aims to surpass previous records, the current bullish momentum, supported by robust fundamentals and positive technical indicators, may persist throughout the fiscal year, potentially setting new benchmarks.

Key Technical Indicators to Watch:

• Relative Strength Index (RSI): For identifying overbought or oversold conditions. 
• Moving Average Convergence Divergence (MACD):To detect momentum shifts. 
• Bollinger Bands:For assessing market volatility. Fundamental analysis will remain crucial, with investors paying close attention to monetary policy statements, interest rate changes, and economic data releases to guide their trading strategies. 

NEPSE Market Shifts and Head and Shoulders Pattern.

As of the recent market developments, the Nepal Stock Exchange (NEPSE) has undergone a notable shift in its price trend. Previously characterized by a series of Higher highs and higher lows, the market has now transitioned into a sequence of lower high and running lower low, indicating a potential reversal in the established upward trend.

Additionally, an observable technical pattern has emerged on the charts – the Head and Shoulders pattern. This pattern is considered a reliable indicator of a bearish trend reversal. In this context:

• The Head and Shoulders pattern typically consists of three peaks: a central peak (head) flanked by two lower peaks (shoulders).

• The break from the prior pattern of forming higher lows suggests a change in market sentiment, as the recent lower low implies increasing downward pressure on prices.

• The formation of the Head and Shoulders pattern, when combined with the shift in the low formations, strengthens the signal for a potential bearish trend.

Traders often interpret the Head and Shoulders pattern as a signal to be cautious, as it may foreshadow a shift towards a downward market trajectory. It's important to note that market analysis involves inherent uncertainties, and traders should consider using additional indicators and risk management strategies in their decision-making process.

It's essential to note that no trading strategy is foolproof, and traders should use additional analysis and risk management techniques when making trading decisions.

"Why Banks Lower Interest Rates and the Ripple Effect on the Stock Market"

Why Do Commercial Banks Decrease Interest Rates?

Commercial  banks regularly adjust interest rates in response to various factors influenced by economic, regulatory, and market dynamics. Here are several key reasons why a commercial bank might choose to lower its interest rates:

1. Encouraging Borrowing:

• Objective: Banks may reduce interest rates to make borrowing more cost-effective for individuals and businesses, encouraging higher spending and investment in the broader economy.

• Mechanism: Lowering rates aims to make loans more accessible, motivating borrowers to take advantage of favorable lending conditions.

2. Competitive Strategies:

• Objective: In a competitive banking environment, if one bank lowers its interest rates, others may follow suit to attract a larger customer base. This competitive scenario can resemble a price war among banks.

• Mechanism: Lowering rates enables banks to stay appealing in the market, supporting both customer retention and acquisition.

3. Government and Economic Initiatives:

• Objective: Government or central bank interventions may target economic stimulation. In such cases, banks could be influenced to decrease interest rates, facilitating easier access to credit for individuals and businesses.

• Mechanism: Banks align with broader economic policies, contributing to the strategy of fostering economic growth through increased borrowing and spending.

4. Risk Management Considerations:

• Objective: If banks perceive lending as less risky, lowering interest rates becomes a strategic move to attract more borrowers. This approach helps banks balance risk management while expanding their clientele.

• Mechanism: Lowering rates signifies confidence in borrowers' repayment abilities, potentially broadening the pool of creditworthy customers.

5. Liquidity Management:

• Objective: Depending on their liquidity position, banks may adjust interest rates. If well-funded, they might lower rates to encourage lending. Conversely, if in need of funds, they might raise rates to attract deposits.

• Mechanism: This adjustment reflects the dynamic nature of a bank's liquidity and its strategy to optimize the balance between assets and liabilities.

Relationship Between Decreasing Interest Rates and the Stock Market:

The correlation between reduced interest rates and the stock market is noteworthy, with various factors influencing the impact on stock prices. This article provides an overview of this relationship and its potential ramifications for the stock market.

1. Attractiveness of Stocks:

• Favorable Conditions: When interest rates are low, traditional fixed-income investments yield lower returns, making stocks more appealing to investors seeking higher potential gains.

• Valuation Models: Lower interest rates influence stock prices through valuation models like the discounted cash flow (DCF). Reduced discount rates enhance the present value of future cash flows, contributing to elevated stock prices.

2. Investor Sentiment and Risk Appetite:

• Risk-Seeking Behavior: Lower interest rates often encourage investors to take on additional risk for higher returns, contributing to heightened demand for stocks and influencing upward movements in stock prices.

• Search for Yield: Investors, in pursuit of better returns, may shift focus from fixed-income investments to stocks, exerting upward pressure on stock prices.

3. Economic Growth Expectations:

• Stimulus for Economic Activity: Utilizing lower interest rates as a monetary policy tool can stimulate economic activity, positively impacting corporate profits and contributing to elevated stock prices.

4. Inflation Expectations:

• Impact on Real Returns: Lower interest rates, often associated with diminished inflation expectations, make the real (inflation-adjusted) returns from stocks more attractive, supporting the potential for higher stock prices.

In conclusion, while lower interest rates can positively influence the stock market, it's essential to consider additional factors like geopolitical events, global economic conditions, and unforeseen circumstances. The relationship between interest rates and stocks is diverse, and various stocks and sectors may respond differently to rate changes. Investors are advised to adopt a diversified approach, carefully evaluating multiple factors when making investment decisions.