A 5-Year Analysis of the Nepali Stock Market
Roberto worked as a research analyst for a stock brokerage company and has been writing about the Nepali stock market since 2013.
Check out these facts about investing in the Nepali stock market.
Wondering About Your Potential Return on Investment?
Ever wanted to know whether your investment in Nepali stock market would have been fruitful or not? What would your investment amount of a mere Rs.1 Lakh (NRs One Hundred Thousand, or around $1,000) five years ago be worth in today’s value?
Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.
— Warren Buffett
What Warren Buffet was trying to convey through his above quote revolves around where and how an investor chooses to invest his hard-earned money. In the world of stock investing, we don’t need to be right all the time. We just need to be consistent with our plan and become patient with what we have executed. Even if there are losses in some of the stocks, the profits in others will surely offset those losses—which is exactly what this article will show in the context of the Nepali stock market. This article will show what happens if we keep the stocks for just five years.
For this study, I chose the top 20 companies that have been listed on the Nepal Stock Exchange (NP: NEPSE). These 20 stocks have always been eye candies in their respective sectors. I have also included some other stocks that have the largest assets.
The 20 Companies Chosen
| Company | Ticker Symbol | Sector | Initial Investment (NRs.) | Per Share Cost (NRs.) | Shares Bought in July 2013 |
|---|---|---|---|---|---|
Nepal Investment Bank | NIB | Commercial Bank | 100,000 | 784 | 128 |
Nabil Bank | NABIL | Commercial Bank | 100,000 | 1,790 | 56 |
Everest Bank | EBL | Commercial Bank | 100,000 | 1,575 | 63 |
NIC Asia Bank | NICA | Commercial Bank | 100,000 | 504 | 198 |
Global IME Bank | GBIME | Commercial Bank | 100,000 | 475 | 211 |
Nepal Telecom | NTC | Telecommunication | 100,000 | 570 | 175 |
Muktinath Bikas Bank | MNBBL | National Level Development Bank | 100,000 | 265 | 377 |
Gandaki Bikas Bank | GDBL | National Level Development Bank | 100,000 | 108 | 926 |
Chilime Hydropower Company | CHCL | Hydropower Company | 100,000 | 1,193 | 84 |
ICFC Finance | ICFC | Finance Company | 100,000 | 118 | 847 |
Soaltee Hotel | SHL | Luxury Hotel | 100,000 | 276 | 362 |
Chhimek Microfinance Company | CBBL | Microfinance Company | 100,000 | 556 | 180 |
Sana Kisan Microfinance | SKBBL | Microfinance Company | 100,000 | 605 | 165 |
Oriential Hotels | OHL | Luxury Hotel | 100,000 | 136 | 735 |
Nepal Life Insurance Company | NLIC | Life Insurance Company | 100,000 | 1,425 | 70 |
Life Insurance Corporation | LICN | Life Insurance Company | 100,000 | 1,301 | 77 |
Butwal Power Company | BPCL | Hydropower Company | 100,000 | 785 | 127 |
Shikhar Insurance Company | SICL | General Insurance Company | 100,000 | 406 | 246 |
Premier Insurance Company | PIC | General Insurance Company | 100,000 | 126 | 794 |
First Microfinance Company | FMDBL | Microfinance Company | 100,000 | 176 | 568 |
Method and Assumptions
First of all, I assumed that the initial investment exactly five years ago (July 2013, as of this writing) was NRs. 1 Lakh (NRs 100,000) in each of these stocks. I calculated how many shares of the company I could buy at their prices at that time. Then, I calculated all the stock dividends (bonus shares), cash dividends and right shares those companies may have provided in this period. All the values were compounded and the final worth was calculated. I also deducted the further investment in right shares from today’s value. The result? You will be surprised!
Few of these companies had also floated their initial public issues (IPO) around similar time frames, which is why it was also easier to grab shares at almost their par value price.
Few assumptions were also made:
- It has been assumed that the received cash dividends were not further invested.
- 5% capital gains tax on both cash and stock dividends is not assumed. Since they are only on the par value, the final result is not offset by a big amount.
- The shareholder subscribed to all the offered right shares issued during the five-year period.
- The cost of the right share applied has been deducted from the final value.
| Method |
|---|
Initial No. of Shares = $1,000 (or NRs One Hundred Thousand) divided by Closing Price on the Last Trading Day in July 2013 |
Add: No. of bonus shares (or stock dividend of all years) |
Add: No. of Right Shares of all years |
Multiply Last Trading Price of July 2018 |
Minus: Investment in Right Shares |
Add: Cash Dividend of all 5 years |
= Final Value of all the shares in 2018 |
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Result of Letting Your Investment Grow Over 5 Years
The clear winner was a general insurance company—Premier Insurance Company (Nepal) Ltd. If I had invested just NRs. One Hundred Thousand ($ 1,000) in Premier Insurance (NEPSE: PIC) back in July 2013, my investment would have grown to NRs. 3.72 million today (around $37,200)! That’s an annual compounded return of 106%, which means that my money would have grown by 106% every year in between July 2013 and July 2018.
The second position was bagged by a national-level microfinance company called First Microfinance. It is a licensed financial institution that is regulated by Nepal Rastra Bank (the central bank of Nepal) and works in remote as well as urban areas of Nepal in uplifting the financial condition of people by providing access to microloans.
First Microfinance (NEPSE: FMDBL) has also shown tremendous growth in its business in these years and has been licensed by the regulator to also provide loans to smaller microfinance institutions. An investment of NRs 1 Lakh five years ago in FMDBL stock would have netted NRs 18.31 Lakh (NRs 1.83 million) today. Your return in FMDBL stock would have grown by almost 79% annually.
Another non-life insurance company, Shikhar Insurance (SICL), also came very close. Investment in Shikhar Insurance Company would have provided a 66% annual return.
Compounded Annual Growth Rate of Investment
| Stock | Shares Bought in July 2013 | Stock Dividend (Bonus Shares) | Right Offering Shares | Total Shares Today | Cash Dividend (NRs.) | Today's Value (NRs.) | Annual Return (%) |
|---|---|---|---|---|---|---|---|
NIB | 128 | 168 | - | 296 | 17,025 | 205,000 | 15.44 |
NABIL | 56 | 128 | - | 184 | 9,626 | 173,040 | 11.59 |
EBL | 63 | 185 | 58 | 306 | 7,591 | 199,555 | 14.82 |
NICA | 198 | 337 | 154 | 689 | 8,130 | 205,282 | 15.47 |
GBIME | 211 | 250 | - | 461 | 4,893 | 130,724 | 5.50 |
NTC | 175 | - | - | 175 | 41,500 | 166,108 | 10.68 |
MNBBL | 377 | 1,587 | 1,491 | 3,455 | 7,630 | 1,142,846 | 62.78 |
GDBL | 926 | 1,432 | 1,364 | 3,722 | 14,797 | 581,503 | 42.20 |
CHCL | 84 | 106 | - | 190 | 6,935 | 144,642 | 7.66 |
ICFC | 847 | 809 | 507 | 2,163 | 32,179 | 350,350 | 28.50 |
SHL | 362 | 760 | - | 1,122 | 3,233 | 256,675 | 20.75 |
CBBL | 180 | 798 | 162 | 1,140 | 41,577 | 997,484 | 58.41 |
SKBBL | 165 | 296 | 95 | 556 | 5,980 | 641,000 | 45.00 |
OHL | 735 | 639 | - | 1,374 | 12,699 | 723,030 | 48.54 |
NLIC | 70 | 353 | - | 423 | 403 | 432,000 | 34.00 |
LICN | 77 | 125 | - | 202 | 478 | 306,765 | 25.13 |
BPCL | 127 | 15 | 85 | 227 | 18,586 | 104,525 | 0.89 |
SICL | 246 | 992 | 124 | 1,362 | 4,585 | 1,263,357 | 66.08 |
PIC | 794 | 1,738 | 912 | 3,444 | 4,408 | 3,728,704 | 106.21 |
FMDBL | 568 | 704 | 2,615 | 3,887 | 20,146 | 1,831,138 | 78.87 |
Top 5 Commercial Banks of Nepal Were Not Even Close
All five commercial banks of Nepal taken for this study were nowhere to be found in the top half. Nabil Bank, Nepal Investment Bank, NIC Asia Bank, Everest Bank and Global IME Bank are the top five largest private banks in terms of the size of their assets, yet the returns on their stock investments were not at par.
This should also show that one should not fear being separated from the crowd. Banks make up most of the market capitalization of the Nepali stock market and they are safe for long-term investment. However, what's safe and comfortable does not provide more return than something that is growing. Invest in sectors you believe are undervalued and which may rise in the future.
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Initial Investment & Returns on a Bar Diagram
Summing Up
The study clearly shows that those companies with tremendous growth potential are much more attractive and will provide better returns. This study should also be a motivation for beginner investors to enter in Nepali stock market. Share Market environment in Nepal is undergoing a bearish trend for the past two years, but this is when majority of the players will win—buying low and selling high when the market has picked up bullish momentum. Don’t wait for the bulls to arrive, and start investing in companies that have growth potential.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2018 Roberto Eldrum
