Challenges and Opportunities in Nepal's Stock Market: An Exclusive Interview with Sachin Shilwal

Sachin Shilwal, born in Nepalgunj, western Nepal, is the CEO and director of Asian Capital. He completed his undergraduate education in his hometown and pursued further studies in Kathmandu. Since 2061 B.S. (2004 A.D.), Shilwal has been actively engaged in teaching, which he continues to practice as a passion and additional responsibility.

In the context of Nepal's stock market, young journalist Dipesh Ghimire conducted a special interview with Shilwal for nepsetrading.com.

Question: How do you evaluate the current state of the stock market?
The market has been bearish for a long time, almost four years. However, this fiscal year, the market has shown positive momentum, boosting investor confidence significantly.

Recently, the market rose by approximately 800 points, reaching the 3,000 mark. A correction followed, which is a natural process. This correction has provided an opportunity for those investors who missed out earlier to re-enter the market.

Currently, the market looks promising due to factors such as declining interest rates, ample liquidity in the banking sector, improved foreign currency reserves, and the reactivation of investors who had previously distanced themselves from the market. These developments make me optimistic about the market's future performance.

Question: When the market dropped from transactions worth NPR 30 billion to NPR 4 billion, how did you perceive it? Many investors doubted if the market was truly bullish. What is your perspective?
This is a normal phenomenon in the stock market. Historically, when the market starts declining, sellers gradually exhaust their holdings while buyers hesitate, waiting for a better opportunity. As a result, transaction volumes decrease.

The drop in stock prices naturally reduces market volumes. However, as positive sentiment returns, volumes begin to rise again. This pattern is not new and has been observed in the past.

It is incorrect to label this phase as bearish. For a bearish trend to begin, the market must first complete a bullish cycle. Currently, the market is in a consolidation phase. A bearish trend would only start if the market surpasses 3,200 points, hits a new peak, and then begins to decline.

Question: Are trading strategies different in bull and bear markets?
Yes, the strategies differ significantly. In a bear market, the focus is on buying high-quality stocks at attractive valuations.

In a bull market, it’s essential to adapt to market dynamics. Often, some sectors or stocks may not perform well even during a bull run. For instance, in the previous bull market, the hotel sector didn’t see significant growth, but in this cycle, it has already shown remarkable performance.

A bull market requires disciplined and well-researched investing. Following the crowd without proper research can increase risks significantly.

Question: Nepal’s stock market has three types of investors: long-term, short-term, and momentum-based. How should each approach investing?
Every investor must clearly define their goals. What is your purpose? What type of investor are you? Answering these questions is critical.

I believe there are two main strategies for navigating the market:

1. Systematic Investment Plan (SIP): Ideal for long-term investors, ensuring consistent returns over time without losses.

2. Full-time Investing: This involves dedicating significant time to the market, buying during dips, and selling during peaks.

However, understanding the type of stocks and having a clear strategy is crucial regardless of the chosen approach.

Question: Nepal’s stock market has not reached international standards. It is difficult to analyze, has failed to attract foreign investors, and lacks infrastructure for entities like LLCs and MFCs. What is your take on this?
Your observations are accurate. The Nepalese stock market lacks the necessary infrastructure. Most people believe the market must go upward to make money, but for long-term sustainability, various tools and mechanisms are essential.

For example, the absence of stock derivatives, short selling, and mutual funds limits the market's growth potential. Additionally, Nepal's market is dominated by individual investors, with minimal participation from institutional investors. The government and the Securities Board of Nepal must focus on bringing institutional investors into the market to ensure sustainable growth.

Attracting foreign investors requires policy reforms and incentives. Introducing entities like LLCs and MFCs can lead to the establishment of large projects and companies, benefiting the broader economy and strengthening the stock market.

Question: You’ve been managing portfolios (Portfolio Management). What does portfolio management entail, and how is it executed?
Portfolio management involves licensed merchant banking institutions managing investments on behalf of their clients, as authorized by the Securities Board of Nepal.

This service primarily targets individuals who wish to invest in the stock market but lack time or sufficient knowledge. Based on agreements, portfolio managers create strategies and manage investments on behalf of clients.

There are two types of services:

1. Discretionary Portfolio Management: The portfolio manager has full authority over investment decisions.

2. Non-Discretionary Portfolio Management: The portfolio manager provides advice, and investments are made based on the client’s decisions.

Our efforts always focus on maximizing portfolio returns for our clients while minimizing risks.

Question: It’s said that smaller investors are charged higher fees, while larger investors pay lower fees for portfolio management services. What are your thoughts on this?
Portfolio management is a bilateral agreement between the investor and the managing institution. There is no fixed standard for fees, as they are mutually agreed upon.

The issue you highlighted often arises from informal portfolio management services, which operate without proper authorization. Investors must be cautious and evaluate the risks of engaging with unauthorized service providers.

The government and the Securities Board of Nepal must enforce stricter regulations to curb such practices. Additionally, we are running awareness campaigns to educate investors about the benefits of formal portfolio management services.

Question: How profitable has Asian Capital’s portfolio management service been for investors?
Most of our clients are satisfied with the returns. Our primary focus is on investing in the stock market.

The profitability largely depends on when the client starts their investment journey. For example, a client starting in Ashadh 2080 (June/July 2023) might have different results compared to one starting now.

On average, we’ve been able to generate annual returns of 25-30% for our clients. However, it’s essential to note that stock markets carry risks, and consistent profits cannot always be guaranteed, especially during bearish or sideways markets.

Question: There’s a growing number of applications for venture capital in Nepal. Has Asian Capital also pursued this?
Yes, we applied for venture capital licensing about a year ago.

Our goal is to support young entrepreneurs who lack capital but are eager to build businesses within Nepal. By establishing a venture capital fund, we aim to assist in creating large projects and companies, which would benefit both the entrepreneurs and the overall economy.

Nepal has already seen the initiation of such structures. For example, Media Capital and similar institutions are making significant strides in this sector.

Thank you.