Sectoral Rotation in NEPSE Bull Markets and What It Suggests About the Current Bull Run

Subas Chandra Dhungana

Nepal's stock market (NEPSE) has historically shown cyclical behavior, with every bull run carrying distinct sectoral characteristics. Using past data patterns, we can break down the key trends and derive insights into how the current market momentum might unfold.

The Pre-COVID Bull (NEPSE: 1100 → 1632)

During the initial bullish signs before COVID-19, NEPSE surged by 47%. The major outperformers in this early stage were:

• Life Insurance: +98%

• Trading: +96%

• Microfinance: +87%

These sectors led the bullish momentum with high investor interest, likely due to low base valuation and strong retail participation. In contrast, traditional sectors lagged:

• Hotels: +15%

• Hydropower: +21%

• Finance: +29%

• Development Banks: +35%

• Banking: +41%

• Manufacturing: +44%

Mid-Bull Correction and Rebound (NEPSE: 1632 → 1188 → 1888)

After the rally, a 27% correction pushed NEPSE down to 1188. Many believed the bull run was over. However, the market made a strong rebound of 59% to reach 1888.
New leaders emerged:

• Trading: +194%

• Others (miscellaneous): +131%

• Manufacturing, Insurance, Hydro: +67%

Sectors with underwhelming performance during this phase:

• Development Banks: +32%

• Hotels: +33%

• Banking: +41%

• Finance: +44%

• Microfinance: +45%

This indicated a mid-bull rotation: early leaders cooled off, while some underperformers gained modestly but still lagged the index growth.

Bull Climax (NEPSE: 1888 → 3198)

The final phase of the bull saw a massive 69% rally that took NEPSE to its all-time high of 3198. This time, the previously slow sectors dominated:

• Finance: +225%

• Development Banks: +193%

• Hydropower: +161%

• Microfinance: +108%

• Hotels: +79%

• Manufacturing: +70%

Meanwhile, sectors that had led earlier became sluggish:

• Trading: +65%

• Life Insurance: +62%

• Non-life Insurance: +47%

• Banking: +46%

Current Bull Market Analysis (NEPSE: 1826 → 3000+)

In the ongoing bullish phase, NEPSE has increased by 64%, crossing 3000. The leading sectors so far:

• Finance: +142%

• Hydropower: +100%

• Investment: +92%

• Trading and Manufacturing: +66%

The laggards include:

• Banking: +45%

• Non-life Insurance: +53%

• Life Insurance: +54%

• Microfinance & Hotels: +60%

• Development Banks: +64%

Sectoral Rotation at Play

1. Early Phase Characteristics
Just like in previous bull runs, the current rally started with high-beta, sentiment-driven sectors like Finance, Hydro, and Investment. These are typically smaller or more speculative sectors that respond faster to positive market sentiment.

2. The Rotation Signal
In past bull cycles, initial leaders slow down once mid-rotation kicks in. During this phase, lagging sectors—especially Banking, Insurance, and Development Banks—start to catch up. This rotation is often a sign that the bull run is entering its final and most euphoric phase.

3. Historical Pattern Suggests:

• Banks and Insurance typically lead in the final stages.

• Broad-based participation across lagging sectors is a clue that the bull market is maturing.

• NEPSE's final push in the last bull was led by previously neglected sectors. The same may be unfolding again.

What Could Happen Next? – Forecast Based on Data

Likely Leaders Above NEPSE 3200:

• Banking

• Development Banks

• Microfinance

• Hotels

• Life/Non-life Insurance

If the pattern holds, these sectors will begin to outperform in the coming weeks/months. Particularly, Banking and Insurance tend to close out the bull run with a strong rally.

Final Push Indicators:

• Sudden interest in blue-chip and stable stocks like commercial banks.

• Surge in insurance sector volume.

• NEPSE approaching 3300–3400 with wider sectoral participation.

Every bull market carries its own rhythm. But data from NEPSE’s previous cycles reveals a clear Sectoral Rotation Pattern. Initial momentum is driven by speculative or ignored sectors, followed by large caps like banks and insurers toward the end.

The current market structure suggests we are midway through the bull—approaching the rotational phase. Once Banking and Insurance sectors gain momentum, NEPSE may touch new highs, but that would also signal that the end of the bull may be near.

Investors should stay alert, watch the rotation, and act accordingly.