Market Slumps on Regulatory Pressure, Technical Indicators Point to Further Downside

The Nepal Stock Exchange (NEPSE) came under heavy pressure on Sunday, the first trading day of the week, as the index extended its losing streak for a third consecutive session. Analysts linked the decline to the government’s decision to make the National Identity Card mandatory for stock transactions, which has raised fears of asset scrutiny and money-laundering exposure. Many investors are believed to have sold their shares due to these concerns.

Non-Resident Nepalis (NRNs), who have been actively trading in Nepal’s secondary market, are also reportedly exiting. Since they previously relied on citizenship certificates, they now face difficulties updating to the national ID system, pushing them out of the market.

On Sunday, the NEPSE index fell by 18.02 points, closing at 2,739.95. Despite the index decline, trading volume rose sharply. Compared to Thursday’s NPR 5.02 billion turnover, Sunday recorded over NPR 6.54 billion in trades, with 140 million shares of 323 companies exchanged in 58,105 transactions.

• Vikas Hydropower hit the positive circuit, climbing NPR 35.30 to close at NPR 388.70.

• CYC Nepal Microfinance surged more than 4%.

• Narayani Development Bank fell the most, plunging 7.29%.

By turnover, Himalayan Distillery Ltd. topped the chart with NPR 1.75 billion worth of trades, followed by Nepal Reinsurance (approx. NPR 245 million) and Himalayan Reinsurance (NPR 230 million+).

Out of 13 sectoral sub-indices, only one closed in positive territory while 12 declined. The Manufacturing and Processing sub-index inched up by 0.15%, while the Development Bank sub-index plunged 1.69%, the steepest drop. The Hydropower sub-index also declined by more than 1%.

Analysts stressed that the market now requires strong policy interventions to restore investor confidence. Investors have demanded that margin trading be made easier and that banks be allowed to participate more freely in secondary market trading.

Technical Analysis

Technical signals point to increasing market risk. After five consecutive bearish candles, the NEPSE index broke below the crucial 61% Fibonacci retracement level, which had been considered a strong support. This also ended the sideways trading pattern that had held in recent weeks.

According to technical analyst Ajit Khanal, no bullish indicators are currently visible. The breakdown of key support levels on a day when trading volume surged is seen as an alarming sign of intensified selling pressure.

The Relative Strength Index (RSI) currently sits at 37, edging toward the oversold zone. The next major support lies at the 200-day Moving Average (200MA), around the 2,700 mark. If RSI falls closer to 30, the market could test this level soon.

Trading volume has increased significantly compared to recent sessions, partly due to large block/matching trades in heavyweight stocks, particularly in the Hydropower sector. The Manufacturing & Processing group alone contributed more than 30% of the day’s turnover, with Himalayan Distillery (HDL) leading the activity.

Data from the top 10 brokers showed that six were net sellers while four were net buyers. Broker No. 34 handled a major portion of the Himalayan Distillery trades, buying 532,000 shares while selling 888,000 shares on the same day.