Investment Environment in Nepal
Investment environment refers to the surroundings in which investment decisions are made. A broad framework for the investment environment includes securities, securities markets, and securities regulations.
SECURITIES:
Securities are financial assets that represent claims on the income and assets of an entity. Nepal has a brief history of securities. The history of securities markets began with the floatation of shares of Biratnagar Jute Mills and Nepal Bank Limited in 1937. Government bonds were issued for the first time in 1964. There are limited types of securities available in Nepal. Common stock is the most popular one.
Government bonds have been issued in sizable amount but their trading is low. Only a few preferred stocks and corporate bonds are in the market; and municipal securities are yet to come. Mutual funds units are becoming popular in recent times. Treasury bill is the only security available for investment among the short-term securities. Thus, the investment environment, in terms of securities, is characterized by limited types of securities and the investors will have to make a choice out of them.
SECURITIES MARKETS:
Though the first issue of securities was made in 1937, the official forum for securities trading started with the establishment of Securities Marketing Center (later changed to Securities Exchange Center) only in 1976. The establishment of Nepal Stock Exchange in 1993 replaced this Center. Nepal Stock Exchange, which started trading in 1994, provides trading platform for the securities of 234 listed companies now until July 2019. It started with open-out- cry system of trading and now has been fully automated. The trading follows order driven system and is facilitated by 50 brokers. Unlike in many exchanges in the world, fee for trading is still in fixed percentage basis and it may take as high as three days to clear the transaction.
The size of the market in terms of number of traders and volume of trading is still small as compared to that of the developed markets, but it is growing gradually. The trading is dominated by common stocks. The trade of other securities (preferred stocks, government bonds, corporate bonds, and mutual fund units) is very thin. Mostly individual investors trade in securities; the participation of institutional investors is rare. Foreign investors (except the institutional investors) are not allowed to trade in securities in this exchange. Information dissemination is weak and tampered. Most investors rely on technical analysis and very few investors analyze fundamentals of the company or the economy for investing.
The dealer market is limited to government securities only. The over-the-counter (OTC) market is run by Nepal Stock Exchange, but it is still in infantile stage. The establishment of Securities Central Depository Service Company (CDS and Clearing Company) and Credit Rating Agency (ICRA Nepal) has contributed in the smooth trading of securities in Nepal. The investors will have to take investment decisions given this backdrop of securities markets related investment environment.
SECURITIES MARKETS REGULATION:
In a process of developing securities markets, Nepal Government established Securities Exchange Centre in 1976 followed by enactment of Nepal Securities Act in 1984. The Act was replaced by Securities Act, 2007. The Act had a provision of establishing a security market regulator – Nepal Securities Board. Thus, the three essential components of securities markets – the market platform Nepal Stock Exchange, the.regulation – the Securities Act, and the regulator – Nepal Securities Board, are all in place.
Similarly, Commodities Act 2074 has also been enacted to promote and regulate commodities market. A number of other regulations like Securities Regulation, 2007; Securities Businessperson Regulation, 2007; Securities Registration and Issues Regulation, 2008; Mutual Fund Regulation, 2010; Securities’ Central Depositary Services Regulation, 2010; Credit Rating Regulation, 2011; Securities Listing and Trading Regulation 2018, Specialized Investment Fund Regulations 2018, and many byelaws, guidelines and circulars have been put in place.
The establishment of Nepal Securities Board and various regulations have definitely put the market in order. However, there are complains on the effective implementation of the legal provisions and supervision by the regulator. There are cases of trading on insider’s information and violation of investor’s rights.
SUMMARY
- An investment involves the sacrifice of current rupees for future rupees. Motives for investing are: appreciation of income and wealth, safety and liquidity, hedge against inflation, and tax planning.
- Real assets are tangible assets and they possess productive capacity. They are used to produce goods and services. Financial assets represent claims on income and other assets and define the allocation of income or wealth.
- The major roles that financial markets play in the economy are: informational role, consumption timing, allocation of risk, and separation between ownership and management.
- The investment process describes how an investor makes decisions about what securities to invest in, how extensive these investments should be and when they should be made. It involves five steps: determining investment policy, performing security analysis, constructing a portfolio, revising the portfolio, and evaluating portfolio performance.
FAQ’s
Securities Meaning
Financial assets that represent claims on the income and assets of an entity.
Securities Markets Meaning
Markets that deal with the trading of securities or financial assets.
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