Things to Know before entering in secondary share Market in Nepal.
Education share market
Before venturing into Nepal's secondary share market, also known as Nepse, it is crucial to grasp certain fundamental aspects. If you are reading this, I assume that you are already involved in the primary market or have established a D-mat account and acquired your Mero share login credentials.
Many of us have been participating in the primary market for a significant period but lack knowledge about the secondary market. Although we hold shares in Demat form, we are unsure whether to sell or retain them. We discuss NEPSE and financial statements extensively, yet we have not commenced trading in the Nepse or secondary share market in Nepal, and so on.
I understand that you may have numerous questions because I have been in a similar situation before.
I am not an expert who can advise you on whether to sell or hold, and I won't attempt to do so. However, I can provide suggestions regarding:
Relevant information to consider for decision-making.
Reliable sources to obtain information.
Recommended books to read on the subject.
-Here are some essential factors to be aware of before investing in the share market in Nepal:
Procedural requirements: Familiarize yourself with the necessary procedures involved in investing, such as opening a Demat account and obtaining Mero share credentials.
Demat account and Mero share: It is crucial to have a Demat account, which allows you to hold shares electronically. Additionally, acquiring Mero share login credentials enables you to access and manage your shares efficiently.
Trading account with brokers: Establish a trading account with a reliable broker. This account facilitates the buying and selling of shares on the Nepse platform.
Nepse TMS from brokers: Nepse TMS (Trading Management System) is a software provided by brokers that allows investors to place orders, track market movements, and manage their investments effectively. Ensure that your chosen broker offers this service.
-Here are the recommended sources of information:Nepalstock, SEBON, and Company Websites: These sources provide raw information related to the share market in Nepal. You can access data, reports, and announcements directly from these platforms.
Financial News Websites
General News Portals: You can also stay updated by referring to financial news or information from any reputable news portal. These portals cover a wide range of topics, including finance, economics, and business, offering a broader perspective on market trends and developments.
It is essential to regularly update yourself using these sources to stay informed about the share market and make well-informed investment decisions.
Never take the conclusion from a private news site and social media rumors. Just take the information and verify it from a reliable source, then use it in your decision making
It is advisable to refrain from drawing conclusions based solely on information obtained from private news websites and rumors circulating on social media. Instead, it is crucial to gather information from these sources and then verify it with reliable and reputable sources. Relying on verified information from trusted sources is essential for making informed decisions in the share market or any other investment endeavor..
To ensure compliance and understand regulatory requirements in the share market, it is important to be familiar with various laws and regulations, including:
-To ensure compliance and understand regulatory requirements in the share market, it is important to be familiar with various laws and regulations, including:Securities Act 2063: This act serves as the primary legislation governing securities and their trading in Nepal. It provides a framework for regulating the share market and related activities.
Nepse Bylaws: These are the specific rules and regulations established by Nepse (Nepal Stock Exchange) to govern its operations, trading procedures, and listing requirements.
Company Act: Sections of the Company Act, which can be found on the OCR (Office of the Company Registrar) website, contain provisions related to the issuance of rights shares, compliance requirements for issuing bonuses and dividends, book closure, price adjustment, and the time period for publishing quarterly and audited financial statements.
Additionally, it is beneficial to familiarize yourself with other relevant laws and regulations that pertain to regulatory bodies such as BFI's (Banking and Financial Institutions), NRB Act (Nepal Rastra Bank Act), and insurance regulations. While it may not be feasible to study all the laws and regulations comprehensively, focusing on specific provisions can provide a good understanding of the regulatory landscape.
It is recommended to refer to the legal section of SEBON (Securities Board of Nepal) for additional information and updates on related regulations.
-Before making a decision in the secondary market, it is important to consider various factors and gather relevant information, such as:Performance of the Industry: Assess the current performance of the industry in which the share/stock belongs. Analyze factors such as revenue growth, profitability, market trends, and the potential impact of regulations on that specific industry.
Impact of External Factors: Take into account the effect of external factors on the industry's performance. For example, during the Covid-19 pandemic, evaluate the performance of industries like hotels (or the airline industry in the case of international markets) to understand the challenges they faced and their ability to recover.
Future Prospects: Consider the future prospects of the industry. Analyze market trends, emerging technologies, and any potential growth opportunities that may impact the industry positively or negatively. For instance, assess the growth potential of the IT industry, even if there are currently no listed companies in that sector.
Government Subsidies: Take note of any government subsidies or support programs specifically aimed at the industry in question. These can have a significant impact on the industry's performance and may influence your investment decision.
By considering these factors and gathering relevant information, you can make more informed decisions when trading in the secondary market.
-Ownership Structure and Management Team:
It is important to consider the ownership structure of a company before making investment decisions. The primary going concern and long-term vision of the entity often depend on the owners or major stakeholders. Disputes between owners can negatively impact the company's performance, which may reflect in the share market. Therefore, it is advisable to select a company where promoters hold a significant stake. Additionally, evaluating the background and performance of the management team and key decision-makers is essential. Information about the management team can usually be found on the company's website or annual report.
Fundamental Analysis:
Fundamental analysis aims to identify the true value of a share. It involves analyzing the financial statements of a company. To gain a better understanding of fundamental analysis, you can refer to resources such as Investopedia.com.
Before investing in the secondary market, it is crucial to grasp several fundamentals, including:
Earnings per Share (EPS): EPS can be found in the company's financial report. It is calculated by dividing the total profit of the company by the total number of shares. Comparing the current EPS with the EPS of the previous year/quarter helps assess the growth pattern and future prospects.
Price-Earnings (PE) Ratio: The PE ratio is calculated by dividing the current share price by the EPS. Comparing the PE ratio with other companies or the industry average (e.g., comparing the PE ratio of a banking company with NIC Asia) can help determine if a share is overvalued or undervalued, aiding in purchase or sale decisions.
When analyzing EPS or PE, it is important to consider other income and their potential effects. These incomes can boost the current EPS but may not be sustainable in the future.
-To assess the worth of a share in the event of liquidation, it is important to consider the book value of the share. The book value provides an indication of the company's net worth and can help determine the value of each share if the company were to be liquidated.
The reserve and surplus of a company are crucial indicators of its financial capacity to distribute bonuses and dividends. By examining the reserve and surplus, investors can gain insights into the company's ability to allocate profits to shareholders.
Understanding the number of listed shares is essential for comprehending market fluctuations. The total number of shares listed in the market can impact the supply and demand dynamics, which in turn influence the share price.
Apart from these factors, there are numerous ratios that should be analyzed to evaluate the value of a share and make projections. For instance, the debt-equity ratio and the loans and deposits of financial institutions are key ratios that provide insights into the financial health and stability of the company.
By examining these ratios and considering relevant factors, investors can gain a better understanding of the value of a share and make informed investment decisions.
When valuing shares, it is important to consider the underlying assets and the company's performance. However, in an open and free market, shares become separate commodities, and the dynamics of supply and demand become crucial factors.
-To analyze shares from a technical perspective, it is necessary to utilize charts or graphs of the Nepse (Nepal Stock Exchange). These charts can be accessed either through the Nepal Stock Exchange's website by switching to the advanced chart section or by visiting platforms like "NepseChart.com" that provide free access to such charts.
To begin with, there are some basic indicators that can be used for technical analysis, such as MACD (Moving Average Convergence Divergence) and RSI (Relative Strength Index). These indicators help in assessing market trends, momentum, and potential price reversals.
Additionally, understanding various candlestick patterns is important for technical analysis. Candlestick patterns provide visual representations of price movements and can indicate potential market trends or reversals.
It is also essential to identify resistance and support levels for specific stocks as well as the overall Nepse market. These levels represent price points at which a stock or the market tends to encounter barriers or find support.
By considering these technical analysis tools and factors, investors can gain insights into market trends, potential price movements, and make more informed decisions when trading shares.
The more you learn, the more you earn”Warren Buffett. “The more you read, the more you learn”unknown.
The Intelligent Investor is my favorite one, you have multiple choice.
Here are some basic steps to start investing in the secondary share market in Nepal:-Identify companies with a high number of share listings in the market to avoid excessive fluctuations. Such companies often offer more stability due to increased liquidity.
-Look for companies with a price-to-earnings (PE) ratio around 15. This can be a benchmark for evaluating the valuation of a company's shares.
-Check the 52-week high and low prices of the shares to gauge the price range within which the stock has been trading. This information can provide insights into potential price movements.
-Identify recent support and resistance levels for a particular stock. These levels represent price points where the stock price has previously reversed its trend, either rising or falling. They can help determine potential entry and exit points.
-Stay updated on upcoming rights issues. Understand the steps involved in the right share issuance process, which typically includes board approval, member approval (AGM/EGM), regulatory authority pre-approval, SEBON approval, book closure, and issuance.
-Check the effects in the market of previous rights issues. Analyze how the market reacted to previous rights offerings from companies to gain insights into potential market trends and investor sentiments.
-Watch informative videos on the SEBON Facebook page. SEBON occasionally shares useful tips and information through training programs that can provide valuable guidance for investing in the share market.
-Utilize market depth information, available through a TMS (Trading Management System) account or the Nepal Stock Exchange website. Market depth provides insights into the buy and sell orders at different price levels, helping to understand the current buy and sell pressure in the market.
By following these basic steps and gathering relevant information, investors can start their journey in the secondary share market in Nepal with a more informed approach.
Post a Comment