Political uncertainty drains investor confidence as NEPSE slumps, analysts warn

KATHMANDU: Political instability following the GenZ uprising has weakened investor sentiment, dragging the NEPSE index downward even as market indicators remain largely favorable, according to market analysts.

Despite stable macroeconomic signals, the stock market has been unable to rebound due to a persistent collapse in investor confidence. On Thursday, the NEPSE index slipped 0.79 points to 2560.29, with turnover reaching Rs 4.68 billion. A day earlier, the index fell 4.98 points to 2561.08, while turnover dropped to Rs 3.77 billion.

On Kartik 27, NEPSE had inched up 1.13 points to 2545.73, yet turnover shrank to Rs 3.49 billion. Even on Kartik 20, when the index fell 11.29 points, turnover still hovered at just over Rs 550 million.
Analysts say external indicators do not justify the current market downturn, but trading volume has remained sharply subdued.

Election Uncertainty Heightens Psychological Pressure on Investors

Despite the announcement of House of Representatives elections for Falgun 21, uncertainty over whether the polls will actually take place has created deep psychological stress among investors. The impact is now visible not only in the stock market but across multiple economic sectors.

Liquidity remains abundant in the banking sector, with average lending rates dropping to 7.5 percent. Yet investors remain unwilling to borrow and reinvest due to political instability.

“Government Must Restore Confidence,” Analysts Say

According to market analysts, even though NEPSE indicators show a favorable environment for fresh investment, the government must take concrete steps to rebuild investor confidence.

Analysts stated that Nepal’s recent stable country rating shows that political instability has not fundamentally damaged the investment climate, but confidence will not return until the government clears uncertainty surrounding national politics.

They argue that the government must “break the political deadlock” and introduce measures that encourage market stability.

Liquidity Abundant, But Lending Demand Missing

Deposit interest rates have fallen to 2.75 percent, and liquidity is so high that Nepal Rastra Bank (NRB) is struggling with management. NRB has already withdrawn over Rs 8 trillion from the financial system through various instruments.

Due to low credit demand, banks are unable to expand lending, and market analysts believe that the six-month shareholding period imposed on banks and financial institutions should be removed to widen investment opportunities.

According to analysts, lifting this restriction would give banks an outlet for deploying excess liquidity and support market activity. They also recommend revising long-term capital gains tax to encourage long-term investment.

Calls for Tax Reforms and New Market Instruments

Analysts say Nepal should adopt practices similar to the insurance sector—mandating minimum holding periods in exchange for personal income tax exemptions—a policy widely used in India and other markets.

They also highlight the need for new trading instruments to increase market depth and investor participation.

NEPSE Struggles Near 2,560 as Turnover Weakens

NEPSE now stands at 2560.29, with daily turnover rarely touching Rs 5 billion. Thursday’s turnover reached Rs 4.68 billion, compared to Rs 3.77 billion the previous day.
The primary cause remains the erosion of investor confidence.

According to market analysts, political uncertainty has overshadowed all positive indicators, preventing the market from moving upward.

They also agree that removing the six-month holding rule for banks and financial institutions would help revive momentum.

Corporate Performance Mixed Despite Strong Hydropower Earnings

Hydropower companies reported a 50 percent increase in profits during the first quarter of the current fiscal year. Real-sector companies also posted business expansion. However, the balance sheets of insurance companies and banks have weakened.

Analysts describe overall performance as “mixed but not alarming,” adding that immediate policy shocks are unnecessary.

The overriding concern remains political instability. Investors are waiting for assurance that the election will be held as announced.

Investor Morale Hit Despite Strong Liquidity and Low Rates

NEPSE had hit a four-year high of 3002 points on Shrawan 30, but after the GenZ uprising, it fell sharply to 2487 points by Asoj 30.

Even with abundant liquidity and cheaper loan rates, low credit demand reflects shaken investor morale.

Market analysts emphasize that stability is essential for investment:

“People are afraid to invest right now. Investor sentiment will not recover until the political deadlock ends and the election date is guaranteed,” analysts said.