Political instability shakes investor confidence, Nepal’s Stock Market declines

KATHMANDU: Investor confidence in Nepal’s capital market has weakened once again, as political uncertainty and government transition continue to cast shadows over economic stability. The Nepal Stock Exchange (NEPSE) witnessed a sharp decline following the Dashain holidays, signaling persistent anxiety among investors despite the government’s assurances of private sector–friendly policies.

The market, which had gained 11.51 points on October 27 (Asoj 12) to close at 2,663.51 points before the holidays, began to slide immediately after trading resumed. On Tuesday, the first trading day after the long Dashain break, the NEPSE index plunged by 58.55 points, and on Wednesday, it dropped by another 45.36 points, settling at 2,559.59 points.

According to NEPSE data, only 18 companies saw their share prices rise on Wednesday, while 232 companies suffered losses. The day’s total trading volume stood at Rs 5.76 billion, reflecting limited market activity and a cautious stance among traders.

Investor Confidence Falters Amid Political Turbulence

Market analysts attribute the recent downturn to the political instability that has followed the formation of a new interim government. Despite promises of economic reform and investor-friendly policies, uncertainty surrounding political leadership and election timelines has deterred both institutional and retail investors from making fresh commitments.

“The stock market thrives on confidence and predictability,” remarked a senior analyst at a leading brokerage firm. “Right now, investors are unable to gauge the government’s direction, and the lack of policy clarity has amplified the sell-off.”

The stock market’s repeated struggle to regain momentum underscores how deeply politics influences Nepal’s financial ecosystem. Analysts warn that prolonged instability could impact not only the stock market but also broader investment inflows, including foreign direct investment (FDI), at a time when the country desperately needs capital for post-pandemic recovery.

NEPSE’s Long Struggle Toward the 3,000-Point Mark

Since its all-time high of 3,199.03 points on September 18, 2021 (Bhadra 2, 2078 BS), NEPSE has yet to reclaim its peak. The index briefly touched 3,000.81 points on August 16, 2023 (Sawan 31, 2080 BS) and 3,002.08 points again on July 29, 2024 (Sawan 13, 2081 BS), only to face corrections amid renewed uncertainty.

These figures demonstrate that despite Nepal’s economic potential, investor sentiment remains fragile. The frequent changes in government, inconsistent fiscal policy, and bureaucratic hurdles have collectively weakened market resilience.

Wait-and-See Sentiment Dominates Market

With elections anticipated in the coming months, most investors are adopting a “wait-and-see” approach. They expect the stock market to regain momentum only after the formation of a stable government capable of implementing long-term economic strategies.

Until then, trading volumes are likely to remain subdued, and volatility could persist. Analysts believe that once political clarity emerges, pent-up investment demand could drive the NEPSE upward again.

“The fundamentals of many listed companies remain strong,” noted an investment adviser. “But no matter how good the numbers are, political instability undermines market confidence. Investors are waiting for reassurance that Nepal’s economy is moving in a stable direction.”