This report explains why the Nepal stock market has not seen significant growth despite the introduction of a government 21-point reform action plan.
The 21-point Reform Plan
On Bhadra 29, the Nepal government launched a 21-point action plan aiming to boost the capital market. Investors initially hoped for improvements as the plan included reducing capital gains tax, shortening the period for banks to sell shares, and introducing provisions for share buybacks and stock splits. Even with these steps, the NEPSE index has stayed stagnant. When the plan was announced, the index was around 2,580 points. It rose to 2,680 points for a while but then fell back to the 2,580 level. This suggests that large investors are not yet as active as expected.
Capital Gains Tax and New Rules
One of the biggest parts of the plan was cutting the capital gains tax by 50 percent. For individuals, the rate was lowered to 5 percent and 3.75 percent, which was a positive move for the market. Additionally, the minimum holding period for shares bought by banks and financial institutions was reduced from six months to 45 days.
Challenges with the 15-day Notice Requirement
While the Securities Board of Nepal is working on many reforms like intraday trading and a 10-year blueprint, a new rule regarding basic shareholders is causing some trouble. According to this rule, anyone holding 1 percent or more in a company with over 25 crore paid-up capital, or 5 percent in smaller companies, is considered a basic shareholder. These people must give a 15-day notice before selling 5 percent or more of their shares.
This rule is tough for big investors. In companies with smaller capital, even holding 50,000 shares can make someone a basic shareholder. If a big investor needs to sell a large amount of shares, waiting 15 days is not always practical in the share market. Because of this, some investors are scared to buy in large quantities.
Finding a Balance for the Future
The goal of these rules is to make the market transparent and stop things like pump and dump schemes. Other countries like India and Bangladesh also have disclosure rules, but they often work differently. In Nepal, shares are seen as a liquid asset, so investors want to sell them whenever they need cash. Many feel that the 15-day notice period should be reviewed, perhaps by increasing the share percentage threshold or reducing the waiting time to 3 days. Balancing transparency with market liquidity is important so that big investors feel comfortable participating again.
AI Disclaimer: This article was originally published on https://bajarkochirfar.com. It has been translated with the help of AI. For the best understanding and accurate facts, we recommend reading the original Nepali version.
