CHAPTER - I

INTRODUCTION

1.1 Background of the Study:

1.1.1 Origin & Meaning of Bond Valuation :

The financial market is a specialized market that is responsible for channeling financial
resources from the surplus unit (savers) to the deficit unit (those who needed additional
fund)to carry out some form of economic activities. Financial market play an important role
in the mobilization of financial resources for long term investment through financial
intermediation. A well functioning financial market allocates the resources and improves the
efficiency of financial decision that leaders to the better allocation of resources.

When we talk about Nepal, the financial market is largely dominated by bank and other
financial institution. The Nepalese financial market is largely concentrated on the equity and
loan financing. The bond market which comprises of the government and corporate bonds
covers a very small portion of the market. Although the insurance of the bond is feasible and
beneficial for the organization, the growth and development of the Nepalese bond market is
in a slow pace.

The project focus on the current scenario of bond market in Nepal and the reasons behind
preference of the bank loan rather than debt instruments like bond. Also the challenges for the
development of bond market are explored through the qualitative and quantity analysis. The
understanding of the hindrance have helped generate some suggestion for the various related
sector like regulatory bodies, issue, investors and traders so that they can contribute to the
growth bond market. A seminar on ‘Bond Market in Nepal and Currency Risk’ was
conducted on 23rd december,2016 which was for the 3rd year Finance and Banking group to
get an insight about the current scenario of bond markets in Nepal.

Dr. Manoj Shahi . CFA was the first speaker who highlighted the impact of bond market in
a developing country like ours, talking its history, current scenario and the future aspects. As
one of the popular debt instruments in the developed nations, he mentioned how bonds play
a very important role in developing diversified investment environment which can act as a
cushion against risk from the concentration in the bank loans and equity market.

Similarly, the second session was forwarded to Mr. Hemanta Bashyal, CFA, and FRM, who
discussed on the various currency risks to the national economy including the recent
demonetization in India. He also drew some light on how the investors or companies that
have business operations across national borders are exposed to currency risk that may
create unpredictable profit and loses. The major topic discussed here was the currency risk
to the economy.

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1.1.2 Meaning & Types of Bond Valuation:

A bond is a long-term contract under which a borrower agrees to make payments of interest
and principal on a specific date to the holders of bond. Generally, investors have several
choices while investing in bonds. However, bonds can majorly be classified into four types,
namely Treasury bonds, corporate bonds, Municipal bonds and foreign bonds. Treasury
bonds are also called government bonds which are issued by federal government. It is
assumed that government bonds do not have default risk but it is not free from interest rate
risks. Corporate bond as the name implies are issue by corporation. Unlike treasury bonds,
corporate bonds are exposed to default risk. Municipal bonds are issue by state and local
government and are also exposed default risk. Foreign bonds are issue by foreign government
and foreign corporations. Foreign bonds are exposed to default risk and in addition the risk
exists if the bonds are dominated in a currency other than that of investor’s home currency.
All this bonds are generally traded in a market which is called bond market. Among the
different types of bond issued, the development bond is most popular form of government
and the foreign bond is the least popular one among the four types of bonds. Even the listed
securities compose of the development bond only. The trading of those bonds occurs very
less due to which the yield curve generation and price discovery is a difficult process.

The bond market in Nepal is relatively underdeveloped where only a tiny corporate bonds
and government bond are under operation. The prices of these bonds are not market oriented
i. e, not traded in secondary market. Currently, Nepal Rastra Bank issues five types of bond
to meet short and long term needs of fund. These instruments are: Development bond,
National saving bond, Citizen saving bond, foreign employment bond and treasury bond
besides these government securities some corporate bond are also issued to fulfill various
long term financial needs.

A) Primary Market:

When a company issue sells new stock and bond for the first time, it does so in the primary
capital market. In many case this takes the form of an initial public offering (IPO). When
investor purchase securities on the primary capital market, the company offering the
securities has already hired and underwriting firm to review the offering and create a
prospectus outline the price and other details of the securities to be issued. Companies
2
issuing securities via the primary capital market hire investment bankers to obtain
commitment from large institutional investors to purchase the securities when first offered.

B) Secondary Market:

The secondary market is where securities are traded after the company has sold all the
stocks and bonds offered on the primary market. Market such as the New York Stock
Exchange (NYSE), London Stock Exchange (LSE) and Nepal Stock Exchange
(NEPSE) are secondary markets. On the secondary market, small investors have a
better chance of buying or selling securities, because they are no longer excluded
from IPOs due to the small amount of money they represent. Anyone can purchase
securities on the secondary market as long as they are willing to pay the price which
the securities is being traded.
On the secondary market, a broker typically purchases the securities on behalf of an
investor. The price of the securities fluctuates with the market, and the cost to the
investor includes the commission paid to the broker. The volume of securities traded
varies from day to day, as demand for the security fluctuates. The price paid by the
investor is no longer directly related to the initial price of the security as determined
by the first issuance, and the company that issued the security is not a party to any
sale between two investors, except in the case of a company stock buyback.

1.1.3 Types of Secondary Market:

On the basis of the way that securities are traded in secondary markets, they are
classified into two segments called broker markets and dealer markets. The broker
markets consist of organized securities exchange and the dealer markets consist of the
over the counter market (OTC) market. These two markets are different in terms of
techniques of executing trades. These two types of secondary markets are discussed in
details below:
A) Broker Markets:
Broker Market consist of the organized exchanges where buy and sell orders of
investors are executed through the licensed brokers. The organized exchanges may be
the stock exchange, futures exchange and option exchanges. In case of Nepal, the

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 Nepal Stock Exchange (NEPSE) is the only one national stock exchange. Particularly,
it is the only one dominant broker market in Nepal.
B) Dealer Markets:
A dealer market is a security market mechanism wherein multiple dealers post price at
which they are agreed to buy and sell a specific security. In a dealer market, securities
dealers are designated as market makers. They provide liquidity and transparency by
electronically displaying the price at which they are willing to make a market in a
security. Over-the counter (OTC) market is one of the most common examples of
dealer market. The OTC market had been rarely used to trade shares in Nepal.

1.2 Profile of Nepal Stock Exchange (NEPSE):

In Nepal, we have just one stock exchange Nepal Stock Exchange, commonly known as
NEPSE. It is one example of organized stock market in Nepal. NEPSE's office is located in
Singha Durbar Plaza, Kathmandu. It was incorporated under the Company Act and being
operated under securities Act, 1983. Mr. LaxmanNeupane is the Chairman of NEPSE. The
Board of Director (BOD), which will govern NEPSE, constituted of member representing
different sector as per securities Act 2006. At present BOD constitutes 2 members including a
chairman from Nepal Government, 2 members from Nepal Rastra Bank, 1 member from
RastriyaBanijaya Bank, moreover 1 member will be nominated by BOD as an expert in
capital market. The main objectives of the incorporation of NEPSE is to impart free
marketability and liquidity to the government and corporate securities by facilitating
transactions in trading floor through member, market intermediaries, such as broker, market,
etc.

Nepal stock exchanges at the end of the published the transaction index which is called
NEPSEindedx. In simple language, the base market capitalization is taken which is special to
calculate NEPSE index. The base market capitalization is February 12, 1994. In this day,
share transaction was held for the first time. It is the first index to show the work of stock
market. The increase in the value and transaction of transacted share increase then the market
capitalization value also increase. While calculating the market capitalization, the total share
is multiply day's share value. As there is different value of share number and share price,
separate multiply value is calculated and added later to find the total sum. In this way, market
capitalization is calculated. For example, the company named ADBL has registered 500,000

4
numbers of shares @ Rs.100. On that day, market capitalization value was Rs 50 crore. The
market capitalization of each company is added to find out total market capitalization. Stock
exchange finds out the market index on the base of m market capitalization.

Nepal Stock Exchange Limited (NEPSE) publishes four types of stock market indexes to
indicate the behavior of stock market of Nepal. They are NEPSE index, Float index, and
Sensitive index and NEPSE Securities Float index. Among the, most popular stock market
indexes is NEPSE index. It is serves as benchmark for total equity market behavior in Nepal
because it incorporates the changes in total market capitalization of all companies' stocks
listed in NEPSE. In other words, NEPSE index is a composite index of overall stock market
of Nepal. It is constructed using value weighted schemes as in the case of S&P indexes.
NEPSE index is useful for investors to understand the general market behavior for equity
transactions in Nepal. The investors study the NEPSE index over the periods to understand
the ongoing trend of the market as a whole.

Nepalese capital market is very small in comparison with other developed stock markets.
There are a few numbers of brokers, limited number of listed companies, very few
transactions and most importantly investors are unknown about the pros and cons of the
stock market. The market is almost totally captured by individual investors buy very little
number of share and therefore they do not bother analyzing the data and information before
buying and selling stocks. The variety of securities available in the market allows each
investor to select assets that suit his risk, preferences and beliefs. But there is lack of different
types of securities in the stock market.

NEPSE has permitted its members to act as intermediaries in buying and selling of
government bonds and listed corporate securities. There are 50 member brokers and 2 market
makers. Trading of securities take place as envisaged in the Securities Exchange Act, 2017
rules and byelaws.

Nepal Stock Exchange (NEPSE) started trading of securities since January 13, 1994. It is the
public company funded by government of Nepal, Nepal Rastra Bank, Nepal Industrial
Development Corporation and member of NEPSE. Nepal Government holds majority 58.66
percent ownership in NEPSE. Nepal Rastra Bank, Nepal Industrial Development Corporation
and NEPSE brokers have 34.60 percent, 6.12 percent and 0.62 percent ownership
respectively.

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 Table No. 1

Share pattern of NEPSE

S.N. Name of Shareholder Share (In %)

1 Nepal Government 58.66
2 Nepal Rastra Bank 34.60
3 Nepal Industrial Development Corporation 6.12
4 NEPSE brokers 0.62

Share pattern of NEPSE

0.62
6.12

Nepal Government
Nepal Rastra Bank
Nepal Industrial Development
34.6 Corporation
NEPSE brokers
58.66

Figure 1: Share pattern of NEPSE

Calculation of NEPSE Index

NEPSE has 221 listed companies in its record till May 4, 2017. According to value weighted
methodology, NEPSE first of all computes the market capitalization of each of 221
companies at the close of a given business day and obtain the total market capitalization by
summing them. Then, total market capitalization of the given business day is divided by total

6
market capitalization of base period and quotient is multiplied by 100. We use the following
formula to construct NEPSE index.

current total capitalization

NEPSE Index = × 100
base perio d ' s market capitalization

current day total capitalization

Current NEPSE Index = × base NEPSEindex
previous day toatal market capitalization

As we have already noted, NEPSE started index construction since February 12, 1994. Thus
first day index as of February 12, 1994 was set at 100. It is a convenient unit applied by
NEPSE to construct the index can be used as the base for comparing current market
performance of NEPSE. Let us consider an example to illustrate the calculation of NEPSE
index. For simplicity, we assume that there were only three stock listed in NEPSE, insted of
221 stocks as of May 2017. Suppose SCB, HBL and EBL had 200,300 and 400 shares
outstanding respectively and closing prices of price of Rs.100, Rs 200 and Rs 300
respectively on February 12, 1994.

Company No. Closing price as of 1994 Market capitalization as of 1994

of (no. of share × closing price)
Feb. 12 Feb 13 Feb 14 Feb. 12 Feb 13 Feb 14
share
SCB 200 Rs 100 Rs 110 Rs 115 Rs 20,000 Rs 22,000 Rs 23,000
HBL 300 200 210 220 60,000 63000 66000
EBL 400 300 310 330 120,000 128,000 132,000
Total market capitalization 200,000 2130,000 221,000

NEPSE index as of February 12, 1994 (the base period used by the NEPSE) is called base
baseNEPSE index. On this date the market capitalization of the day and base market
capitalization both are equal (Rs 200,000). Thus base NEPSE index is calculated as follows:

200000
Base NEPSE Index = ×100
200000
= 100
After February 12, 1994, the NEPSE index is calculated as follows:
NEPSE index as of February 13, 1994:

current total capitalizationas of february 13,1994

NEPSEIndexFeb 13,1994= × 100
base perio d ' s total market capitalization

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 213000
= ×100
200000

Ö 106.5

NEPSEindex as of February 14, 1994:

current total capitalizationas of february 14,1994

NEPSEIndexFeb 14,1994= × 100
base perio d ' s total market capitalization

221000
= ×100
200000

Ö 110.5

NEPSE index calculation was started as on February 12, 1994, therefor market capitalization
at this time is equal to market value of base period. Thus, NEPSE index is 100. As on
February 13, 1994, NEPSE index is 106.5. This figure gives meaningful conclusion only if it
is compared to the previous days or base period's index. In comparison to base NEPSE index
of February 12, 1994, this value has been increased by 6.5 percent. It implies that overall
stocks market increased by 6.5 percent in February 13 as compared to the base period,
February 12, 1994 index as on February 14, 1994 has been further increased to 110.5. It
represents a 10.5 percent growth stock market as compared to base period. However, if we
compare this figure against the NEPSE index of February 13, it shows only 4 points growth
in NEPSE index. These 4 points of growth implies that stock market increase by only 3.76
percent (that is, 4 divided by 106.5) in February 14 as compared to February 13. Note that
changes in NEPSE index have been attributed solely to the change in market capitalization.
In turn, the market capitalizations on these dates have been changed due to the fluctuation
market price per share.

Adjusting the base value of market capitalization

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NEPSE can use market capitalization of February 12, 1994 (that is Rs 200000) as base value
market capitalization until new companies and new shares (bonus shares, right shares, follow
up public offering) are not listed. However, if any new company is listed into NEPSE, the
base value of market capitalization must be adjusted to maintain the consistency in index
calculation. To illustrate how the base value of market capitalization is adjusted to reflect the
new listing, let us continue the same 3 stocks NEPSE index example. Now suppose a fourth
company called MIDBL appeared into the listing of NEPSE as on February 14, 1994. It was
listed with 100 shares of common stock of Rs 100 per share. After listing of the MIDBL, now
NEPSE has four component stocks. With this new listing, previous base value of market
capitalization (that is, Rs200000) is no longer valid. We need to adjust the value of market
capitalization using following formula.

new market capitalization

Adjusted base value = × previous base value
old market capitalization

In our example, if MIDBL is listed with 100 shares of Rs 100 each, NEPSE will have
additional Rs 10000 (that is, 100 shares multiplied by Rs 100 for MIDBL) in market
capitalization. So its new total market capitalization as on February 14, 1994 grows from Rs
221000 to Rs 231000 or Rs 10000. Thus adjusted base value NEPSE index is given by:

231000
Adjusted base value = × 200000
221000

= Rs 209049.77

This adjusted base value maintains the NEPSE index at February 14, 1994 level even we
consider the new listing of MIDBL. For example, the market capitalization after new listing
is Rs 231000. If we use adjusted base value NEPSE index is given by:

new market capitalization

Adjusted base value = × 100
old market capitalization

231000
NEPSE index = × 100
209049.77

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This new index value is equal to NEPSE index calculated before listing of new shares on
February 14,1994. NEPSE has to use adjusted base value of market capitalization (i.e., Rs
209049.77) after February 14, 1994 until new shares and new companies are listed in
NEPSE. The base value of market capitalization has to be adjusted every time when new
shares or new companies appear in the list of NEPSE.

1.2.1 List of Broker:

S.N Broker Broker Name Address Phone

. No.
1 1 Kumari Securities Pvt. Ltd. Dillibazar,Kathamandu 01-4418036
2 1_RWS Kumari Securities Pvt. Ltd New Road, Pokhara 061-537511
3 3 Arun Securities Pvt. Ltd. Putalishadak, Kathamandu 01-4239567
4 4 Opal Securities Investment Putalishadak, Kathamandu 01-4423509
Pvt. Ltd.
5 5 Market Securities Exchange KichhaPokhariKathamand 01-4248973
Company Pvt. Ltd u
6 6 Agrawal Securities Pvt. Ltd. Dillibazar, Kathmandu 01-4424406
7 6_RWS Agrawal Securities Pvt. Ltd. Main Road, Biratnagar 021-531667
8 7 J.F. Securities Company Dharmapatha, Kathmandu 01-4256099
9 8 Ashutosh Brokerage & Khichha 01-4220276
Securities Pvt. Limited Pokhari, Kathamandu
10 8_RWS Ashutosh Brokerage & United Insurance, Itahari 9813284370
Securities Pvt. Limited
11 10 Pragyan Securities Pvt. Kamaladi, Kathmandu 01-4413392
Limited
12 10_RWS Pragyan Securities Pvt. Collage Road, Biratnagar 021-527283
Limited
13 11 Malla&Malla Stock Broking Hattisar, Kathmandu 01-4425750
Company Pvt. Limited
14 13 Thrive Brokerage House Naxal ,Kathmandu 01-4419051
Pvt. Limited
15 13_RWS Thrive Brokerage House Gairipatan, Pokhara 061-522935
Pvt. Limited
16 14 Nepal Stock House Pvt. Anamnagar, Kathmandu 01-4265888
Limited
17 14_RWS Nepal Stock House Pvt. Gairapatan, Pokhara 061-534694

10
 Limited
18 16 Primo Securities Pvt. Putalishadak, Kathmandu 01-4168214
Limited
19 16_RWS Primo Securities Pvt. Adarsha Nagar, Birgunj 051-529683
Limited
20 17 ABC Securities Pvt. Limited Indrachowk, Kathmandu 01-4230787
21 17_RWS ABC Securities Pvt. Limited PrithviMarg, Dharan 025-524083
22 18 Sagarmatha Securities Pvt. Dillibazar, Kathmandu 01-4439315
Limited
23 19 Nepal Investment & Bhimesengola, 01-4495450
Securities Trading Pvt. Kathamandu
Limited
24 19_RWS Nepal Investment & Main Road, Biratngar 021-440127
Securities Trading Pvt.
Limited
25 20 Silpa Securities Pvt. Limited Newroad, Kathmandu 01-4255782
26 21 Midas Stock Broking KamaladiChowk, 01-420089
Company Pvt. Limited Kathamand
27 21_RWS Midas Stock Broking Chauraha, Butwal 071-438332
Company Pvt. Limited
28 22 Siprabi Securities Pvt. Pulchowk, Lalitpur 01-5530701
Limited
29 22_RWS Siprabi Securities Pvt. Birgunj 051-523818
Limited
30 25 Sweta Securities Pvt. Putalishadak, Kathamandu 01-4444791
Limited
31 25_RWS Sweta Securities Pvt. Ghantaghar, Birgunj
Limited
32 26 Asian Securities Pvt. Putalishadak, Kathmandu 01-4424351
Limited
33 26_RWS Asian Securities Pvt. Butwal 071-547229
Limited
34 28 Shree Krishna Securities Dillibazar, Kathmandu 01-4441226
Limited
35 28_RWS Shree Krishna Securities Biratnagar 021-521699
Limited
36 29 Trishul Securities And Putalishadak, Kathmadnu 01-4440709
Investment Limited
37 29_RWS Trishul Securities And Newroad, Pokhara 061-523901
Investment Limited
38 32 Premier Securities Company Putalishadak, Kathmandu 01-4231339
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 Limited
39 32_RWS Premier Securities Company Newroad, Pokhara 061-534201
Limited
40 33 Dakshinkali Investment Kamaladi, Kathmandu 01-4168640
Securities Pvt. Limited
41 33_RWS Dakshinkali Investment Palpa Road, Butwal 9851095629
Securities Pvt. Limited
42 34 Vision Securities Pvt. Anamnagar, Kathmandu 01-4770408
Limited
43 34_RWS Vision Securities Pvt. BanepaChowk, Banepa 011-662802
Limited
44 35 Kohinoor Investment and Kamalpokhari, Kathmandu 01-4442857
Securities Pvt. Limited
45 35_RWS Kohinoor Investment and Newroad, Pokhara 061-534445
Securities Pvt. Limited
46 36 Secured Securities Limited Putalishadak, Kathmandu 01-4262861
47 36_RWS Secured Securities Limited Birtamode 9840065920
48 37 Swarnalaxmi Securities Pvt. Kamalpokhari, Kathmandu 01-4417178
Limited
49 37_RWS Swarnalaxmi Securities Pvt. Hetauda 9855037137
Limited
50 38 DipshikaDhitopatraKarobar Anamnagar, Kathmandu 01-4102532
Co. Pvt Limited
51 38_RWS DipshikaDhitopatraKarobar Dhangadi 091-521984
Co. Pvt
52 39 Sumeru Securities Pvt. Hattishar, Kathmandu 01-4444740
Limited
53 39_RWS Sumeru Securities Pvt. Birtamode, Jhapa 023-541919
Limited
54 40 Creative Securities Pvt. Putalishadak, Kathmandu 01-4419572
Limited
55 40_RWS Creative Securities Pvt. Banepa 011-663258
Limited
56 41 Linch Stock Market New Baneshwor, Ktm 01-4784567
57 41_RWS Linch Stock Market Milanchowk, Butwal 071-547292
58 42 Sani Securities Company Jamal, Kathmandu 01-4166005
Limited
59 42_RWS Sani Securities Company Narayanghat 056-572272
Limited
60 43 South Asian Bulls Pvt. Kathmandu 01-4284785
Limited

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61 44 Dynamic Money Managers Kamaladi, Kathmandu 01-4414522
Securities Pvt. Limited
62 44_RWS Dynamic Money Managers Banepa 9843252336
Securities Pvt. Limited
63 45 Imperial Securities co. Pvt. Anamnagar 01-5706004
Limited
64 45_RWS Imperial Securities co. Pvt. Nepalgunj 081-524932
Limited
65 46 Kalika Securities Pvt. Putalishadak 01-4430601
Limited
66 46_RWS Kalika Securities Pvt. Nepalgunj 081-527301
Limited
67 47 Neev Securities Pvt. Kamaladi,Ktm 01-4168601
Limited
68 47_RWS Neev Securities Pvt. Biratnagar, Itahari 025-587408
Limited
69 48 Trishakti Securities Public Putalishadak, ktm 01-4232132
Limited
70 49 Online Securities Pvt. Putalishadak, Ktm 01-4168298
Limited
71 49_RWS Online Securities Pvt. Dharan 025-530683
Limited
72 50 Crystal Kanchenjunga Kathmandu 01-4011072
Securities Pvt. Limited
73 50_RWS Crystal Kanchenjunga Biratnagar 9851098200
Securities Pvt. Limited
74 51 Oxford Securities Pvt. Kalimati, Kathmandu 01-4278113
Limited
75 51_RWS Oxford Securities Pvt. Narayangard 9845066244
Limited
76 52 Sundhara Securities Pvt. Sundhara 01-4263583
Limited
77 52_RWS Sundhara Securities Pvt. Besisahar 9851194933
Limited
78 53 Investment Management Tripureshwor, Ktm 01-4256589
Nepal Pvt. Limited
79 53_RWS Investment Management Newroad, Pokhara 061-537944
Nepal Pvt. Limited
80 54 Sewa Securities Pvt. Tripureshwor, Ktm 01-4256642
Limited

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 81 54_RWS Sewa Securities Pvt. Mainroad, Hetauda 057-524454
Limited
82 55 Bhrikuti Stock Broking Co. Newroad, Ktm 01-4223466
Pvt. Ltd.
83 55_RWS Bhrikuti Stock Broking Co. Kasturichowk, Itahari 025-587273
Pvt. Ltd.
84 56 Shree Hari Securities Pvt. Kamaladi, Ktm 01-4437562
Limited
85 56_RWS Shree Hari Securities Pvt. Birtamode, Jhapa 023-542132
Limited
86 57 Araya Tara Investment And Anamnagar,ktm 01-5706297
Securities Pvt. Ltd.
87 57_RWS Araya Tara Investment And Butwal 071-542561
Securities Pvt. Ltd.
88 58 Naasa Securities Co. Ltd. Naxal, Ktm 01-4440384
89 58_RWS Naasa Securities Co. Ltd. Birgunj 9841018232
90 59 Deevyaa Securities & Stock Putalishadak, Kathmandu 01-4421488
House Pvt. Limited
91 59_RWS Deevyaa Securities & Stock Baglung 068-521957
House Pvt. Limited

1.2.2 List of Listed Companies in NEPSE:

Corporate bodies wishing to be member shall have to submit application in prescribed format
within specified time along with certificate of incorporation, tax certificate, Memorandum of
Association , Articles of Association and concerned Act, rules and regulations in the case of
corporate body other than company after the incorporation and the projected B/S and PL A/C
for the next three years, last three years audited financial statement, if the year of
incorporation is less than three years, the B/S and A/C of investment in shares of subsidiary
company or investment made in its parent company's share capital, details of share
investment in any other company other than subsidiary, the name, address, number of shares
subscribed and the amount invested by shareholders having more than 5% of the share capital
need to be submitted. NEPSE has following companies are listed.

Listed companies in NEPSE

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 S.N Sector No. of Company
.
1 Commercial Banks 27
2 Finance 27
3 Hotels 4
4 Manufacturing And Processing 18
5 Hydro Power 24
6 Trading 4
7 Non-Life Insurance 15
8 Development Bank 33
9 Preferred Stock 1
10 Mutual Bond 13
11 Micro Finance 40
12 Life Insurance 7
13 Others 4
Total 217

1.3 Objectives of the Study:

The researcher's objective of this study is to analyze NEPSE index in Nepal. The study
intends to present a brief and clear condition of shares market in Nepal. Mainly objectives of
the study are as follow:

I) To analyze NEPSE index in Nepal.

II) To identify of market capitalization of NEPSE.

1.4 Rational of the Study:

This study will be useful to the university students who are curious to know about the current
status of Nepalese stock market, its growth, issues and challenges for the development of
stock market. Similarly, the Recommendations that this study intends to propose on the basis
of its findings are expected to be useful for the policy makers associated with the
development of capital markets. This significance of the study can be broadly categorized as
bellow:

I) This study will be effective information for the investor who want to invest their funds in
stock market (NEPSE).

II) It will be helpful further researcher for reference.

III) It will be use for investor, student and other stakeholder.

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1.5 Review of Literature:

Review of literature is a necessary part of all studies. A literature review is the process of
obtaining, locating, reading and evaluating the research literature in the area of the researcher.
It is a way to discover what other researcher in the area of problem selected has uncovered.
The purpose is to develop some expertise in one's area, to see what can new contribution be
made? And will be able to receive some ideas for developing a research design. It is also way
to avoid investigating problems that have already been definitely answered.

1.5.1 Conceptual Review:

The conceptual framework provides the clear concept about the subject as well as topic which
are related with the study conducted by the researcher. That's why; helps to draw the
theoretical concept of the research work. Hence, here also in this section those related and
relevant theories, matter and other theoretical concepts have been presented to give the more
about the research in the theoretical way also. In this section of the literature review only
theoretical framework about the NEPSE index.

Financial market denotes the place or mechanisms where financial instruments are traded.
Financial instruments denote also paper evidence, showing the exchange of instruments
between concerned parties. A financial market is a place where firms and individuals enter
into contracts to sell or buy specific products, such as stocks, bond on future contracts. This
market provides a meeting place for buyers and sellers where price is determined.

Financial markets provide a forum in which suppliers of funds and demanders of loans and
investments can transact business directly whereas the loans and investments of institutions
are made without the direct knowledge of suppliers of funds (savers), suppliers in the
financial markets know where their funds are being lent or invested .The two key financial
markets are the money market and the capital market .Transactions in short term debt
instruments , or marketable securities (bonds and stocks ) are traded in the capital market.
Financial intermediaries (financial institution) are organization that issue financial claims
against themselves and use the proceeds from this issuance to purchase primarily the
financial assets of others. Financial claims simply
Represent the right hand side of balance sheet for any organization, so the key distinction
between financial intermediaries and other types of organization involves what is on the left
hand side of the balance sheet. Financial intermediaries provide an indirect method for

16
corporation to acquire funds. Financial institutions are said to be the bridge between the
savers and users
They also collect scattered deposits and give loans to maximize their wealth. Financial
institutions actively participate in the money market and the capital market, as both suppliers
and demanders of funds. Financial intermediaries include, saving and loan associations,
saving banks, credit unions, life insurance companies, mutual funds, pension funds etc. The
financial system is an important element of modern economy.

5.1.2 Review of Pervious Report

No specific research studies have been available regarding NEPSE index. However, some
thesis, articles and journals which are related tostock market are consulted and reviewed.

A thesis written by Dahal Suman (2010) the student of Shankhar Dev Campus, Published
Master of Business Studied thesis on “A study on Nepalese Stock Market in the Light of its
Growth, Problems and Prospects”was used primary and secondary data collection method.
In his study he has 16 fiscal years and various statistical tools. His main objectives and
findings are given below:

Main Objectives:

To examine the growth of Nepalese stock market.

To identify the existing problems and challenges faced by the Nepalese stock market.
To analyze prospects of Nepalese stock market.

Major findings:

1. From the analysis of growth of Nepalese stock market, it can be concluded that growth of
market capitalization and growth in number of market capitalization and growth in number of
institutional investor are satisfactory. However, majority of the respondents are not satisfied
with
the growth in number of listed companies. On the other hand, respondents are not certain
whether growth amount of IPO and growth in volume of security traded is satisfactory or not.

2. The investors are facing several problems and difficulties during their transaction period
.The majority of the respondents are agreed with the asked statements. So it was concluded

17
that main problem of stock market are insufficiency of legal rules and regulations,
unavailability of information, influenced by small number of large investors , in sufficiency
of number of issue managers, rumor based market, insufficient knowledge of investors etc.
However, the respondents are not realized the need of new stock exchange.

3. By analyzing the prospects of Nepalese stock market, it can be concluded that increase in
number of listed companies and turnover of listed companies, return from the stock market,
increase in amount of IPO and increase in trend of larger companies listed are main factor for
the
Prospects of Nepalese Stock Market

4. However, the majority of respondents cannot say general provisions are becoming easy or
not, program launched by SEBON is successful or not etc. Most investors are not satisfied
with the policy of dynamic, transparent credible and investor friendly stock market taken by
government.

5. The amount of issue approval in base year was 244.4 million which is increased to
16828.51 million in fiscal year 2008/09. The growth rate of amount of issue approval was all
positive except in fiscal year 1994/95, 1998/99, 2002/03 and 2006/07 .So the amount of issue
approval is
more or less satisfactory.

6. The number of issue approval was increased from 16 to 64 from fiscal year 1993/94 to
2008/09. The growth rate of number of issue approval was fluctuating over the periods. So it
can be concluded that growth of number of issue approval is not satisfactory.

7. The total number of listed companies reached from 66 to 159 in fiscal year2008/09. The
growth rate of listed companies is all positive (even zero in 2006/07) except in the fiscal year
2001/02 because NEPSE deleted some companies from its list because they did not disclose
necessary information timely and correctly. It can say that number of listed companies is
satisfactory.

18
8. The paid-up value of listed securities is highest in 2008/09 with Rs 61140 million and
lowest in year 1993/94 with 2182.2 million. The growth rate of paid-up value is all positive
except in fiscal year 1997/98.

9. The highest annual turnover in value was 22820.8 million in the fiscal year 2007/08 and
lowest annual turnover was Rs 202.6 million in the fiscal year 1997/98. The trend of growth
rate of annual turnover was fluctuating. The highest growth rate was 640.38 percent in the
fiscal year
1998/99 and lowest was negative 79.55 percent in the fiscal year 1995/96.

10. The market capitalization of listed securities was Rs 13872 million in the base year
1993/94 and Rs 512939.07 million in fiscal year 2008/09. The highest growth rate of market
capitalization was 96.59 percent in the fiscal year 2007/08. And lowest was in 2002/03 i.e.
negative 25.13 percent. It is found that there was all positive growth except in fiscal year
1994/95, 1995/96 and 2001/02 respectively.

11. NEPSE Index continuously declined after its establishment in 1993 till the fiscal year
1997/98. Then it was in increasing trend till 2001. Due to the weak law and difficult situation,
industrial service and trading sector cannot do well. So NEPSE Index also was in decreasing
trend again up to the fiscal year 2002/03. After that there was increasing trend of NEPSE
Index because of political consensus has built up and index reached up to 683.95 in fiscal
year 2008/09.

12. The highest market capitalization ratio of 53.43 percent in fiscal year 2008/09 is better
ratio than other fiscal years. Thus, it can be concluded that the growth of stock market is
growing relative to its past experience.

13. By analyzing the overall aspect of stock market, it is found that the stock market is
suffering from various problems. The growth of Nepalese stock market is satisfactory and the
prospect of stock market is equally strong if the government has taken the transparent
credible and investor friendly policy.
His study had found total shares market situation of Nepal during the period 16 fiscal years.

19
The study had also found that the Stock market in recent years has become an integral
part of economic development.
1.5.3 Research Gap:
There is a certain gap between the current study and previous study. Previous researcher took
sample of Securities Board and Nepal Stock Exchange but current researcher has taken only
NEPSE Index. In this study latest fourweeks data have been taken to achieve the objectives of
this study so gap will fulfill by further researcher.
1.6 Research Methodology:

Research means to search or study about a phenomenon. Generally research is an effort to

search new fact, knowledge and principle in scientific ways. Therefore this chapter highlights
the research methodology used for the study of “Analysis of NEPSE Index in Nepal.Æ In
this regard, this chapter explains not only talk of the research methods but also consider the
logic behind the methods, which are used in the context of our research. This chapter consists
of the research design, population, sampling procedure and sources and analysis of data. The
researcher use various statistics tools .Mainly, this is based on secondary data which is related
with Nepal Stock Exchange (NEPSE).

1.6.1 Research Design

Research design is the conceptual structure within which research is conducted. In other
words, a plan of study or blue- prints for study is called research design or research strategy.
It facilitates the smooth sailing of the various research operations, thereby making research as
efficient as possible. Research design is a plan, structure and strategy to obtain the objectives
of the study.
This research is based on secondary data analysis. Hence, the historical and descriptive
research design has been used to conduct the study on focus of growth, problems and
prospects of Nepalese stock market it deals with the stock market on the basis of available
information.

1.6.2 Population and Sample:

The analysis of stock market, its growth, problems and prospects depends on the number of
company listed in the Nepal Stock Exchange total population. Moreover, the companies that
are in existence and doing share transactions in NEPSE Index are sample of the study.

20
1.6.3 Source of Data:
The required data have been collected from the various sources; but mainly from the monthly
reports of Nepal Stock Exchange, Nepal covering a period of (March 22, 2019 to April 18,
2019)The main place of data was the central office of Nepal Stock Exchange's (NEPSE) web
site. The main source of data is monthly report of the NEPSE. The research is mainly based
on the secondary data.
Primary Data:
Primary data is data that is collected by a researcher from first hand sources, using methods
like survey, interviews, or experiments. It is collected with the research project in mind,
directly from primary sources. In this study researcher have not primary data.

Secondary Data:
The term is used in contrast with term secondary data. Secondary data gathered from studies,
surveys or experiments that have been by other people or for other researcher. Typically, a
researcher will begin a project by working with secondary data. This allows time to formulate
questions and gain an understanding of the issues being dealt with before the more costly and
time consuming operation of collecting primary data. The secondary sources of data are the
monthly report of the Nepal Stock Exchange, newspaper, company’s magazines etc.
Guidelines and unpublished thesis related to the financial performance and stock market
would form secondary data for the purpose of this study. Significant information is also
collected fromInternet and various websites like www.nepalstock.com, 
www.sharesansar.com & www.google.com etc.

1.7 Limitation of Study:

Every study has its own limitation. No study can be free from contain. In the same way, in
this report also have many limitations are given bellow:

I) This study is only partial fulfillment of requirements for the Bachelor of Business Studies.

II) This study base on secondary data.

III) This study studies on only NEPSE index in Nepal.

IV) This study coverage only four weeks data. (March 22, 2019 to April 18, 2019)

21
 Chapter - II

RESULT AND ANALYSIS

In this chapter, the relevant and available data and information from Nepal stock exchange
(NEPSE) and different articles are presented, analyzed and interpreted to find out the growth,
problems and prospects of stock market in Nepal. Data presentation and interpretation is the
important part of a research work which analyze the data and information using various tools
and techniques to get the best results. The data are collected through secondary sources.
Suchcollected data are presented in systematic formats and analyzed using different tools and
techniques.

22
2.1 Data Presentation:

The presentation of data is basic organization and classification of data for analysis. The
included data are collected from weekly report of Nepal Stock Exchange(NEPSE). In this
chapter four weeks (March 22, 2019 to April 18, 2019) comparative NEPSE data is presented
below:

Table No: 2

Nepal Stock Exchange Limited (NEPSE)

Four comparative data (March 22, 2019 to April 18, 2019) of NEPSE index

First NEPSE Second NEPSE Third NEPSE Fourth NEPSE

Week index week index week index week index
24/03/201 1134.79 31/03/201 1143.55 07/04/201 15/04/201 1188.715
9 8 9 4 9 1182.36 9
25/03/201 1138.65 01/04/201 1149.75 08/04/201 16/04/201 1212.05
9 3 9 3 9 1191.68 9
26/03/201 1140.71 02/04/201 1163.82 09/04/201 1181.09 17/04/201 1217.043
9 2 9 5 9 5 9
27/03/201 1142.52 03/04/201 1165.83 10/04/201 1184.61 18/04/201 1232.306
9 4 9 6 9 1 9
28/03/201 1144.49 04/04/201 1165. 11/04/201 1184.01 - -
9 5 9 2 9 7
Sources:http://www.nepalstock.com/reports-by-category/1

2.2 Analysis of result

2.2.1 Position of NEPSE Index:

NEPSE Index is the market worth value of all listed companies which is the economic
indicator that leads to the investor about the stock market trend. So the higher NEPSE Index
indicates the higher return in the stock market and lower NEPSE Index is vice versa. Stock
Exchange creates the investment opportunities in the primary as well as secondary market for
the investors. In the secondary market, before investing the investor have to inform that the
23
NEPSE Index has its trend and fluctuation of market price of individual stock as well as in
aggregate. Nepal Stock Exchange (NEPSE) has been paying important role in the Nepalese
financial market. Its help to economic development and information provided of securities
market. NEPSE index indicate that change price of all securities in the trading floor of Nepal
Stock Exchange. Nepal Stock Exchange is one of the securities markets of Nepal. In this
study the researcher has only four quatrly data of NEPSE index. NEPSE index structure and
their increment of Nepal Stock Exchange are given by:

Table No: 3
Average, S.D. & C.V. of NEPSE Index
(From fiscal year March 24, 2019 to April 18, 2019)

Days Weekly Index

First Second Third Fourth

1 1134.798 1143.554 1182.36 1188.715

2 1138.653 1149.753 1191.68 1212.05

3 1140.712 1163.825 1181.095 1217.043

4 1142.524 1165.836 1184.611 1232.306

5 1144.495 1165.2 1184.017 -

Total index 5701.182 5788.168 5923.76 4850.114

Average 1140.236 1157.633 1184.752 1212.528
S.D. 3.73 10.285 4.004 18.06
C.V. 0.0032 0.0089 0.0033 0.0149

From the above table, the NEPSE index position of four week from the fiscal year March 24,
2019 to April 18, 2019. First week total index is 5701.182, average 1140.236, standard
deviation (s.d.) 3.73 and coefficient of variance (c.v.) 0.0033. The second week total
indexaverage, S.D, and C.V. are 5788.168,1157.633,10.285, and 0.0089 respectively. The
third weekNEPSE index, average, S.D. and C.V. are 5923.76, 1184.752, 4.004 and .007
respectively. Fourth week similarly, total index, average, S.D. and c.v. are 4850.114,
1212.528, 18.06 and 0.0149 respectively. Total index has been increased significantly up to
third week and has decreased slightly. Total average index has also been increased

24
significantly. S.D. and C.V. have fluctuated in each week as shown in table. It has increased
in second week and has decreased heavily in third week and increased again in fourth week.
The following figure shows the above data in line chart of total index point in the four weeks.

Market Trends of NEPSE Index

7000

6000
Total Index
5000 Average
SD
4000
CV
Index

3000

2000

1000

0
First Week Second Week Third Week Fourth Week

Figure: 2 Averages, S.D. & C.V. of NEPSE Index

In the above line chart we can see that Total index has grown slightly upto third week and has
decreased heavily. Average index has not fluctuated more but has been slightly increased in
further weeks. S.D. and C.V. has not been much fluctuated but has remained in constant
position since week first as shown in line chart.

2.2.2 Relationship between Four weeks NEPSE index points

Pearsonian coefficient of correlation

It is the mathematical method for measuring the degree of association between two variables,
say X and Y. The formula for calculating Karl Person's coefficient of correlation (i.e.) is
given by:

fx
Correlation (r) =
√x 2 √ y 2

Where,

X= X- X́

25
Y= Y- Ý

The relationship between first, second, third and fourth weeks NEPSE index

Let, First week denote by A, second week denote by B, third week denote by C and four
week denote by D.

Table 4

Correlation between the four week NEPSE indexes

weeks AB AC AD BC BD CD
correlation 0.9314 -0.0486 0.659 -0.285 0.712 0.1241

From the above table shows the relationship between each week index. In this table AB, AD,
BD and CD are positive relation and AC and BC are negative relation.

Correlation between the four week NEPSE index

1
0.8
0.6
Correlation

Correlation
0.4
0.2
0
AB AC AD BC BD CD
-0.2
-0.4

Figure 3: Correlation between the four week NEPSE indexes

Correlation between index of week 1 and 2 i.e. AB shows highly positive correlation between
the index. Index between week 1 and 4 i.e. AD, week 2 and 4 i.e. BD and week 3 and 4 i.e.
CD also shows positive correlation between variables of the market index. But the index of
week 1 and 3 i.e. AC and week 2 and 3 i.e. BC shows the negative relationship between the
market variables as shown in the graph.

26
2.2.3 Analysis of Market Capitalization

Table 4:

Market capitalization of four week

Week Market Capitalization(In millions) Change(In %)

1 1393987.6 -

2 1424089.62 2.15

3 1462507.7 2.69

4 1524105.4 4.21

Above table shows that the market capitalization of week 1 of NEPSE index is 1393987.6
million , and week 2 is 1424089.62 million which has increased by 2.15% from week 1.
Capitalization of week 3 has also increased by 2.69% than week 2 which amount to
1462507.7 million and in week 4 the market capitalization has also shown rapid growth than
that of week 3 to 1524105.4 and has growth by 4.21%.

Showing the above table in line chart

Market Capitalization
1800000

1600000

1400000
Market capitalization

1200000
Market capitalization
1000000 Change
800000

600000

400000

200000

0
1 2 3 4

Figure 4: Market capitalization of four week

27
From the above figure shows that four week market capitalization. In this figure indicate that
market capitalization has increasing trend in every week study period. So, change percentage
also increase.

2.3 Findings of Project Work Report

After analyzing and interpreting the data, the following findings about NEPSE index have
fine out which are as follows:

 From the analysis of the total weekly NEPSE index and average index they seem to
grow significantly in every week. So, it can be said that investor has earned
significant positive return on securities in the given four week period.
 As S.D. of week four is 18.06 it is highest than that of other weeks followed by week
two 10.285, week three 4.004 and week one 3.73. So, calculation of S.D. shows that
risk of investing in week four and week two is high than that in week three and one.
 From the analysis of Market capitalization we can see that it has grown in higher rate
in week four by 4.21% which is the highest growth in the four week period. All weeks
has positive growth on market capitalization of sensitive index. So, we can determine
that investor has positive attitude on market or addition investor are motivated to
invest on stocks.
 From the calculation of the value of correlation coefficient has been found 0.9314 of
first and second week, -0.486 of 1st and 3rd week, 0.659 of 1st and 4th week -0.285 of 2nd
and 3rd week, 0.712 of 2nd and 4th week and 0.1241 of 3rd and 4th week. So, it shows
some better and positive correlation between the weekly indexes beside of second and
third, third and fourth index. They have slightly negative correlation.

28
  By analyzing the Trends of Weekly NEPSE Index of four week. Index has been found
to be growing in satisfactory or in increasing trend. It has grown from 1140.236 to
1157.633 in second week. After second week it has increase to 1184.752 in third
week and has increased to 1212.528 in last week.

Chapter- III

SUMMARY AND CONCLUSION

3.1 Summary

This project work report includes three chapters namely first chapter is introduction, second
chapter is result and analysis and third chapter is summary and conclusion. In the first chapter
background of the study, profile of Nepal Stock Exchange Limited(NEPSE), objectives of
project report, rational of project work report, review of literature, sources of data, search
gap, research methodology and limitation of the project work report are included. Similarly,
data presentation, analysis of result and findings are included in the second chapter. In the
third and final chapter summary and conclusion are included.

The present project work report has been taken to identify the NEPSE index of Securities
Board of Nepal (SEBON). The NEPSE index point of Four week that is March 22, 2019 to
April 18, 2019 has been examined to achieve the purpose of the study. The study has
prepared mainly secondary data. In this project work report, data analysis method such as: pie
chart, trend line, Karl Pearson's coefficient of correlation, arithmetic mean, standard deviation
and coefficient of variation are used. Stock exchange is a regulated market place, in which
listed securities are bought and sold through the intervention of members of stock exchange,
by following an open system of two ways quotation, the settlement of trade is done according

29
to the bye-laws of the stock exchange. Stock market in recent years has become an integral
part of economic development. It can play a vital role in encouraging and channeling the
saving to provide the entrepreneurs for the investment in profitable projects in the economy.

The history of securities market began in Nepal with the flotation of shares by Biratnagar jute
Mills Ltd in 1937 A.D. Introduction of the company Act in 1964 A.D, and the establishment
of securities exchange center Ltd in 1976 was other significant developments relating to
capital markets in Nepal. At present there is only one stock exchange in Nepal, which is also
called secondary market i.e. Nepal Stock Exchange (NEPSE). Nowadays, Nepal's stock
market has become major area of investments. People in general and investor's inclination
towards the capital market as they are attracted to multiply their money in a shorter time
span. Currently seen events of Nepal's capital market like oversubscription in all of the public
issues, increment in transaction amount day by day, about eight hundred thousand investors,
etc confirmed the attraction of stock market in Nepal. In order to beat the market one has to
analyze the security properly and effectively.

The present study is heavily based on the secondary data but in some extent primary
information also been used. So, this study entirely consider about the Analysis of The NEPSE
Index from March 24, 2019 to April 18, 2019. This report is heavily based on the secondary
data and some primary information is also used. The required secondary data are collected
from the annual report of NEPSE and its websites. Both historical and descriptive research
design are carried out in this study. weekly moving average, S.D, C.V, of the weekly index is
determined to analysis the fundamental aspects of the indexes. Market capitalization is also
determined to find the intrest of the additional investor in the stock market. Nowadays,
Nepal's stock market has become major area of investments. People in general and investor's
inclination towards the capital market as they are attracted to multiply their money in a
shorter time span. Based on various problems researcher tried to conclude actual situation of
Nepalese stock market on the study. Based on the major findings of the study various
conclusions are drawn study showed that most of the theories and assumptions of technical
analysis matches with the Nepal's stock market.

3.2 Conclusion

The development of stock market in Nepal so far cannot be considered market performance.
This events from the facts and figures available in the stock market of the four weeks market
performance. This study concludes that the growth rate of NEPSE index is fluctuating but is

30
in increasing trend. The trend of market capitalization and weekly index shows all positive
trend or positive growing ratio in the four weeks period. This indicates the situation of growth
of capital market in Nepal. On the other hand, it also concludes that the investors are facing
several problems and challenges during the transaction period. It is concluded that in spite of
being positive growing ratio stock market lacks insufficiency of legal rules and regulation,
unavailability of information, insufficient number of brokers etc. However, from the analysis
of the study, the investors are not realized the need of new stock exchange.

From the analysis of NEPSE trend it is resulted that increase in number of listed companies,
satisfactory return from the stock market, increasing trend of large companies listed in
NEPSE and increasing interest of educated and business people are the major positive aspects
of the Nepalese Stock Market. The security board of Nepal has the responsibility of
regulating the entire securities market in Nepal. To make the Board effective, the number of
staff should be adequate and properly trained in all aspects of security market. It should bring
new and emerging stock market regulatory regimes to match international standards. The
number of listed companies is increasing every year but the increase in not proportionately
among the various sectors. Out of the total increase, the numbers of banks and finance
companies have dominated. So, the government should bring new policy to attract more
manufacturing and processing, trading and other companies to come in the public and to list
their securities in the stock exchange.

31