COVID-19 and Way Forward of Nepalese Capital Market

  An impact of the global pandemic of COVID-19 is unprecedented. Similarly, the effects of this global crisis seem to be long-lasting and devastating in inducing human health problems, social inequalities, financial stability challenges and economic downturns. It has also affected the global financial market; resulting in a sharp fall in price of financial assets and stock market indexes, volatilities in capital markets, liquidity crises and solvency problems.

According to World Bank (January, 2021), following a collapse last year caused by the COVID-19 pandemic, global economic output is expected to expand 4 percent in 2021 but still remain more than 5 percent below pre-pandemic projections. Global growth is projected to moderate to 3.8 percent in 2022, weighed down by the pandemic’s lasting damage to potential growth.

Nepalese Capital Markets:

 Present Scenario According to Ministry of Finance, the market capitalization to GDP ratio of Nepalese capital market has been 46.7 percent in mid-March 2020. To contain the COVID-19 pandemic, government of Nepal decided to close the stock market, Nepal Stock Exchange (NEPSE), with the index of 1251, on 23 March 2020. After 50 days of closing of NEPSE due to Corona panic, lockdown and shutdown, government of Nepal opened stock market on 12 May 2020.

Way forward of Nepalese capital markets amidst COVID-19 pandemic

 Following remedial measures are helpful for the way forward of Nepalese capital markets amidst COVID-19 pandemic:

Fiscal Policy

 One of the important economic policies of a country is a fiscal policy, which is generally called a 'budget.' Following the precedents, Government of Nepal (GoN) has announced its budget of Rs. 1,474.64 billions for the fiscal year 2020/21 on 28 May 2020. In this budget, GoN has tried to address the security markets with the help of the following measure for its development and expansion: 

• . The scope of capital markets will be broadened by starting secondary market operation of debt instruments.
• Secondary market operation of the Nepal Stock Exchange Limited will be made fully automated, including using electronic payments.
• For the enhancement of institutional investment arrangement into the capital market, stock dealer operation will be started from the next fiscal year. 
• Necessary arrangements will be made for the operation of commodity exchange market.
• Structural reform will be carried out for Securities Board, Nepal Stock Exchange Limited and CDS and Clearing Limited (Ministry of Finance, 2020/21).

Monetary Policy

• BFIs may increase the Loan to Value (LTV) ratio from 65 percent to 70 percent on margin nature loans against the collateral of shares.
• Regarding the margin nature loans provided against share collateral, 'average closing price of the last 120 days or the prevailing market price of the stock whichever is less' will be considered for the valuation purpose instead of the existing provision of average price of the last 180 days.
• Credit extended to the hard-hit sectors (due to COVID-19) will be restructured through the provision of private equity, venture capital, debt equity conversion, special purpose vehicle (SPV) in coordination with the concerned agencies in case the conventional measures of restructuring and rescheduling remain inadequate (Nepal Rastra Bank, 2020b).

Nepal Rastra Bank

• Cash Reserve Ratio (CRR) decreased from 4 percent to 3 percent and bank rate decreased from 6 percent to 5 percent effective from March 29, 2020.
• Repo rate decreased from 4.5 percent to 3.5 percent.
• BFIs were required to lower interest rate by 2 percentage points in selected areas from the level as of mid-April 2020 for the last quarter of 2019/20.

Securities Board of Nepal (SEBON)

• To facilitate the electronic trading system of NEPSE by linking investor's bank account and DEMAT account and to operate fully automatically, 
• To manage T+2 security settlement mechanism and NEPSE's Trading Management System (TMS) platform to be more rigorous and seamless in days to come, 
• To broaden the security market by making institutional investors enter, 
• To permit stock dealer to stabilize the market price, 
• To allow operation of specialized investments funds viz. private equity fund and venture capital funds (Securities Board of Nepal, 2020a).