STOCK MARKET

EXPERIENCE
REVISED

Utsav Raj Pant

Roll: 19324
I already have opened a Demat account with Deevya Securities (Broker number 59) located in

Putalisadak, Kathmandu. With just basic documents like citizenship and photos I opened the

account. Within a day my account was opened and I was notified with my account details. But

some friends of mine have opened Demat account through banks which took them nearly 2 days

to get their account details.

After opening Demat account I applied for Mero share by paying fee of Rs 50, which allows us

to view the name of companies and numbers of shares we hold in our depositary participant

account. My C-ASBA Number (CRN) is linked with Kumari Bank Limited. I already had IPO'S

of hydropower companies like Ghalemdi Hydro Limited, Infinity Laghubitta, Kalika Power

Company, Rasuwagadhi Hydropower, Sanjen Laghubudyut, Universal Power Company and

Upper Tamakoshi Hydropower. Among these IPO's Infinity power and Upper Tamakoshi are

performing good whereas some of the IPO'S are below par value.

Observation at Broker office

I went to broker house for three times in this duration. Firstly, I went at broker office one month

earlier. When I went there NEPSE index has just touched 1300 points. Till then most of the

investors were optimistic that the index will go up. Among the investors at broker office some

were into stock market for short term gain whereas some were into long term investment. Most

of the active investors were excited using the online trading system of shares however many of

them were curious about that system but they were still learning about system.

Looking at the behavior of investors, very few investors were doing technical analysis and

studying the financials of the company before investing whereas many were investing based on

the references of their friends and relatives. This showed there are a lot of biases in the stock

market.
Some investors were highly confident about their assumptions and they were defending they

made best decision when they invest in shares even they are now in loss. The same thing has

been discussed in our class also i.e. people are overconfident and they were thinking they made

right decision. Among majority of investors at broker office, many of them were at age of above

40. For most of them watching the NEPSE index and spending time at broker office throughout

the day was a habit. Most of them had basic knowledge regarding dividends, bonus shares, right

shares and the trend of price movements which they have gained from experience. Very few of

them had knowledge of fundamental analysis, technical analysis and economic analysis.

When I visited Broker office for second time the NEPSE Index was at 1398 points. This time the

environment at broker office was completely different. There were a lot of people sitting in front

of monitor and discussing about where the market will go in coming days. People were full of

enthusiasm and there was huge number of new individuals opening Demat account this shows

many people were entering into share market. Broker office was also offering refreshments and

beverages for investors.

Many investors had increased their number of transactions indicating their activeness in market.

The trading (buying and selling) of shares has increased dramatically. Investors are being over

optimistic and some were even saying the market will surely cross 2000 points. This indicates

investors are expecting a huge return from share market and are enjoying the increment in

NEPSE index but still they are lacking the fundamentals and running to the market based on

rumors, information on newspapers, online portals and sayings of big share players like Nirmal

pradhaN and Chotlelal Rauniyar.

In my third observation, the Nepse index was at 1441 (March 4). This time investors at brokers

office were quite disappointed and the new entrants who invested looking at the increasing Nepse

index they didn’t understand what was going on. However some said this was the market
correction. On March 2, Nepse fell by 6% and this halted stock market for 40 mins, so those

investors who are new they were clueless and started panicking and selling the shares. One of the

investor share with me, he immediately called his broker and sold the shares. His goal at that

point of time was to be out of market without losing and one interesting thing is he was happy

when he felt he is losing less than others. As the index has reached to 1435 now most of amateur

investor's might exit and only the long term investors remain in market.

One interesting thing that I came to know during this period of time is the increased volume of

trade was not due to the new entrants in the market. The existing investors were contributing

significantly to the increment in volume and this was possible because of brokers. People used to

ask their brokers to buy the shares today without paying any money. As we know it takes t+3

days for settlement of transactions, the brokers will lengthen the settlement time by 1 day i.e t+4

days. If the price of share rise the person who has bought the shares without paying money will

sell the share after 3 days and till this time the settlement has not been made and the person will

reap out the benefits without paying any money. And knowing this loop hole many people who

want to earn money are entering in the market in the hope that they will earn money without

making any payments. By doing this, in this time brokers are booking huge amount of profit

rather than any other investors.

Online Trading Experience

I went to broker's office and asked them to open my online trading system. The broker gave me

an one paged form and I filled all the details. At the end he asked me to place a cheque in

advance. I was allowed to make transactions of amount 4 times of the amount mentioned in

cheque. I was thinking, the broker will not give the username easily but I was fascinated when he

gave that without any hesitation. Not for me only, others were also opening the trading system
easily through that broker. I visited another broker house which was near my broker's house. I

asked few people who seem to be new in the market they were watching the index. Then I asked

about the online trading system and the person said that the online system is not useful. To know

why he said this I asked how can you say its useless then he replied "there is one experienced old

investor who said the online system is useless and he is earing huge amount of profit without

using online system". This made me realize people follow the winners and they try to imitate

them because such opinion leaders were earning money.

Then the broker sent my username and password in my email. Then while logging in I was asked

to change my password. After that the NEPSE trading system dashboard opened. I explored the

order management section of the window, which allows us to give our sell or buy orders. I

thought of selling the shares of UPPER hydropower so I typed the symbol of the company to

give the sell order. Market depth data was also available in the same dialogue box. Then I entered

the quantity of shares I want to sell and I have to quote a price in between the Low and High

price of market. Then the selling order was successfully placed. Then later on I cancelled my

order by going to action button on the same box. In the section of daily order book, the status of

all orders were shown.

Doing this I felt, it was very easy to buy and sell the stocks and this will make the market more

stable as the brokers will not be able to manipulate the market. Now the power to drive the

market will be shifted towards the huge number of individual investors. However there may be

challenges in managing all the transactions, so everything needs to be digitalized.

Efficiency of Nepalese Capital Market

On the basis of my observation, I would say the stock market of Nepal is inefficient as there are a

lot of biases and anomalies. Investors are carried away by rumors and believe the information

given by their friends and families. If any person who has earned from share recommends them

to invest in particular companies they will blindly follow him and invest in those specific stocks.

This reflects the information processing biases of investors. Similarly, few years ago

hydropower sector was rising and doing well in share market. Any hydropower going for IPO

was oversubscribed. People waited in lines for hours to fill IPO. This shows herd mentality of

investors. They were investing due to fear of being left out.

For instance, when any FPO is issued in the market, investors usually overlook only a certain

indicator instead of analyzing every aspects of the company and decide to invest in the company.

They rely only on very few or even only one major financial tools and thus, make investment

decision. In addition to this, when selecting among hundreds of available stocks to purchase

from, investors limit their search to only those stocks that have grabbed their attention. This

shows the heuristics in dealing with the information.

Beside this insurance sector has performed well nowadays. Despite the performance of insurance

companies has not changed and any event related to insurance sector has not occurred recently,

the share prices of insurance companies are increasing. People have their own rules and theories

to explain the rise in prices and they are confident with their analogies and information they

have. This shows the overconfidence and Narrow Framing among the investors. Some

investors are buying shares or holding the shares just because they have emotional attachment or

they like to associate with a particular company. An investor said I feel proud and superior over

others when I hold the shares of Nabil bank because of its brand name and image as high value

shares. This shows the sentimental biases of investors.

All these observations shows that the market is driven by biases rather than fundamentals. The

postulates of EMH i.e. market prices reflect all available, relevant information. If markets are

efficient, then all information is already incorporated into prices, and so there is no way to "beat"

the market because there are no undervalued or overvalued securities available. So due to this

biases and anomalies in stock market even weak form of efficiency of stock market is not

possible.

Conclusion

From all the the observations I made in brokers office, it's very easy to say the investment

decisions are highly influenced by rumors on the broker office and social media. Unlike the

finance theories which says investors are rational, in practice investors show various biases while

making decisions. It's not possible to be completely biased free but we can reduce it by investing

for long term and review our plan in a specified time period. Brokers also don’t teach investors to

do these things rather they earn more due to the herding behavior, overconfidence biases, narrow

framing and other types of biases shown by investors. Right now, the only party that are earing

huge money is brokers and the noise traders. The sincere traders are booking small amount of

profits. The stock market of Nepal does not work on fundamentals and is driven by biases so

efficient market hypothesis in context of Nepal cannot be validated. However the increase in

number of institutional investors, mutual funds and individual investors may make the market

more matured.