Exploring the NEPSE Fifty (NEPSE 50): Insights and Opportunities for Investors

GP Sir
Posted by GP Sir 8 months Ago

What is NEPSE Fifty (NEPSE 50)

NEPSE 50 (NEPSE Fifty) is a Nepalese stock market index. It comprises the top 50 Nepal Stock Exchange (NEPSE) companies in terms of market capitalization and liquidity. The index serves as a barometer for the overall performance of Nepal’s stock market. The NEPSE index was first introduced on January 13, 1994, and the NEPSE 50 (NEPSE Fifty) will be the flagship of NEPSE as the country’s second stock exchange.

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(Note: This second stock exchange of Nepal, NEPSE Fifty (NEPSE 50), is in the launch process currently, and all the information provided in this blog might be valid only after its launch).

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NEPSE-50: Representative Image

The NEPSE 50 (NEPSE Fifty) index is calculated using the free float market capitalization weighted methodology, which means that a company’s weight in the index is determined by the total number of publicly traded shares. This method is considered more accurate in measuring market performance because it excludes the impact of shares held by controlling shareholders or that are not easily traded.

The total return, which includes price changes and dividends, is used to calculate the index. It is reviewed and rebalanced semi-annually, and any changes to the index’s composition take effect at the beginning of the following month.

Because it includes the largest and most liquid companies listed on the Nepal Stock Exchange, the NEPSE 50 (NEPSE Fifty) index is a good indicator of the performance of the Nepalese stock market. It is also used as a performance benchmark by investors and fund managers.

Difference between NEPSE and NEPSE 50 (NEPSE Fifty)

The Nepal Stock Exchange (NEPSE) is Nepal’s sole stock exchange, where stocks of publicly traded companies are bought and sold. The NEPSE index, also known as the Nepal Stock Exchange index, tracks changes in the prices of all companies listed on the exchange to reflect the stock market’s overall performance. The NEPSE 50 (NEPSE Fifty) index, on the other hand, is a subset of the NEPSE index that includes the top 50 companies listed on the Nepal Stock Exchange in terms of market capitalization and liquidity. It serves as a barometer for the overall performance of Nepal’s stock market.

To summarize, the NEPSE is a stock exchange, and the NEPSE index represents the overall performance of all companies listed on the exchange. The NEPSE 50 (NEPSE Fifty), on the other hand, is a specific index that tracks the top 50 companies in market capitalization and liquidity. Both indices serve as a benchmark for the performance of the Nepalese stock market. However, the NEPSE 50 (NEPSE Fifty) is considered more accurate because it excludes the impact of shares held by controlling shareholders or those not easily traded.

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The NEPSE 50 (NEPSE Fifty) index can be used in several ways as a benchmark for the overall performance of the Nepalese stock market:

  1. Investment analysis: Investors can use the NEPSE 50 (NEPSE Fifty) index as a benchmark to compare the performance of their portfolios with the overall performance of the Nepalese stock market.
  2. Market trends: The NEPSE 50 (NEPSE Fifty)  index can be used to identify trends in the stock market, such as an overall increase or decrease in market values, and can be used to make informed investment decisions.
  3. Benchmark for fund managers: Fund managers can use the NEPSE 50 (NEPSE Fifty) index as a benchmark to measure the performance of their funds against the overall performance of the Nepalese stock market.
  4. Indicator of economic growth: The NEPSE 50 (NEPSE Fifty) index can be used as an indicator of the overall economic health of Nepal, as it reflects the performance of the country’s largest and most important publicly traded companies.

Scrips selection criteria for NEPSE 50 (NEPSE Fifty)

The scrips (or stocks) selection criteria for the NEPSE Fifty index are based on market capitalization and liquidity. The criteria are used to determine which companies will be included in the index, and they are reviewed and rebalanced semi-annually.

The selection criteria for the NEPSE 50 (NEPSE Fifty) index are as follows:

  1. Market Capitalization: The companies included in the index must have a minimum market capitalization. Market capitalization is calculated by multiplying the current market price of a stock by the number of shares outstanding.
  2. Liquidity: The companies included in the index must have a minimum level of liquidity, measured by the number of shares traded in the market. This is to ensure that the index includes only companies with sufficient shares available for trading.
  3. Free Float: The companies included in the index must be publicly traded, and the shares held by controlling shareholders or those not readily tradable are excluded.
  4. Sector representation: The index is diversified among different sectors to reflect the diversification of the economy.
  5. Other factors: Any other factors deemed relevant by the index provider, such as the company’s financial strength, management quality and long-term prospects, can also be considered in the selection process.

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It is important to note that the criteria may change over time as the index provider adjusts the selection process based on market conditions and other factors.

How will Nepalese be benefitted from the second stock exchange NEPSE 50 (NEPSE Fifty)?

The NEPSE Fifty index can provide several benefits to Nepalese investors and the economy as a whole:

  1. Investment opportunities: The NEPSE 50 (NEPSE Fifty) index provides a benchmark for the performance of the top 50 companies on the Nepal Stock Exchange. Investors can use it to identify potential investment opportunities.
  2. Market analysis: The NEPSE 50 (NEPSE Fifty) index can be used to assess market trends and make sound investment decisions.
  3. Economic growth: The NEPSE 50 (NEPSE Fifty) index, which reflects the performance of the country’s largest and most important publicly traded companies, can be used as an indicator of Nepal’s overall economic health. A rising trend in the index could indicate that the economy is expanding, while a falling trend could indicate that the economy is in a slump.
  4. Diversification: By holding a diverse range of stocks from different sectors, investors can mitigate the risk of investing in a single stock or sector.
  5. Improved corporate governance: Companies included in the NEPSE 50 (NEPSE Fifty) index may be more likely to adopt better corporate governance practices, as investors and analysts are closely watching them.
  6. Development of Capital market: A well-functioning capital market can aid in mobilizing savings and their channelling into productive investments, thereby promoting economic growth and development.

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