NEPSE set to bring NEPSE 50 Index (NEPSE Fifty)

Nepal has been steadily emerging as a developing country with a growing economy and increasing interest in the stock market. One of the key players in the Nepalese stock market is the Nepal Stock Exchange (NEPSE), the country’s only stock exchange. NEPSE has been in operation since 1994, and since then, it has become an important platform for trading securities, stocks, and bonds in Nepal. In this post, we will talk about NEPSE 50 index and how it will work.

What is NEPSE Fifty Index (NEPSE 50 Index)?

Nepal Stock Exchange (NEPSE) has introduced a new index called NEPSE 50 index for share trading, representing the market and can be bought and sold as a derivative product. The NEPSE 50 Index will be calculated based on the market capitalization of common shares of 50 listed companies that are eligible for trading and clearing multiplied by the share trading price of that company. NEPSE CEO Krishna Bahadur Karki stated that the NEPSE 50 index, currently offered as an index, can later be traded as a derivative instrument.

The proposed procedure lists certain criteria for choosing 50 companies for NEPSE 50. NEPSE is also working on forming a committee to manage the NEPSE 50 index and updating the last 5 years’ data of all the listed companies for NEPSE 50. The NEPSE 50 Index will have criteria such as maintaining the presence of companies from all sectors in the index ranging from the minimum to the highest amount, turnover share, number of turnovers, and company with turnover.

The NEPSE 50, also known as the NEPSE Fifty index, will soon be a benchmark index that tracks the performance of the top 50 companies listed on the Nepal Stock Exchange. The NEPSE 50 will be a market capitalization-weighted index, which means that the larger companies will have a greater influence on the index’s performance.

Investing in the Nepalese stock market, specifically in the NEPSE 50 index, shall be a lucrative opportunity for investors looking for long-term growth. However, as with any investment, it is important to conduct thorough research and analysis before making investment decisions.

How will NEPSE 50 Index work?

The NEPSE 50 index works by assigning weights to the 50 listed companies based on market capitalization. Market capitalization is the total market value of a company’s outstanding shares of stock. The companies with higher market capitalization have a higher weight in the index, and their performance has a greater impact on the overall index.

For example, suppose a company with a high market capitalization performs well. In that case, it will impact the NEPSE 50’s performance more than a smaller company with a lower market capitalization.

With the NEPSE Fifty index in place, investors are even more interested in the market. However, experts warn that lacking a legal framework for derivative instruments such as options, futures, forwards, and swaps could stymie market growth (Chudal, 2023). (Read more about NEPSE Fifty here)

Dr. Gopal Bhatt, an expert on the securities market, says that NEPSE can make the NEPSE Fifty index, but for it to be traded as an index future, a policy regime must be set up. He went on to say that, while derivative instruments can be introduced into the market, a regulatory framework must be in place to govern the market for such instruments. This is necessary for the market operator, NEPSE, to accept them for trading (Bizshala, 2022).

Dr. Bhatt explained that NEPSE’s job is to create an index, but the Securities Board or another derivatives exchange board must make policy arrangements for it to be traded as a feature index  (Himalsanchar, 2023). He said that making the index tradeable might be hard because there aren’t any laws about derivatives.

Lastly, the NEPSE Fifty index has made people pay attention to the Nepal Stock Exchange again. However, the lack of a derivatives regulatory regime may limit the market’s growth potential. Policymakers must take note and develop a legal framework to govern the derivatives market to ensure the Nepalese stock market’s long-term growth.