CHAPTER -I

INTRODUCTION

1.1 Background of the study

A market is the means by which products and services are bought and sold,
directly or through an agent. A market need not be a physical location. There is
no requirement of ownership by those who establish and administer and market.
They need only provide a smooth transfer of goods or services for a diverse
clientele.

A market should provide accurate information on the price and volume of past
transactions, and current supply and demand. Clearly, there should be rapid
dissemination of this information. Adequate liquidity is desirable so that
participants may buy and sells their goods and services rapidly, at a price
reflecting the supply and demand. The costs of transferring to ownership and
middleman commissions should be low. Finally, the prevailing price should
reflect all available information.

A security market (or financial market) can be defined as a mechanism bringing

together buyers and sellers of financial assets in order to facilitate trading.
Alternatively, security market is a place or places where securities are bought and
sold, the facilities and people engaged in such transactions, the demand for and
availability of securities to be traded, and the willingness of buyers and sellers to
reach agreement on sales. Over the counter market, New York stock exchange,
Nepal stock exchange, is the example of security market

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Stock market is an institution, area and process where stock and other securities
are bought and sold continuously. The major function of stock market is to
provide steady and continuous market for purchase and sales of securities at a
competitive price by importing marketability and liquidity. It is also a medium
through which scattered saving and scare resources are transferred into
productive areas that ultimately help to the economic development and
industrialization of the country. Stock market may affect the economic activities
through creation of liquidity. Stock market can play a vital role, giving a big
boost to economic development for the developing country like Nepal.

Many profitable investments require a long run commitment of capital; savers do

not like to relinquish control of their savings for long periods. Liquids equity
market makes investment less risky and more attractive. Stock market provides
the best investment opportunities to the investors. It also provides liquidity to the
securities. Liquidity affects the economic activity and there by affects the
development of the country. The level of liquidity is influenced by the price
formation of the stocks in the stock market. So, in order to maintain the liquidity
in the stock market has to be efficient in all aspects.

The development of economy requires the productive activity, which in turn, is

the result of the investment ventured in productive enterprises. The establishment
of these enterprises needs a huge amount of fund. There are mainly two sources
of financing in the productive enterprises – internal source and external source.
The internal source of financing has limited scope because of the limited
resources and risks associated with the investment, through financial market, has

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become the most important and popular source of financing for fostering the
productive activities in the economy. Nowadays, all economic units including the
household and government have to rely on external finance. The introduction and
development of the financial asset is the most important attribute of the external
financing. Thus, stock market (market for financial assets) is a must for the
development of an economy.

This research specifically focuses on the development, current position

performance, problems and prospects of Nepalese stock market at present
scenario. Moreover, it tries to locate the major problems and find the best
solution.

Nepal Stock Exchange (NEPSE)

Nepal Stock Exchange, in short NEPSE, is an organization, operating under

Securities Exchange Act, 1983. The basic objective of NEPSE is to impart free
marketability and liquidity to the government and corporate securities by
facilitating transactions in its trading floor through member, market
intermediaries, such as broker, market makers etc. NEPSE opened its trading
floor on 13th January 1994. Government of Nepal, Nepal Rastra Bank, Nepal
Industrial Development Corporation and members are the shareholders of
NEPSE.

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History of NEPSE

The history of securities market began with the floatation of shares by Biratnagar
Jute Mills Ltd. and Nepal Bank Ltd. in 1937. Introduction of the Company Act in
1964, the first issuance of Government Bond in 1964 and the establishment of
Securities Exchange Center Ltd. in 1976 were other significant development
relating to capital markets. Securities Exchange Center was established with an
objective of facilitating and promoting the growth of capital markets. Before
conversion into stock exchange it was the only capital markets institution
undertaking the job of brokering, underwriting, managing public issue, market
making for government bonds and other financial services. Nepal Government,
under a program initiated to reform capital markets converted Securities
Exchange Center into Nepal Stock Exchange in 1993.

Board of Directors

The board of directors of NEPSE consist Nine directors accordance with

securities exchange act 1983. Six directors are nominated by government Nepal
and different institutional investor. Two from the licensed member and the
general manager of the NEPSE is the Ex-office director of the board. Members of
NEPSE are permitted to act as intermediaries in buying and selling of
government bonds and listed corporate securities. At present, there are 23
member brokers and 2 market makers, who operate on the trading floor as per the
Securities Exchange Act, 1983, rules and bye-laws. Besides this, NEPSE has also
granted membership to issue and sales manager securities trader (Dealer). Issue
and sales manager works as manager to the issue and underwriter for public issue

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of securities whereas securities trader (Dealer) works as individual portfolio
manager. At present there are 11 sales and issue manager and 2 dealers
(Secondary market). The tenure of the membership is one year. The license
should be renewed within 3 months after the closure of the fiscal year. If not, it
can be done within another three months by paying 25% penalty.

Listing of Securities

Listing is one of the regular and continuous functions of the NEPSE. According
to securities exchange act, 1983 listing of security of a public limited company is
mandatory. The transactions of the securities cannot be made without listing. So
if the entrepreneurs have to arrange liquidity they have to enlist the securities
with stock exchange. So it is the process of registration of securities to make
them eligible for trading.

Trading

In the beginning of the 2007/08 fiscal year, NEPSE replaced the old open-out-cry
system of securities trading, which was in place since the beginning of secondary
trading in 1994, with the automated trading system (ATS). The ATS has not only
mechanized securities trading, but also reduced the manipulation of prices and
human errors. NEPSE has also reformed its organizational structure, right-sized
its human resources outsourced its cleaning and security services, started online
trading through WAN, disseminated real-time information and extended the
trading hours to make stock exchanges efficient. Trading through WAN has
formally started from 13 October 2007. Now stock brokers do not have to come

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to the NEPSE’s office to sell or buy shares; they can do that sitting in their own
offices. In the first phase, NEPSE granted permission to Malla and Mall Stock
Broking Limited, Nepal Stock House, Nepal Investment and Securities Trading
Private Limited, Shreekrishna Securities Limited and Premiere Securities
Company Limited to trade through WAN. Presently, 18 brokers transact from
their office via WAN. All the brokers with the following infrastructures can get
access to WAN: a price board, separate rooms with computers to post clients’
orders or settle shares and provide up to date information to clients.

In spite of the above discussed developments Nepalese stock market hasn’t yet
become success to cover sufficient portion of investment. People are investing
their savings on unproductive assets such as land, gold, silver and other valuables
and on the other side corporations are experiencing lack of funds for expansions
and growth. Yet entrepreneurs show less interest and confidence on raising
capital funds through issuance of securities in stock market. That’s why even
today the market lists very few numbers of corporate securities as compared to
their presence.

The stock market of Nepal is highly concentrated. More than sixty percent of the
market supply is obtained by the top ten companies. Surprisingly among these ten
companies nine are the commercial banks. Similarly it is highly concentrated
from demand side too. Some of the major investors hold most of the market
demand. It lacks coverage over the general savings of the nationals. This makes
the market susceptible of price stipulations from the investors. Such sequence
makes the confidence of the small and general investors low on the stock market
and its instruments and puts the market on the hands of some bog investors

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making the market unable for expansion and growth. People in such
circumstances prefer investment on land, gold and other valuables rather than
stock market instruments.

1.2 Statement of Problems

Nepalese capital market is very small in comparison with other developed stock
market. 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 stock market. The price and earning information were not made
available timely to the investor. Investors could not identify the good and bad
stocks. Government has made much policy to grow the stock market for the
achievement of economic growth and development, but hasn’t become
sustainable because of lack of implementation of the policy. The development of
stock market in Nepal is both challenging and difficult. Though the viewpoint of
number of share transactions, public interest towards stock markets, the trend of
the price movement, information system etc indicates the low performance of
stock market. The major problems of the stock market, addressed through this
research are:
1. The price and earning information were not made available timely to the
investor
2. Lack of value judgment to determine the stock price.
3. Unfavorable macroeconomics condition, political instability, low confidence
of investors, weak tax system.
4. Especially the market has failed to cover most part of the general saving and
capitals.

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5. Many times the stock market price show unreasonable fluctuation.
6. The market shows comparatively small increment in volume of trade in
response of high proportionate price change in stock.
7. The market seems to be susceptible of the price manipulation.
8. The growth in demand side of the market is growing much faster than the
supply side, bringing in the chances of demand side inflation

1.3 Objectives of the Study

The main objective of study is to identify the existing condition, to address the
problem and the prospects of Nepal stock market. It specially focuses on
development and performance of the market. The following are the prime
objectives of the research:
1. To evaluate the development trend and current position of stock market in
Nepal.
2. To examine the performance of stock market.
3. To analysis the problems and prospects of Nepal Stock Market.
4. To suggest and recommend on the basis of the major finding.

1.4 Scope and Significance

Stock market recognizes the situation of country’s economy. When stock market
is booming the economy is good and when stock market is declining the
economy is bad. It also represents the country’s policy towards industry. Success
of the business organization ensures the prosperity of the country.

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The effort of this research is significant because it tries to address the felt
problems of the Nepalese stock market to overcome the political and security
shocked depression. It is obvious that stock market could be the best alternative
to reform and rehabilitate the economy. The study provides literature to further
researchers in this area. This research will be useful to the university students
who are curious to know the current status of Nepalese stock market, major
problems faced by the stock market and its prospects for the development. The
significance of this research could be expressed more concisely through the
following points.
1. The true problems of stock market are located,
2. Identifies the technical hurdles and obstacles for the development and
growth.
3. Assesses the performance.
4. Suggests suitable strategies for the solution of the problems and betterment
of the sector.

1.5 Limitations of the Study

This research will be base on both the descriptive as well as empirical statistical
and mathematical approach of analysis. Every study will not free form some
obstacles. So the research study has also obtained some limitations, which are
given below.
1. The research is based upon the secondary data provided by Nepal Stock
Exchange, economy survey published by ministry of finance and different
publications of NRB, thus the data are not verified.

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 2. The study is limited only to the stock market and its performance, problem
and prospects.
3. The study was completed within the short span of time and covers 7 year
(2000 to 2007) data to study.
4. The truth of the research result is based upon the available data from the
NEPSE and others
5. The study has not covered the recent changes due to time constraint.

1.6 Plan to the Work

An entire research has been divided into five chapters. The first chapters includes
the intrudutory chapters. It will include the introductory framework of the study
that contains general background, statement of the problem, objectives,
significance of the study and limitations of the study.

The second chapter includes the Review of literature chapter. It will include the
review of previous research on the same field, books journal and unpublished
thesis.

The third chapter includes the research methodology chapter. It will include the
research design, population and sample, sources of data, data collection
procedure, tools for analysis, methods of analysis and presentation.

The fourth chapter includes the data presentation and analysis chapter.

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This chapter will concern with the application of defined research method on the
collected data and information. The generated results after the application of
research method on data will be analyzed and interpreted in this chapter.

Finally the fifth chapter includes Summary, Conclusion and Recommendation.

This chapter will summarize the finding of all the analyses and present the
concluding remarks with a suggestive package as recommendation.

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 CHAPTER- II

REVIEW OF LITERATURE

In this chapter, an attempt is made to review of literature concerning the sock

market in Nepal. The chapter deals with the review relating to the topic “An
overview analysis of stock market” reference with position, performance,
problem and prospects of stock market, In detail various books, journals, articles,
and some previous research work to this topic have been reviewed. The relevant
literature and articles were reviewed from international and national publication
as well as non published report available from different libraries and institutions.
Since, the research topics were comparatively new and the research paper and the
article direct related to this topic were not easily reviewed in the context of
Nepalese stock market as well as international stock market.

2.1 Conceptual Review

2.1.1 Financial Market

The financial system is an important element of modern economy. The resources

are exchange through financial system. A country financial system may be bank
dominated or market oriented. Each of this system has different mechanisms for
handling stake holder’s interest and addressing corporate control issues and
agency problems. Financial system helps in the payment goods, services, and
productive inputs. Similarly, it helps to manage fund efficiently and use them.
Financial system consists of financial institutions, financial markets and financial
instatement. Financial intermediaries are organization that issue financial claims

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against themselves and use the proceeds from this issuance to purchase primary
and financial assets of other. 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
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 fund etc.

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 features contracts. This market provides a meeting place
for buyers and sellers where price is determine. In a broad sense, financial
institutions include all the institutions engaged in the business of financial
intermediation between depositors and borrowers.

Financial market can be defined as a mechanism for bringing together buyers and
sellers of financial assets. In order to facilitate trading one of its main function in
discovery that is, to cause security prices to reflect currently available
information, the more quickly and accurately price discovery is achieved, the
more information, the more quickly and accurately price discovery is achieved,

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the more efficiently financial markets will direct capital to its most productive
opportunities, thereby lending to greater improvement in public welfare.
Secondary security markets involve the trading of financial assets that were
issued at some previous point of time. Financial markets are mechanisms created
to facilitate the exchange of financial assets. They are of two types- money and
capital market, the former deals on short term and the later on long-term. The
major participants of financial markets are savers (investors) and borrowers
(users) of funds. They are involved in the purchase and sale of securities and are
supported by mediators and facilitators. Individuals, corporate bodies, non profit
organization and government are the participants in these transactions of buy and
sale of financial assets. The mismatch between the saving and investment of
these participants is the central reason for the existence of financial market itself.
The importance of security market are to be mobilize saving, to attract foreign
capital, to promote long term investment and to increases quality of investment.

2.1.1.1 Securities

Simply stated a security is a legal document that shows an ownership interest. In

other words, security is a piece of paper evidencing the investors’ right to the
asset. It is the legal representation of the right to receive prospective future
benefits under stated condition and to acquire or sell ownership interest. Share,
bond, preferred stock, Treasury bill, commercial paper etc are the examples of
securities.

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2.1.1.2 Security Market

Securities market is a place where people buy and sell financial instruments. It
provides a market place for buying and selling listed securities. In Nepalese
context, it is mandatory to register the portion of securities issued to the public
with the security board of Nepal (SEBON). Then the firms are eligible to issue
the registered the portion of securities through recognized bodies. The recognized
bodies mean those who have received certificate from SEBON to act as issuing
house and security promoter to get membership from security exchange market.
Security market exists in order to bring together buyer and sellers of securities,
meaning that they are mechanisms created to facilitate the exchange assets. There
are various ways of categorization of security market. One way, primary market
and secondary market on the basis of economy function. The market through
which the funds are transferred from savers to investors is called primary market.
The transaction of securities issued for the first time takes place in the primary
market. The market where the existing and pre developed securities are bought
and sold is called secondary market. Secondary market provides liquidity to the
purchases of the securities.

Another way money market and capital market on the basis of life span of
financial assets. Money market refers to that financial market in which securities
with a short term (one year or less) and highly liquid debt securities are traded.
Capital market refers to the financial market in which long term (more than one
year) securities are traded.

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Securities market provides an effective way of raising money for commercial
enterprises and at the same time provides an investment opportunity for
individuals and institutions. Securities markets have both theoretical and practical
perspectives. Securities markets provide value and significances to the financial
assets. Practically, the activities of buying and selling securities on the security
markets are extremely important for the allocation of capital within economics
the securities market serves as a reliable guide to the performance of companies
and thereby promoting efficiency.

2.1.1.3 Capital Market

Capital markets, which deal with securities such as stocks and bonds, are
associated with financial resource mobilization on a long term basis. By raising
capital directly from the public, they lower the cost of capital. Capital markets
also allow for wider ownership among the public, thereby distributing risks and
wealth amongst smaller investors. For investors, they provide an effective vehicle
for making investment choices which suit their own preferences of risk and
returns based on available information. As such, capital markets help the
economy to generate more savings and productive investments. A basic feature of
an efficient capital market is constant liquidity, i.e., an easy mechanism for entry
and exit by investors. This requires sufficient volume and size of transactions in
the market.
On the basic of economic function capital market is classified as follows.

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2.1.1.4 Primary Market

The market through which the funds are transferred from savers to investors is
called primary market. Hence the transaction of securities issued for the first time
takes place in the primary market. They are the media through the demanders and
suppliers of today’s funds, the creators and acceptors of financial claims meet. It
is a market for direct issuances of government securities. The primary market of
country is dominated by the government securities due to the existence of
insignificant new issues market for industrial securities.
The market consists of investor or buyer, dealer and broker and doesn’t reflect a
physical location. The participants are regulated by formal rules for originating
financial securities. Primary market in which public issues of securities are made
through prospects is a retail market and is reached through direct mailing in the
primary market, new issues of equity and debt are arrange in the forms of new
floatation, either publicity or privately or an the forms of a right offer of existing
shareholders. Companies raise new cash in exchange for financial claims. The
financial claims may take the forms of share and debentures. The transaction in
capital market results in capital formation.

2.1.1.5 Secondary Market

Secondary market is a place where the securities once sold are purchased and
repurchased to provide liquidity to the government securities. In Nepal, the
secondary market is very thin because of limited distributors of the securities.
NEPSE is established in order to promote the market used to support the market

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even involving itself buying and selling activities if necessary. So secondary
market are the where many outstanding assets are traded from old to new owners.

Secondary market allows outstanding securities to be traded form old to new

owner. The advantage of secondary market is to provide cash and investment
opportunities to investor and to make certain assets more attractive to buyers and
sellers. Secondary market comprises the stock exchange, the over the counter
market. In conclusion, secondary market is a place where once securities
purchased and sold to provide liquidity to the government securities and the
market is operated by the securities exchange center. The trading of government
securities is very thin because of limited distributors of the securities.

Primary market versus secondary market

Primary Market Secondary market
Basis
The new securities are The second hand securities
traded in the primary are traded In the secondary
Nature of securities market market
Objectives The main function of The main function of
the primary market is to secondary market is to
make the financial provide liquidity to the
capital available to purchase of securities
make new investment in
building equipment, and
stock of necessary
goods.
Risk Buying security in Buying securities in
primary market is risk secondary market is less
risky
Transactions The transactions are The transactions are more

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 less in primary in secondary market
market
Role The investment bankers The bankers perform the
perform the role of an role for the trading
expert in issuing new securities in the secondary
securities market
Fund transfer Fund transfer from Fund transfer from seller to
savers to demanders buyer of the securities
(issuers)

Primary market is less Secondary market is more

Importance to financial important to important to financial
manager financial manager manager

2.1.1.5.1 Types of Secondary Market

The secondary market are divided in four types, they are:

i) Organized securities Exchanges

Organized securities exchange are the physical locations where trading of

securities is done under a set of rules and regulations. Company has to register
the share in this place. Without Registration Company share cannot be buy or
sell. Company has to pay certain fee and renew share each year following certain
rules and regulation. Investors usually purchase securities in the secondary
market by calling securities brokers. In the secondary market investors buy and
sell securities themselves, the issuer never gets any cash flow from the trades.
Nepal stock exchange (NEPSE) is an example of organized stock exchange and
this is the only stock exchange in Nepal. Similarly, the New York stock
Exchange (NYSE), Bombay stock Exchange (BSE) is the examples of organized

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stock exchange. After an account has been opened, the broker relays the
investor’s order to a dealer that handles that security.

Securities exchange Buy Law, 2053 has categorized the listing of securities in
two types. They are temporary listing and permanent listing. if the securities are
issued for certain periods and issuers have promised to refund the amount
invested in securities after the period is over, such securities will be listed for
such periods. This type of listing is called temporary listing. The securities of
perpetual nature are listed under permanently type of listing. The securities like
common stocks, preferred stocks and debentures, closed end funds will be listed
permanently.

The organized securities exchange are tangible physical entitles. Each of the
larger once occupied its own building, has specifically designated members, and
has an elected governing body- its board of governors. Members are said to have
“seats” on the exchange, although everybody stands up. These seats, which are
bought and sold, give the holder the right to trade on the exchange (Weston
&Brigham, 1997:78)

ii) Over the Counter Market (OTC)

The over the counter (OTC) exchange is not an organization but an intangible
market for the purchasers and sellers of securities not listed by the organized
exchanges. It is not a formal exchange like organized stock exchange stock
exchange. It neither requires membership for trading of securities nor listing of

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securities for trading, meaning that formal listing of securities are not necessary
in the OTC market. The broker- dealers who engage in OTC common stock
trades are linked by a network of telephones and computer terminals through
which they deal directly with one another and with customers. The prices at
which securities are traded “over the counter” are determined by competitive bids
and negotiation. The OTC, in addition to creating a resale market for outstanding
securities, is a primary market in which new public issues are sold. Therefore, the
OTC market competes with investment bankers and the organized exchanges
because OTC dealers can operate in both the primary and secondary markets.

Securities with the following characteristics tend to be traded in the Over the
counter market. Securities of companies with a small capitalization, securities of
companies which owned by a few holders, securities of government and their
subdivision, and securities which are purchased in large books (such as
government securities) by banks, life insurance companies, and other large
investors, securities listed in an organized exchange etc. OTC market is starting
from 4 June 2008 in Nepal.

iii) Third Market

The third market refers to the trading of any securities that are listed on organized
stock exchange in over the counter market. It is notable that trading hours in the
third market is not fixed like organized stock exchange. The third market is made
up of securities dealers making markets in anywhere one two a few hundred

21
securities. Thus, third market broker are market makers who are in direct
competition with the specialist that make markets on the organized exchanges.

iv) Fourth Market

The fourth market refers to those institutional investors and wealthy investors
who buy and sell securities directly from each other. Thus, fourth market
participants completely bypass normal dealer services. Forth market is essentially
a communication network among institutional investors that trade large blocks
without the aid of a brokerage house. The fourth market maker is usually one
individual or a few persons who communicate the buy- and sell desires of their
client to block traders and thus facilitate directly negotiates sales. The fourth
market organizer may collect a small commission or a flat annual fee for helping
to arrange these large transactions.

2.1.2 Regulation of Securities Market in Nepal

Securities market in Nepal, till the recent past, had all the characteristics of an
underdeveloped economy. It was characterized by the absences of profession
promoters, underwriting agencies, market intermediaries, organized market,
regulation bodies and rules and regulations. How ever, after the restoration of
democracy in 1990, a trend toward an organized stock market can be marked
with numerous developments in Nepalese securities market, removing its earlier
deficiencies.

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Securities board (SEBO) of Nepal is the supreme body to regulate the Nepalese
securities markets. It was established on 26 may, 1993 under the provision of the
securities Exchange Act, 1993. It has been regulating the market under the
Securities Exchange Act, 2006. the objective of the board is to promote and
protect the interest of investors by regulating the securities markets, not only
these, to regulate, monitor, direct and coordinate the entire capital market is also
the objective of the SEBON. SEBON works under the ministry of finance
(MOF). SEBON regulates both primary and secondary markets. To regulate
primary markets different acts and laws have been passed. The public issues
activities through the primary market are regulate by the securities Exchange Act,
1983, the regulation and guidelines are made under the act as well as the
company Act, 1997. The related regulations and guidelines are Securities
Exchange Regulation 1993, securities Registration and issue approval Guidelines,
2002 and securities Allotment Guidelines, 1997. Similarly, to regulate the public
issue it has made if mandatory to take services of an issue manager by the issuing
companies. To regulate secondary markets as well as the members, different Acts
like Member of Stock Exchange and Transaction Byelaws 1998, and securities
Listing Byelaws 1996 have been passed, SEBON also monitors whether the
activities carried out by the NEPSE are in accordance with the above laws or not.
Similarly, SEBON regulates all the members of the secondary as well as primary
markets like issue managers, stock brokers, dealers, market makers and
corporations.

Securities Exchange Act 2040 is the main law to regulate the securities market in
Nepal. But till now this act have been amended 3 times within the 13 year of its
history. The third amendment took place recently. Under this act, securities

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Exchange Regulation 2050 and membership of stock exchange and transaction
by- laws, 2050 have been formulated and enforced. Recently both regulations as
well as by- laws have been amended to suit the changing environment of the
securities market.

Companies Act, 2021 have been replaced by new companies act, 2053 with a
view to make simple transparency information, operation and administration of
the companies. Various formats related with articles and Memorandum of
Association, prospectus, application form for purchase of shares, balance sheet
and profit and loss account have been prescribed. Securities investment Trust
Act, 2053 have been formulated and enforced for the operation of trust funds as
mutual fund and unit funds. Recently the Government of Nepal has issued three
new Regulations, namely Securities Businessperson (Stock Broker, Dealer and
Market Maker) Regulation-2007, Securities Board Regulation-2007 and Stock
Exchange Licensing Regulation-2007. These Regulations which came into effect
from 4 November 2007, among other things, paved the way for opening a new
stock exchange, increase the number of stock brokers and reduce the brokerage
commission.

2.1.3 Major Regulating Agencies

Three government agencies, Securities Board, Company Registrar’s Office and

Nepal Rastra Bank are involved in approving and registration of public issues.
Though securities Board is the only regulatory body in securities market to
supervise and regulate the overall functioning of the market, the functions

24
performed by other two agencies seems to of duplication of works. Here, how all
three bodies work in approving and registering the public issue are elaborated.

i) Securities Board

Securities Board is empowered by Securities Exchange Act 2040 for the

development of capital market, protection of investor’s interest, approval of stock
exchange, regulation of market intermediaries, secondary and primary markets,
mutual funds and conducting investment awareness programs for various interest
groups.

When prospectus is submitted for the registration propose, the securities board
betting and if disclosures in the prospectus are found then Board registers the
securities to be issued in the public and grants permission on it.

ii) Nepal Rastra Bank

Nepal Rastra Bank, the central bank, approves prospectus when banks and
finance companies propose public issue. It also gives permission to issue
debentures in the public along with the approval on interest rate on debentures
and bonds. Under NRB directive bank and finance companies are required to
issue shares equivalent at least 30 and 40 percent in both situations if they have
foreign joint venture stake.

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iii) Company Register’s Office

The company Registrar’s office is the only agency where companies are
registered. It monitors the operations of the companies and makes arrangements
for winding up of the companies when required. Approval on the prospectus is
granted by the company Registrar’s office only. Before granting an approval it
obtains the advices from the securities board and for banking and finance
companies opinions/ advices on the prospectus in taken from Nepal Rastra Bank
too.

iv) Nepal Stock Exchange

While issuing securities to the general public consent should be obtained from the
NEPSE. For this the issuing companies and issue managers are required to
submit the prospectus.

v) Insurance Board
When a public issue is made by an insurance company, the insurance board also
performs the vetting of prospectus as it is done by Nepal Rastra Bank.

vi) Concerned Ministers of NG

The companies which are incorporated by special acts are required to get their
prospectus approved from concerned ministers. For example, companies such as
Nepal investment trust, Rastriya Beema Sansthan, Nepal industrial development

26
corporation are under the purview of the Ministry of industry and ministry of
finance. Thus the prospectuses of these companies are required to be approved by
the ministry of industry and ministry of finance instead of the company
registrar’s office.

2.1.4 Role of Stock Exchange

Stock Exchange is the market where second hand securities are bought and old
for investment or speculative proposes. It provides facilities for trading in listed
securities. In recent year the role of stock exchange is being increasingly
recognized by the authorities. The stock exchange as the market for securities
gives everybody access to a number of different opportunities for as many buyers
and sellers of securities as possible. From a general economic point of view, the
stock exchange constitutes the core of the capital market. It has put its finger on
the pulse of the economy and gives it diagnoses to the public in the form of
quotation. Investment is the lifeblood of economic development. It is evident that
stock exchange will continue to fulfill their vita function in the national economy.
So long as the private enterprises exist, we know that the stock exchange is the
place where stock and share are bought and sold.

The substantial competition in innumerable buyer and sellers determine the prices
with a measure of accuracy that cannot be obtained in other unorganized market
at such as the property market where activity is of a spasmodic nature.

27
The stock exchange is intricately interwoven in the fabric of the nation’s
economic life. The task of mobilizing and distribution of savings could be
attempted in the old days by a much less specialized institution than the stock
exchange. But as business and industry expanded and the economy assumed a
more complex nature the needed for a permanent finance arouse. Investors
wanted liquidity, the facility to convert their investment in to cash at any given
time. The answer was a market for investments and thus was how the stock
exchange cares into being this institution plays a notable role in the economic life
of the country acting a free market for securities, where price are determined by
the forces of supply and demand. The function of a stock exchange is not only to
provide a market for securities but also in the raising of fund for government and
industry. Thus, a free and active market in stock and share has become a
prerequisite for the mobilization and distribution of nation’s saving as to support
modern business.(Mahat, 1981)

In this way, we can say that stock exchange have a vital role to play in helping
industries to raise necessary finance. They have a supremacy function to perform
in developing a stock capital and to enable government to raise loans. Their
services are indispensable in the operation by the authority for the regulation of
the countries credit play. It is generally thought that a stock exchange severs only
those who have money to invest and securities to sell. This is an understatement
for a stock exchange which benefits the whole community in many ways. By
enabling producers to raise capacity it indirectly gives employment to millions of
people and helps consumers to get goods needed by them.

28
2.1.5 Stock Market Development and Long –Term Growth

Although the role of financial sector in the economic development of a nation

remained controversial for sometime, recent theories in finance suggest that stock
market do promote long- term growth (papaioannou & Duke, 1993 p.36).
Development of equity markets in any country requires political and economic
stability and growth –oriented policies as per condition. At the second stage,
equity price rise and the investors gradually gain confidence in the equity market.
They accept equity as an alternative to traditional bank deposits and government
securities. At the second stage, equity markets gain more credibility and market
liquidity increases. Investors long for rise in risk adjusted returns and demand a
wide variety of securities to match their risk preferences. Rules and regulations
are refined and the equity markets start functioning on the basis of self discipline,
equity markets at this stage gradually get integrated to the international markets
and attract foreign investors. At the third stage, equity markets become an
integral part of the overall financial system. Investors get higher, less volatile
returns and easily absorb new issues of stock and bonds. The volume of trading
increases as the equity markets become more liquid and firms go for initial public
offerings to replace their debts. At this stage a mechanism for risk transfer
develops, creating markets for equity and currency hedging instruments such as
derivatives and index products. At the final stage the equity markets get highly
integrated with the global markets and the equity premiums match with the
internationally competitive levels. Equity markets at his stage achieve stable
growth and attain a mature state.

29
Despite its history of more than 25 years with respect to the above – mentioned
observation, the equity market in Nepal has barely entered the first stage of
development. Due to current political and economic instability, absence of
growth oriented policies and weak regulatory framework of stock market has
failed to gain investor’s confidence. Unavailability of timely information and
weak supervision and monitoring has made the stock market highly risky for
general investors. Investors have not yet accepted investment in stock as an
alternative to bank deposits and government securities except in the case of stock
of some commercial banks (K.C. and Snowden 1997, 1083).

By encouraging and dissemination of information, stock markets reduce cost of

mobilizing savings and facilitate investments. Well developed stock markets
enhance efficiency of market for corporate control by mitigating the agency
problems between the stockowners and managers. In countries where stock
discipline is effective, firms tend to be more productive, thereby creating more
wealth per unit of money invested (Diamond and Verecchia 1982; 275)

Stock markets help expansion of economic activity by providing liquidity to

financial assets traded in them. Investments in real assets require long –term
commitment of capital, however, investors are reluctant to commit their
investment less risky because they allow savers to buy and sell financial assets
they hold cheaply and quickly and restructure their portfolios any time according
to their risk- return preferences. At the same time firms enjoy permanent access
to long term capital through equity issues. By making assets less risky and
providing easy access to permanent source of capital, liquid stock markets
improve allocation of resources, boost investment and enhance long term

30
economic growth by encouraging investor myopia. It is argued that such stock
market may weaken investor’s commitment to exert control because they prefer
to sell the stocks of the misgoverned companies rather than to monitor and force
managers to improve their performance. However, empirical studies suggest that
greater stock market liquidity boosts and in many cases precede economic
growth.

2.2 Review of Previous Studies

The review of the previous studies have been divided into three segments as
international context, nepalese context, and review of masters’ thesis.

2.2.1 International Context

A number of research studies have been done internationally on the stock

market. Some has pleaded that the development of world capital markets appears
to be reaching the stage where they can make significantly greater contribution to
world economic growth and trade. More importantly, the ground work has been
laid for healthy development and future growth of international capital market
barring the international of war or other major disturbances, world capital
markets gave promise of being able to play an increasingly important, through no
predominant role in the movement of capital internationally.1

Paul M.; “The Review of International Capital Markets”, The American Economic Review , 1996, p. 282
1

31
 In connection with the necessary of capital market, capital market in India has
that capital is an extremely fascinating subject. An efficient capital market is an
indispensable pre- requisite to economic development. In fact, even as regards
the resources the public sector, the capital market has a rather important role to
play.2

The securities have generally been viewed as the principal investment vehicle,
and traditionally texts in investment have focused on securities to the exclusion
of the other investment alternatives. Securities are still the central focuses in the
investment activity. In the same book he has given suggestion of the problem by
quoting the problem facing the individual investor involves selecting those
investments that meet his or her needs and preferences. The staring point in this
process is determining the chrematistics of the various investments and the
matching them with the individual need and preference. In this way, an
appropriate and suitable investment made.

The indicator of stock market reflects the development of an economy important

to predict the course of national economy because economic activity affects the
corporate profits, investor attitudes and expectations and ultimately securities
price. The key for the analysis is that overall economic activity manifests itself in
the behavior of stock price or the stock market. This linkage between economic
activity and the stock market is critical.

The investors must receive more return from return from return from holding a
security the planning the same amount of money in a saving account. The total
2
Simha S.L., “The Capital Market in India.” Journal, 1960, p. I

32
returns in holding stock must include the risk premium and inflation premium
and inflation premium because in seeking returns that exceeds those available in
saving account. There is risk associated with a holding a security. There are two
types of risk in holding a security systematic and unsystematic risk.

The 1980s were an easy decade for fund managers. Both stock markets a
commercial property investment provides high return by historical criteria.
Whether or fund managers added value, stock investors obtained high return.
The easy market condition of the 1980s did not continue into 1990 and
investments returns in real terms during the 1990s are unlikely to match those of
the 1980s. Fund managers have some protection because of advantage for
investors of investing through institutions rather than by direct investments in the
companies. However, some aspects of the operation of stock market seen
inefficient and called for comments. These inefficient may, in part be a hangover
from the regime of fixed commission when brokers competed providing fund
managers with data and company analysis information about the companies is
that their primary motivation is to get clients to buy or sell shares, and this might
introduce a bias towards dwelling on the strong or weak points in a company
record.

Stock market and their subsets, emerging growth stock, are well-managed
companies operating in industries where earning and dividend are expected
maintain there excepted to grow faster than inflation and overall economy. They
are expected maintain their exceptional growth momentum through economic
retractions as well as during economic prosperity. Growth stocks are not located
in the traditional smokestack industries but in new and upcoming fields, such as

33
computer, telecommunications, healthcare and biotechnology. Major
characteristics of growth stock include higher price earning ratios than the market
average, substantial potential for above average long- term price appreciation,
price volatility and correlation of capital to fuel growth, therefore little or no
dividend pay –out in the early years.

There are two important aspects of capital market namely, the raising of funds in
the form of shares and debentures and trading in the securities already issued by
the companies. While first aspect is obviously is much more important from the
point of view of economic growth, the second aspect is also of considerable
importance. In fact, if facilities for transfer of existing securities are abundant, the
raising of new capital is considered assisted for the buyer of new issue of
securities are confident that whenever he wants to get cash he can find a buyer
with out much difficulty. This aspect is called the liquidity of the stock market.
Thus the liquidity of the stock market affects the raising the new capital from the
market.

A senior economist, in the finance and private sector department division of

World Bank’s Policy Research Department, has mentioned in his article that
stock market may affect the economic activity through the creation liquidity.
Many profitable investments require a long- term commitment of capital, but
investors are often reluctant to relinquish control of their savings from long
period. Liquid equity markets make investments less risky and more attractive
because they allow savers to acquire asset equity and to sell it quickly and
cheaply if they need access to their savings or want to alter their portfolios. At the
same time, companies enjoy the permanent access to capital raised through

34
issues. By facilitating ling term, more profitable investments liquid markets
improve the allocation of capital and enhanced the prospects for the long – term
economic growth. Further, by making investment less risky, more profitable
stock market liquidity can also lead to more investment.

Ross Levine shows that with taking example of 38 countries with more liquid
stock markets in 1976 grew faster than those did economic with less liquid stock
market in 1976 between 1976 and 1993. Stock market liquidity helps to forecast
economic growth. He has used three measures of stock market liquidity verses
value- traded ratio, turnover and the value trade ratio divided by stock price
volatility. The study has revealed that country that has more liquid stock market
in 1976 enjoyed both faster rates of capital formation and greater productivity
over the next 18 years, because liquid stock markets encourage more investment.

2.2.2 Nepalese Context

No specific research studies have been available regarding the growth of stock
market, its problem and potentials and its impact on economic growth in
Nepalese context. However, some articles, books, previous research work, which
are related stock market, are consulted and reviewed. Equity market has shown
impressing recovery from sharp falls in 1994 with the effect till 2007. At present,
it has been performing more strongly than in the earlier year.

The improvement in the equity market has been attributed to various factors
including good prospect of corporate earning and wider household participants in

35
the stock market. Investors not only relay on the statement of brokers, but they
also have a concern over the financial information of the concerned company.
Therefore, the share of the companies with better prospect of dividend capital
increment and growth have normally highest price in stock market. At present,
stock market in Nepal has witnessed its strength surprisingly, and this has raised
hopes for sustained growth of corporate undertakings. Stock market in Nepal has
been growing gradually both in terms of turnover as well as the capital
investment.

Dr. R. S. Mahat’s book is very valuable for the purpose of analyzing the capital
market in Nepal. In his book, “capital markets, financial flows and industrial
finance in Nepal” he has highlighted the problems of industrial finance in Nepal
on the lightly of the development of capital market and institutional sources in
the country. In his words, the problem facing in underdeveloped economy is quite
different. The nature of the problem is both quantitative and qualitative. The risk
associated with long investment becomes even greater due to changing political
and economic policies in most of the underdeveloped economics and the
reluctance of banks to provide loan for long term risky ventures. All these factors
very well explain the reason behind the larger flow of savings in IDEs towards up
productive channels. The availability of industrial securities is nearly absent. The
development of financial institution that links the surplus spending units with the
deficit spending ones is in the rudimentary stage. Commenting towards the
demand and supply problems in the Nepalese securities market.3

3
Mahat R. S. Capital markets, financial flows and industrial Finance in Nepal, 1982,p.28

36
Prof. Dr. Manohar Krishna Shrestha conducted another study in the title of
“Shareholder’s Democracy and Annual General Meeting Feedback, 1992”. This
study critically analyzed the situation of common stock investors and the
situation is not improved significantly until now.

The size of the shareholder population in Nepal has been growing constantly; the
government seems to have not taken initiative in formulation a separate act
regarding the protection of shareholders right is questioned. Company and other
acts relating to financial and industrial sector have provisioned right of the
shareholders as:

1) Voting right.
2) Participation in general meeting.
3) right of getting of information.
4) Electing as board of director.
5) Participation in the profit and loss of the company.
6) Transferring shares.
7) Proxy representation.

The collective rights of the shareholders are:

1) Amend the internal bylaws.
2) Authorized the sales of assets.
3) Enter into merger.
4) Change amount of authorized capital.

37
He added further that “Success of companied directly depends on the protection
of their owners”. But now can this be accomplished is main question. Thus, it is
necessary to develop guidance for enhancing the efficiencies for the public
limited companies to contribute directly in growth of national economy on one
hand and ensuring handsome return to the shareholders on the other hand to make
their investment meaningful and worthwhile. The encouraging and growing
confidence of shareholders over their investment seek an independent inquiry of
disclosed contents of prospectus. This helps to satisfy a minimum standard of
faith on investment in shares through relying on pros and cons of prospectus. It
is, therefore important to disclose everything in prospectus which could
reasonably influence the mind of the prudent investors. Various annual general
meeting by different public limited companies reveal annual general meeting be
different public limited companies reveal greater gap between disclosers made in
the prospectus and the actual results. In this context the expression of discloser
philosophies and investigation of funds in prospectus need to be reconciled to
check the growing problem in the development of the market in Nepal.4

2.2.3 Review of Masters Thesis

Anjani Raj Bhattari (1990) has carried out on “Share market in Nepal”. In which,
he emphasized the historical background and the analysis of various financial
variables affecting the smooth operation of share market. This study was mainly
based on secondary data obtained from various sources. He has applied both
financial and statistical tools in the study. He found that out of 12 sample

4
Manohar Krishna Shrestha, Shareholders Democracy and annual General Meeting Feedback, Portfolio Analysis Nepal
Publications, Kathmandu, 1992, p. 17

38
companies 2 companies were useful to cross over the average price- earning
ratio, as a result, market price of shares were highly skewed. Moreover, there was
mismatch between calculated and quoted price. However, he concluded that the
involvement of more and more institutions as well as individual investors in
capital market through broker’s network raised the transaction volume. Rumors
spread by brokers and create real speculation. Fair plays of bulls and bears make
market equilibrium resulting price stabilization speculation on the trading of
shares is encouraged. Thus, the market starts to walk randomly reflecting true
value of shares. Investors are facilitated by providing alternatives to make
diversified portfolio.

Bhatta Gopal Prasad (1996) in his thesis paper “Assessment of the performance
of listed companies in Nepal” concludes that a highly significant positive
correlation has been addresses between risk and return chapter of the company.
Investors expect higher return form that stock, which associates higher risk.
Nepalese capital market is not efficient one. Os the stock price does not contain
all the information relating to market and company itself. Neither investors
analyze the overall relevant information of the stocks nor does the member of
stock exchange try to disseminate the information. So the market return and risk
both may not show high priced stocks. In the addition, Bhatta further addressed
that “investors of Nepal have not yet practiced to invest in portfolio of
securities”. An analysis of the two securities portfolio shows that the risk can be
totally minimizes if the correlation is perfectly positive correlation ship between
the returns of the two securities the risk is not diversified.

39
To some extend he focused in the analysis of risk and return in common stock
investment. But due to many other aspects to analysis investor cannot easily
assess the results. Indeed, study did not focus the viewpoint of investors rather it
concentrated the companies and stock market. However, this study also explores
some dimension for further research in his topic.

Mohan Khatiwada (1996)in his thesis paper “A study on securities investment in

Nepal” concludes that, leaving some exceptional cases aside, almost all the
companies experienced their market price going down by less than fifty percent
in 1995. Even the banking group could not spare the share pride going sown
more specifically, the year 1995, was a disheartening period for the stock price. It
is because, almost all the companies share price during the year were down even
in some cases below the face value. Through the study conducted by katiwada
did not focus the analysis of individual security and the viewpoint of investors, it
explores some dimension to further research in this aspect.

Bharat Prasad Bhatta (1997) in his study on “Dynamic of stock market in

Nepal”, with the main objective to analyze the trend of the Nepalese stock
market. From the study, concluded that the main stock market and economic
activities move in similar direction. They influence each other. The development
of the former is reflected in the latter. The stock market raises and mobilizes the
investable resources to finance the long- term large projects in the economy. The
stock market therefore can be regarded as heart of economy. The investors are
interested to invest their resources in the shares of corporate sector through the
stock market in the Nepalese economy. Management capability of the
entrepreneur is a key for better performance of the firms. Government should

40
launch programs to enhance management capability of the entrepreneur, which
may contribute to raise the return from the investment. Although it has late to
take steps to overcome such problems of the Nepalese stock market in order to
make it active and supportive, the stock market has good prospect for the
resources mobilization to finance the productive enterprises in the Nepalese
economy.

Rekha Pant(2000) has analyzed in her thesis “Current Status and Problems of
Stock Market in Nepal” with an objective to analysis the problems and trends of
present state of Nepal Stock Market and suggest measures for the improvement
of stock market. The researcher mostly used secondary data collected from
books, company Act, official records of the NEPSE, securities listings By-laws,
Act, Government publication etc. she found in her study that the development of
stock market primarily depends on the government policies and program and
their proper implementation. So, government should develop an appropriate
policy framework to increase the demand for supply of securities. She also found
that there is a lack of investor’s confidence in the stock market since many listed
companies do not trade on a regular basis or hold AGM and provide disclosure
information to the investors on a timely basis. Beside this, there is a general lack
of investor’s awareness about the listed companies.

Pranima Pandey (2000) in her thesis, “Risk and return analysis of common stock
investment” concludes that among all the securities common stock is known to be
the most risky security. Higher the risk, higher will be the return. Most of the
investors are attracted to common stock security because of its higher expected
return. As for the investor, it is important to analyze each investment, comparing

41
to potential returns with the risk. On average the potential returns from an
investment should compensate for the level for risk undertaken. If proper
allocation of assets is performed, it can reduce risk and can even be eliminated if
will diversified. Through this study conducted by Pramina Pandey did not focus
on the diversification of risk through the proper allocation.

2.3 Research Gap

Finally, no comprehensive research has been conducted in relation to the

development of stock market in Nepal, major problems faced by Nepalese stock
market and prospect of future growth. Thus, the stock market further requires
timely research to explore details of the position, performance, problem and
prospect of stock market in Nepal.

In previous study the researcher has used statistical tools like correlation,
CAPM, standard deviation, to identify the Growth, problem and prospect of
Nepalese stock market. But in this study diagram and graph hypothesis test used
as statistical tools. The earlier studies are conducted when the organized stock
market was at the initial stage without necessary information and the data are also
up to year 2004/05. But this study is based on the current data of the year
2000/2001 to 2006/2007. The number of question and respondents are also large
in comparison to the other study for each choice for stock broker, investors and
experts. So, that more information is gained.

42
 CHAPTER III

RESEARCH METHODOLOGY

Introduction

In this chapter we deal mainly the method, which are used in the period of
research and it also considers the logics behind the method, which are used to in
the context of our research study. Research design, sources of data, uses of
statistical tools, data gathering procedure, population and samples, research
variable and data collection technique and tools are basically explained in to this
chapter.

Research means to search the problems again to find out something more about
the problems. We study the social problem again and again to find out the
something more about the phenomenon. The first look may no be adequate. It
prone to error, we enter in to the subject matter again and again study the
problems differently and thoroughly each time. This process is called research.
Research is a systematic and organized effort to instigate a specific problem that
needs a solution.

Methodology refers the various steps that are generally adopted by a researcher in
studying his research problem along with the logic behind it. Thus, research
methodology is a way to systematically solve the research problem, what we are
doing at present.5

5
Howard K. Wolf and PR Pant. Social Science Research and Thesis Writing. (2nd 1999) p.203

43
To draw inferences on the market position, performance of stock market and its
problem and prospects, different measures have been used while collecting and
interpreting relevant data, facts and figures with a view to systematic data
collection and data interpretation. Sample statistical tools (not so sophisticated)
have been used to finish this research work, which represent the explanatory and
descriptive analysis of the relevant information and data. Both descriptive and
analytical type of research is employed to fulfill the objective of research work. A
descriptive analysis is used because the secondary data have been used to analyze
the variables, which is related ton “current status of Nepalese stock market and
problems faced by it in the country. Primary sources of data as questionnaire,
interviews to relate to higher officials are used to show the current status, growth
trend of stock market, stock’s market contribution to the development of
economy of the country and major problems and prospects of stock market in
Nepal.

3.1 Research Design

Selltiz (1962) “A research design is the arrangement of condition for collection

and analysis of data in a manner that aims to combine relevance to the research
purpose with economic in procedure”.

The research design is an organized approach and not a collection of loose

unleaded parts. It is an integrated system that guides the researcher in
formulating, implementing and controlling the study. Useful research design can
produce the answer to the proposed research questions. The research design is
thus and integrated frame that guides the researchers in planning and executing

44
the research works.A research design is the arrangement of conditions for
collections and analysis of data in a manner that aims to combine relevance to the
research purpose with economic in procedure.

The historical and descriptive research design will be adopted in this study. As
the title of the study comments the descriptive analysis of stock market, the study
has no bearing on the exploratory, experimental survey or experimental approach
to the research. It deals with the security market on the basis of available
information.

3.2 Population and Sample

The total variable is simply called population. The process of selecting the sample
out of the population is called sampling. Nepal has only one Stock Market
(NEPSE), so NEPSE is use in population as well as sample size.

3.3 Nature and Sources of Data

The main data for the study will be collected from primary as well as secondary
sources. Primary sources of data are mainly based on interviews and
questionnaires and secondary data are mainly based on booklet, annual report of
security board of Nepal, government publications, Nepal Rastra Bank and other
related articles published through the office of the SEBON and website of it.
Most of the data were taken from trading reports of NEPSE and these reports
were collected in the floor of the SEBO/N office.

45
3.4 Data Collection Technique

The research contains of both primary as will as secondary data. Since the nature
of these two data is different, the data collection procedure also varies. To collect
the secondary data, published materials are viewed in various spots, books by
different authors, unpublished thesis reports, journals, internet web sites, online
library, AGM reports of listed companies, NEPSE, SEBON etc. To collect these
secondary data, the researchers visited campus library of NCC, TU central
library, SEBON library. As so far the primary data the questionnaire with
financial and non financial expertise were done. Informal discussion and
interview with stock broker, investors, finance teachers and experts to collect the
view for different perspective.

3.5 Data Processing

Data so obtained have no meaning unless they are arranged and presented in a
systematic way. Data processing technique is one of the most important parts of
the research study. The researcher should adopt that data processing technique to
process the information and data which is suitable and feasible according to
nature and objects of the research study. The available information and data
should be present in different way, which can easily be understood by the general
public. In this study, the required available data and information are shown in
figures. The computation has been done with the help of calculator and computer.

46
3.6 Analysis of Data

Analysis is the careful study of available facts so that one can understands and
draw conclusion from them on the basis of established principles and sound
logic. This study is mostly based on the analysis of secondary and primary data
with the help of different statistical tools like tabulation, diagrammatic
presentation and chi-square test which is best to applicable. The empirical result
has been extracted in this study by using annual data of SEBON and NEPSE
from 2000/2001 to 2006/07.

3.7 Tools of Data Analysis

This study is based on primary as well as secondary sources of data for showing
position, performance, problems and prospect of security market in Nepal. The
primary sources of data used are interviews and questionnaire but the secondary
sources of data used are trading report publish by security exchange center,
booklet publish by other related agencies like security exchange board of Nepal,
ministry of finance. To draw the conclusion by analyzing the collected data
simple statistical tool are used as follows:

3.7.1 Diagrams and Graphs

Diagrams and graphs are visual aids which give a bird’s eye of a set of numerical
data which show the information in a way that enables us to make comparison
between two or more than sets of data.

47
3.7.2 Chi- Square Test Statistics

Chi- square test is a non- parametric test because it depends only on the set of
observed not expected frequencies and degree of freedom. Since chi- square test
does not make any assumption about population parameters, it is also called a
distribution free test. Chi- square test is a test, which describes the magnitude of
difference between observe frequencies and expected frequencies under certain
assumptions. It is used only selected question which is best for apply.

3.8 Method of Analysis and Presentation

Method of analysis will be applied as simple as possible. Every resource will be

given simultaneously. Detail calculations, which can’t show in the body part of
report, will be presented in appendix tables at the end of report. To make report
simpler and easily understandable charts, diagrams and graphs will be used.

48
 CHAPTER- IV

PRESENTATION AND ANALYSIS OF DATA

This chapter is the main body part of this study. The data, both primary and
secondary, are collected in unprocessed form. Such collected data are presented
in systematic formats and analyzed using different appropriate tools and
techniques. In addition to that, the relationship of the variables is presented in
graphs and figures. The analysis of data consists of organizing, tabulating and
performing statistical analysis. In this chapter the secondary as well as primary
data, collected from different sources, are presented in an understandable
presentation and analyzed separately using both qualitative and quantitative
measures whichever are appropriate.

4.1 Presentation and Analysis of Secondary Data

As the purpose of the study is to an overview analysis of Nepal stock market in

terms of positions, performances, problems and future prospects, various
information available from SEBON, Economic Survey, and different articles
have been used as a source of secondary data.

4.1.1 Analysis of Development Trend and Current Position of

NEPSE
In order to analyse the development trend and current position of NEPSE, the
researcher has conducted the trend analysis of listed companies, traded companys

49
and share traded. The study has also conducted the sector wise turnover of listed
companies, market capitalization.

4.1.1.1 Analysis of Listed Companies of Nepal Stock Market

Table 4.1
Listed Company
Fiscal No of Growth
Year Listed Company Percent
2000/01 115 -
2001/02 96 -16.52
2002/03 108 12.5
2003/04 114 5.55
2004/05 125 9.65
2005/06 135 8
2006/07 135 0
2007/08 143 5.92
Source: Annual Report, SEBO 2006/07

Number of listed companies were 115 in base year 2000/01, 96 in year 2001/02,
108 in year 2002/03, 114 in year 2003/04, 125 in year 2004/05, 135 in year
2005/06 135 in year 2006/07 and 143 in the year 2007/08.

Growth rate of listed companies is positive in all these years except in 2001/02
because of NEPSE deleted some companies from its list because of non-
disclosure of necessary information correctly and timely. The growth rate was the
highest in 2002/03 i.e. 12.5% and lowest in 2001/02 i.e. -16.52% which shows
there is well performance of the Nepalese stock market despite of political and
trading disturbances.

50
 Fig 4.1
Number of Listed Company in NEPSE

160
140
120
100
80 No of listed
company
60
Growth percent
40
20
0
-20
1

8
/0

/0

/0

/0

/0

/0

/0

/0
-40
00

01

02

03

04

05

06

07
20

20

20

20

20

20

20

20
4.1.1.2 Analysis of Traded Companies

Table 4.2
Traded Company
Fiscal No of Traded Growth
Year Company Percent
2000/01 67 -
2001/02 69 2.985
2002/03 81 17.39
2003/04 92 13.58
2004/05 102 10.87
2005/06 110 7.84
2006/07 116 5.45
Source: Annual Report, SEBO 2006/07

51
Number of traded company was 67 in the base year 2000/01, 69 in year 2001/02,
81 in year 2002/03, 92 in year 2003/04, 102 in year 2004/05, 110 in year 2005/06
and 116 in year 2006/07.

These figures show that number of traded company were increasing trend. In
2000/01, 67 companies were traded in the floor and it grows simultaneously. This
is shown that all listed companies were not traded in the trading floor. Table 4.2
shows that the no of traded company was increasing trend. It indicates that the no
of traded company is increasing in good pace of growth.
Fig 4.2
NO of Traded Companies in NEPSE

120

100

80
No of Traded
60 Company

40 Growth
Percent
20

0
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

4.1.1.3 Analysis of Share Traded in NEPSE

Table 4.3
Share Traded in NEPSE

fiscal No of share Growth

Year traded (000) Percent
2000/01 4989.00 -
2001/02 6005.00 20.36
2002/03 2428.00 -59.57
2003/04 6468.00 166.39

52
 2004/05 18434.00 284.30
2005/06 12221.93 -33.69
2006/07 18147.25 48.48
Source: Annual Report, SEBO 2006/07
Number of shares traded in NEPSE was fluctuating.4989 thousand share traded
in NEPSE in the year 2000/01, 6005 thousand shares were traded in the year
2001/02, 2428 thousand shares were traded in the year 2002/03, 6468 thousand
shares were traded in the year 2003/04, 18434 thousand were traded in the year
2004/05, 12221.93 thousand shares were traded in the year 2005/06 and 18147.25
thousand were shares were traded in the year 20006/07.

The growth rate of shares traded also seems varied only 4989 thousand share
traded in the year 2000/01 where as 6005 thousand share were traded in the year
2001/02 i.e. 20.36 % increased in share traded. In the year 2002/03 the number of
shares traded was declined by 59.57% due to market crash. In the year 2003/04,
2004/05 no of shares traded in increasing trend i.e. 166.39% and 284.30%
simultaneously. In the year 2005/06 the no of share traded was declined by
33.69% due to market crash. In the last year the no of share traded ware again
increase by 48.48%. This figure shows that the no share traded is fluctuating,
increasing in high percentage and decreasing also high percentage. So it shows
not good because of political instability and market sticks.
Fig 4.3
No of shares traded in NEPSE (000)

53
 20000

15000

10000
No of share Traded

5000

0
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

4.1.1.4 Sector Wise Annual Turnover

Annual turnover constitutes an important indicator for measuring the nation’s

economic activity. It also reflects the stock price market liquidity as higher the
amount of trading of stock market size is the stock market liquidity.

Table 4.4
Sector Wise Annual Turnover (2006/07)

S.N. Sector Trading

amount Percent
(Rs in million)
1. Commercial Bank 5563.5 66.55
2. Development Bank 577.5 6.91
3. Finance Company 713.6 8.53
4. Insurance Company 205.0 2.45
5. Hotel 7.0 .0084
6. Manufacturing & Processing Company 24.3 .29
7. Trading Company 10.4 .12
8. Other Company 1258.8 15.14
Total 8360.1 100
Source: Trading report of NEPSE
Table 4.4; show the sector wise annual turnover of NEPSE in the year 2006/07. It
show that most of trading amount covered by commercial bank i.e. 66.55%.

54
Development bank cover only 6.91%, finance company covered 8.53%,
insurance company covered 2.45%, hotel covered only least percent i.e. .0084%,
manufacturing and processing company covered .29%, trading company covered
.12% and other company covered 15.14%.

Commercial bank, in sector wise study, covered 66.55 percent of total trading
amount. Share of commercial banks are found more liquid and satisfactory
performance than other sectors. But the hotel sectors covered only .0084 percent
of total trading amount with insignificant presence.

Fig 4.4
Annual Sector Wise Trading Amount
Commercial Bank

Development Bank

Finance Company

Insurance Company

Hotel

Manufacturing &
Processing Company
Trading Company

Other Company

4.1.1.5 Analysis of Market Capitalization

Table 4.5
Market capitalization of NEPSE

Fiscal year Market capitalization % increase in % of turnover to

(In Rs million) market market

55
 capitalization capitalization
2000/01 43123.3 - 2.68
2001/02 46349.4 7.48 5.06
2002/03 35240.4 -23.96 4.44
2003/04 41424.77 17.55 5.18
2004/05 61365.89 48.14 7.35
2005/06 96813.74 55.76 3.56
2006/07 186301.3 92.43 4.48
Source: Annual report of SEBON

The market capitalization is simply the number of share outstanding multiplied

by the share price. From time to time, a “small stock effect” appears where small
capitalization stocks provide a higher return than large capitalization stocks,
holding other things constant. Presumably, small stocks provide less utility to the
investor and require a higher return. Often the size variable is treated as the
decline in which the company’s market capitalization faces relative to the market
capitalization of the other companies.
Fig 4.5
Market capitalization (Rs in million)
100000

80000

60000
Market Capitalization
40000

20000

0
2000/01 2002/03 2004/05 2006/07

Figure 4.5 shows that the market capitalization is in increasing trend. During the
fiscal year 2000/01, 2001/02 market capitalization is increasing gradually with Rs

56
43123.3 million, Rs 46349.4 million. Later in fiscal year 2002/03, there is
decreasing in the amount of market capitalization which was recorded Rs
35240.4 million. It was due to the decrease in NEPSE index. The share of all
companies dropped down drastically as a result of the market crash. Also, during
the fiscal year 20001/02 NEPSE de-listed 25 companies. But in the fiscal year
2002/03 up to 2006/07 the market capitalization is increases. The market
capitalization has now increasing gradually due to the listing of big companies.
Percentage turn over on market capitalization in the year 2000/01 was 2.68
percent and 4.48 percent in the year 2006/07.lowest percent in the year was
2000/01 and highest percent in the year was 2006/07. All figures were shown in
increase in positive trend.

Fig 4.6
% Increased in Market Capitalization & % of Turnover in Market
Capitalization

100
80
60
40 % increase in
market
20 capitalization

0 % of turnover to
market
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 capitalization
-20
-40

4.1.2 Analysis of Performance of NEPSE

57
In order to analyse the performance of NEPSE, the researcher has conducted the
trend analysis of NEPSE index, market capitalization vs. gross domestic product.
The study has also conducted security market indicators and NEPSE index vs.
gross domistic product.

58
4.1.2.1 Analysis of NEPSE Index

NEPSE index is the market worth value of all listed companies, which us the
economic indicator that leads to the investor about the stock market trend so, the
higher NEPSE index indicators the higher return in the stock market and lower
NEPSE 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 investors have to inform that the NEPSE index has its trend
and fluctuation of market price of individual stock as will as in aggregate.
Table 4.6
The NEPSE Index
Fiscal Year NEPSE Index % change in NEPSE
2000/01 348.43 -
2001/02 227.54 -34.7
2002/03 204.86 -9.97
2003/04 222.04 8.39
2004/05 286.67 29.11
2005/06 386.83 34.94
2006/07 683.95 76.81
Source: Annual Report of NEPSE

From the figure 4.6, it is clear that NEPSE index base year i.e.2000/01 was
348.43 then after it was declined to 227.54 in 2001/02 and 204.86 in years
2002/03. The index shown in the year 2003/04 was 222.04, 286.67 in the year
2004/05, 386.83 in the year 2005/06 and 683.95 in the 2006/07.

Higher NEPSE index indicators the higher return in the stock market and lower
NEPSE vice- versa. It can be seen that NEPSE index retarded up till 2003/04 that
is it was in a declining trend. Reason beyond this decline is however is associated

59
with political and social issue of the nation rather than economic. Than the index
is increasing trend till 2006/07. So the increase in NEPSE is good but could not
be taken satisfactorily for the financial market of the country.

Fig 4.7
NEPSE Index
800
700
600
500
400 Index
300
200
100
0
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

4.1.2.2 Analysis of Market Capitalization vs. Gross Domestic Product

Table 4.7
Market Capitalization vs. GDP

Fiscal Market GDP % of market

Year capitalization (Rs in million) capitalization on
(Rs in million) nominal GDP
2000/01 43123.3 392532 11.78
2001/02 46349.4 410493 8.56
2002/03 35240.4 437546 8.09
2003/04 41424.77 474919 8.77
2004/05 61365.89 548485 12.77
2005/06 96813.74 603673 16.03
2006/07 186301.3 670589 27.78
Source: Annual Report, SEBO, 2006/07, Economic Survey

60
While year wise comparison of market capitalization on Nominal GDP, it seems
in average figures. In the year 2000/01 market capitalization on nominal GDP
was 11.78 percent, in the year 2001/02 market capitalization on nominal GDP
was 8.56 percent, in the year 2002/03 was 8.09 percent, in the year 2003/04 was
8.77 percent, in the year 2004/05 was 12.77 percent, in the year 2005/06 was
16.03 percent and in the year 2006/07 it was 27.78 percent i.e. now there is
increasing trend in it.

Market capitalization to GDP is a good indicator of the performance of stock

market. It measures the proportionate contribution of the stock market to the
national income. A Higher ratio is preferable and indicates a large contribution of
the stock market in national income.

4.1.2.3 Analysis of NEPSE Index Vs Gross Domestic Product

Table 4.8
NEPSE Index Vs GDP

Fiscal Year NEPSE Index % Growth in GDP (Rs in % Growth in

NEPSE million ) GDP
2000/01 348.43 - 392532 -
2001/02 227.54 -34.7 410493 4.30
2002/03 204.86 -9.97 437546 6.59
2003/04 222.04 8.39 474919 8.54
2004/05 286.67 29.11 548485 7.10
2005/06 386.67 34.94 603673 10.06
2006/07 683.95 76.81 670589 11.08
Source: Annual Report, SEBO, 2006/07Economic Survey

61
Table 4.9 shows that NEPSE index and GDP. The growth rate of NEPSE index
was in negative in the year 2001/02 and 2002/03. This is because of the problem
faced by Nepalese stock market. All the listed companies cannot do well except
some commercial banks. In the year 2003/04 to year 2006/07 the NEPSE index is
increasing trend and shows satisfactory. But on the side of GDP, it was in
positive. Although the problems of political instability and weak law and order
situation, the growth rate of GDP was however satisfactory.

In comparison with growth rate of NEPSE and growth rate of national GDP,
growth rate of national GDP was better than growth rate of NEPSE index in the
beginning four year but the last three year the growth of NEPSE index was better
than growth rate of national GDP. In last three year the growth rate of NEPSE
index is increasing in high ratio. But national GDP is increasing in low ratio.

62
 4.1.2.3 Summarize Form of Securities Market Indicators
Table 4.9
Securities Market Indicators
(Fiscal Year 2000/01 - 2006/07)
(Rs. in Million)
Security market Fiscal year
indicators
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
Total No of public 9 12 18 14 14 29 34
issue
Amount of public 410.5 1441.4 556.5 1027.50 1626.82 2443.28 2295.5
issue
Total no of listed 115 96 108 114 125 135 135
com.
Paid up value of 8165.2 9685.0 12560.07 13404.90 16771.84 20008.55 21798.8
listed securities
No of listed 124971 122685 159958 161141 194673 227040 243504
security(000)
Annual 2344.2 1540.6 575.8 2144.27 4507.68 3451.43 8360.1
Turnover(Rs)
Market day 231 246 238 243 236 228 322
No of traded 67 69 81 92 102 110 116
company
No of share traded 4989 6005 2428 6468 18434 12221.43 8360.1
(000)
No of transaction 46095 42028 69163 85533 106246 97374 120510
Market 46349.4 34703.9 35240.4 41424.77 61365.89 96813.74 186301.3
capitalization
% of turnover on 5.06 4.44 1.63 5.18 7.35 3.56 4.48
market capitalization
% of market 11.78 8.56 8.09 8.77 12.06 17.35 27.78
capitalization on
nominal GDP
Source: Economic Surveys of Government of Nepal, SEBON Annual Reports and NEPSE
Trading Reports.

63
Table 4.8 Shows that all the indicator of NEPSE, like total of public issue,
amount of public issue, total no of listed company, paid up value of listed
securities, no of listed securities, annual turnover, market day in a year, no of
traded company, no of share traded, no of transaction, market capitalization,
percent turnover of market capitalization, percent on market capitalization on
nominal GDP. This picture shows all the indicator of NEPSE, this is
summarizing form of NEPSE activity.

4.2 Presentation and Analysis of Primary Data

This research deals with the study of the opinions of respondent’s in an overview
analysis of stock market in terms of position, performance, problem and future
prospects. The study is based on the finding of questionnaire survey among 60
respondents. The primary information was collected from the only one stock
market NEPSE.

4.2.1 Questionnaire Analysis

Another method to analysis the primary data related to the topic is questionnaire
method. Sixty copies of questionnaires were distributed to senior officials of
SEBO, NEPSE, general investors, shares brokers, and lectures to express their
views about the stock market. Cent percent of the questionnaire was collected
during the study period. The questionnaire is related to find out the position,
performance, problem and prospects of stock market. Their responses have been
analyzed as follows:

64
1. Analysis of the Problem Faced by Stock Market.
Table 4.10
S.N. Problem No of % of
respondent respondent
A in sufficient knowledge of investors about 25 41.66
the stock market
B Lack of investors confidence 15 25
C Shortcoming on existing securities rules and 10 16.66
regulation
D Lack of co-ordination between Security 5 8.33
Board and Nepal Rastra Bank
E Restriction to foreign investors 5 8.33
Total 60 100
Source: Field Survey

Concerning this question, almost 41.66% respondents agrees about the in

sufficient knowledge of investors about the stock market. 25 percent respondents
agree about the lack of investor’s confident. Actually Nepalese investors as well
as stock market intermediates do not have sufficient knowledge about stock
market.

2. Analysis of Points that Provide Prospects of Stock Market

Table 4.11
S.N. Variables No of % of
respondent respondent
A Stock market provides maximum return 10 16.66
B Solved the political problem and crises 16 26.66

C liquidity and marketability of securities 18 30

D increasing interest of educated public 10 16.66
towards stock market
E increasing number of large companies listed 6 10
on Nepal stock exchange
Total 60
Source: Field Survey

65
Regarding to the question, the highest 30 percent agree to on liquidity and
marketability of securities, while other 16 percent agree to solve the political
problem and the crices .Other 16 percents, 10 percents and 6 percents are divided
into maximum return, growing concern in this sector and large company listed in
NEPSE.

3. Analysis of Growth Trend of Nepalese Stock Market

Table 4.12

S.N. Variables No of respondent % of

respondent
A Good 15 25
B Bad 35 58.33
C Do not know 10 16.67
Total 60 100
Source: Field Survey

Concerning this question, 25 percent agree that the growth trend of Nepalese
stock market is good, 58.33 percent feels it bad and other 16.67 percent are
unknown about it.

4. Analysis of Interrelation between Stock Market and Economy

Table 4.13

S.N. Variables No of respondent % of

respondent
A High 25 41.67
B Moderate 20 33.33
C Low 15 25
Total 60 100
Source: Field Survey

66
Regarding this question, 41.67 percent agree towards high relationship between
stock market and economy, 33.33 percent say it moderate and 25 percent rank it
lowly correlated. Without doubt, we can say that stock market and economy is
positively correlated i. e highly related each other.

5. Analysis of Performance of Stock Market for the Development of the

Economy
Table 4.14

S.N. Variables No of respondent % of respondent

A Yes 28 46.67
B No 22 36.66
C Do not know 10 16.67
Total 60 100
Source: Field Survey

In response to this question, 46.67 percent are satisfied with the performance of
stock market for the development of the economy, 36.66 percent are not and
other 16.67 percent do not know about it.

6. Analysis of Information Provided by NEPSE and SEBO Correctly and

Timely

Table 4.15

S.N. Variables No of respondent % of respondent

A Yes 8 13.33
B No 48 80
C Do not know 4 6.67
Total 60 100
Source: Field Survey

67
Regarding this question, 80 percent of the respondents are of the view that the
information provided by NEPSE and SEBO are not correctly and timely.

7. Analysis of Important Role to Increase the Investment in Stock Market

Table 4.16
S.N. Variables No of respondent % of
respondent
A Government 20 33.33
B Investor 10 16.67
C SEBO 12 20
D NEPSE 12 20
E Stockbrokers 6 10
Total 60 100
Source: Field survey

Regarding this question, 33.33 percent of the respondents are of the view that
government can play important role to increase the investment in the stock
market, 20 percent respondents are say SEBO and NEPSE can important role,
than other say investor and stockbroker can important role to increase the
investment in the stock market.

8. Analysis of Disclosure Requirements

Table 4.17

S.N. Variables No of % of
respondent respondent
A The office of the company register 25 41.67
B Security Board Nepal 15 25
C Nepal Stock Exchange 5 8.33
D Investors/ Brokers 5 8.33
E Particular company 10 16.67
Total 60 100

Source: Field Survey

68
Concerning this question, 41.67 percent of respondent are of the opinion that
company registrar office is responsible for not presenting the financial statement
of the particular company to SEBO and NEPSE. 25 percent blame it to SEBO,
8.33 percent NEPSE and investor/ brokers and other to the particular company.

9. Analysis of Share Purchase Decision

Table 4.18

S.N. Variables No of % of
respondent respondent
A Consults a broker 3 5
B Act on whim 10 16.67
C Analyzes the company’s management 15 25
D Analyzes the past profit and loss of 30 50
company
E If other, please specify…. 2 3.33
Total 60 100
Source: Field Survey

Answer this question, 50 percent purchase the share observing the past profit and
loss of the particular company. Other 25 percent analyzes the company’s
management, 16.67 percent analyze the act whim, 5 percent analyze consults a
broker and 3.33 percent analyze other.

10. Analysis of Time to Sell the Share

Regarding this question, 25 percent sell their share when company’s profit
decline and when cash needed, 20 percent sell their share when company fails to
pay dividend, 26.67 percent respondent sell their share when high market prices
and starts to decline and 3.33 percent respondent sell their share due to other.

69
 Table 4.19

S.N. Variables No of % of
respondent respondent
A When company’s profit decline 15 25
B When company fails to pay dividend 12 20
C When cash is needed 15 25
D When market prices of share starts to 16 26.67
decline
E If other, please specify…. 2 3.33
Total 60 100
Source: Field Survey

11.Analysis of Motivating Factor for investment in the Nepalese Share

Market
Table 4.20

S.N. Variables No of respondent % of

respondent
A Social status 15 25
B Marketability and profitably 35 58.33
C friends and family 4 6.67
D Share broker 4 6.67
E If other, please specify…. 2 3.33
Total 60 100
Source: Field Survey

Concerning this question, 58.33 percent of respondents invest in stock because of

marketability and profitably, 25 percent of respondents invest in stock because of
social status, 6.67 percent respondents are motivated with friends, family and
share broker. Remaining is motivated with other factor.

70
 12.Analysis of Risky Investment

Table 4.21

S.N. Variables No of % of
respondent respondent
A Buying the share when first issued. 12 20
B Buying the share in the secondary 36 60
market
C Both of them 12 20
D None of them -
E Do not know -
Total 60 100
Source: Field Survey

Regarding this question, 60 percent respondents feel investment through buying

from secondary market is risky. 20 percent respondents feel investment in
primary issue is more risky, other 20 percent feel both investment mentioned
above A and B are risky.

13.Does Global Economic Depression Affect the Nepalese Stock Market?

Table 4.22

S.N. Variables No of % of
respondent respondent
A Yes 40 66.67
B No 15 25
C Do not know 5 8.33
Total 60 100
Source: Field Survey

Regarding this question, 66.67 percent of the respondents are of the view that the

71
Global economic depression affects the Nepalese stock market also. 15 percent of
the respondents are of the view that the global economic depressions do not
affect the Nepalese stock market. 5 percent respondents do not know.

4.2.2 Testing Hypothesis

► Are the problems of Nepalese stock market equally important?
Null hypothesis H0: there is no significant difference between observed frequency
and expected frequency. In other words Nepalese stock market faced
equally important problems.
Alternative hypothesis H1: there is significant difference between observed
frequency and expected frequency. In other words Nepalese stock
market is not faced equally important problems.
Test statistic: under H0 (Null hypothesis), the test statistics is,
Chi-square = ∑ (O- E) 2/E
Where,
O = observed frequency
E = expected frequency
Calculated chi square = ∑ (O-E) 2/E = 23.33
Degree of freedom (d.f.) = n-1 =5-1=4
The tabulated value of chi-square at 5% level of significance for 4 d.f. is 9.488

Since, calculate value of chi-square is greater than the tabulated value of chi-
square. It is significant and H0 is rejected and hence H1 is accepted which means
that all the problems faced by the Nepalese stock market are not equally
important.

72
► is growth trend of Nepalese stock market satisfied?

Null hypothesis H0: there is no significant difference between observed frequency

and expected frequency. In other words growth of Nepalese stock
market is satisfied.
Alternative hypothesis H1: there is significant difference between observed
frequency and expected frequency. In other words growth of
Nepalese stock market is not satisfied.
Test statistics under H0 (Null hypothesis), the test statistics is,
Chi-square = ∑ (O- E) 2/E
Where,
O = observed frequency
E = expected frequency

Calculated chi square = ∑ (O-E) 2/E = 17.5

Degree of freedom (d.f.) = n-1 =3-1=2
The tabulated value of chi-square at 5% level of significance for 2 d.f. is 5.991

Since the calculate value of chi-square is greater than the tabulated value of chi-
square. It is significant and H0 is rejected and hence h1 is accepted which means
that growth trend of stock market is not satisfied.

73
► Is Nepalese stock market and national economy related each other?

Null hypothesis H0: there is no significant difference between observed frequency

and expected frequency. In other words Nepalese stock market and
national economy related each other.
Alternative hypothesis H1: there is significant difference between observed
frequency and expected frequency. In other words Nepalese stock
market and national economy did not relate each other.
Test statistics under H0 (Null hypothesis), the test statistics is,
Chi-square = ∑ (O- E) 2/E

Where,
O = observed frequency
E = expected frequency
H0: Null hypothesis
H1: Alternative hypothesis

Calculated chi square = ∑ (O-E) 2/E = 2.5

Degree of freedom (d.f.) = n-1 =3-1=2
The tabulated value of chi-square at 5% level of significance for 2 d.f. is 5.991

Since the calculate value of chi-square is smaller than the tabulated value of chi-
square. It is not significant and H0 is accepted which means that Nepalese stock
market and national economy are related each other.

74
►Is performance of stock market is satisfied?

Null hypothesis H0: there is no significant difference between observed frequency

and expected frequency. In other words performance of Nepalese
stock market is satisfied.
Alternative hypothesis H1: there is significant difference between observed
frequency and expected frequency. In other words performance of
Nepalese stock market is not satisfied.
Test statistics under H0 (Null hypothesis), the test statistics is,
Chi-square = ∑ (O- E) 2/E

Where,
O = observed frequency
E = expected frequency
H0: Null hypothesis
H1: Alternative hypothesis

Calculated chi square = ∑ (O-E) 2/E = 8.4

Degree of freedom (d.f.) = n-1 =3-1=2
The tabulated value of chi-square at 5% level of significance for 2 d.f. is 5.991

Since the calculate value of chi-square is greater than the tabulated value of chi-
square. It is significant and H1 is accepted which means that performance of
Nepalese stock market is not satisfied.

75
4.3 Major Problem Faced by Nepalese Stock Market

1. Insufficient Knowledge of Investors about Security Market

Nepalese investors have not proper investment knowledge as they are making
their investment without proper study about manay factors such as future
prospects of the company, business areas of company, management committee of
company, economic situtations, etc. Furthermore, many investors do not have
knowledge of investment strategy about when and how to sell their shares. The
investors are also unaware of the complaint procedure if the company fails to
take care of the investor’s interest. In other hand, there is lacking the regulatory
authority role to educateing general investors on securities market.

2. Lack of Investor’s Confidence

Many factors have made to loose the confidence of investors like price volatility,
low return on investment, information lacking, etc. There is also a general feeling

among the investors that the information disclosed through the public
announcement and prospects do not truly reflect the picture of the future
prospects of the company. This has been found to be very poor despite they
showed very optimistic financial forecasts in the prospects.

3. Lack of Coordination between Securities Board and NRB

There is no effective co-ordination between SEBON and NRB to determine their
respective supervisory responsibilities over commercial banks and finance
companies, which are involved in securities business such as issue management,
underwriting and brokering securities. Now, the banking and finance companies

76
activities are controlled and monitored by NRB only. However, securities board
also should monitor and control their activities that are directly involved in
securities business.

4. Rumor-Based Market
Nepalese securities market has the characteristic of rumor based market. In such
a market, investor will make investment based on general hearsay, which results
information of market price of shares differently than what it should be. On the
basis of rumor, the market price of share may go up or down in abnormal way.
There is no mechanism to correct such rumors and cheeks ups and downs.

5. Inefficiency of SEBON
SEBO/N is responsible for regulating and monitoring of the entire securities
business in Nepal. By analyzing its present organizational structure, the number
of staff and resource available from government, it is not possible for the board to
perform its roles effectively. Actually there is no well- trained and qualified
manpower in SEBON, which is proving a big problem for Nepalese stock
market.
6. Lack of Well Trained and Qualified Manpower
Skilled manpower is required for the successful operations of stock market.
Actually, stock market is more dynamic market than other markets. So, every
staff should be equipped with appropriate training and development programmed
for the adaptation with dynamic environment. Well- trained and qualified
manpower help get international knowledge about foreign stock and exchange.
But in Nepal, Nepal stock exchange has depended on government of Nepal
providing international level training to its staff inside the country rather than any

77
other huge foreign stock exchange. Staffs have been participating for short period
training programmed inside the country because of impossibilities for the
operation of own sources. In fact, it has been a great problem to the stock market

7. Restriction to Foreign Investors

The Nepal stock exchange has opened the participation of foreign investors in the
secondary market up to a certain percentage of the outstanding shares of a
company. The demand of shares can increase by many folds by doing so. To a
developing country, capital market is a best means to attracting foreign
investment.

8. Centralized Stock Exchange

The Nepal stock market is only organized exchanged centre located at Katmandu
valley. It has not any branches in the other region. The growing number of
institutions in the country have demanding the exchage centre outside the
Kathmandu valley.

9. Lacking in Investor’s Protection

SEBO and NEPSE are not able to protect investor’s interest effectively. Investors
should be protected from misleading, manipulative or fraudulent practices
including insider trading and the misuse of client’s assets. Full disclosure of
information material is most important means for ensuring investors protection.
This makes investors more capable of assessing the potential risks and rewards of
their investment and thus helping them to protect their own interests. Till now
there is no provision made so far about to protect the interest of investors in
Nepal.

78
4.4 Prospects of Nepalese Stock Market

Despite the many problems faced by Nepalese stock market, there are numerous
future prospects as well. Some of the prospects of stock market are dealt as
follows.

1. Increasing Number of Listed Company

Even though the country is suffering from many problems, the number of
institutuions are emerging in the nation helping to broaden the market. The
number of listed companies is increasing rapidly due to industrialization and
commercialization.

2. Increasing Turnover of Listed Companies

The turnover of companies listed on stock market is increasing yearly. Turnover
rose from Rs 2340.2 million in year 2000/01 by Rs 8360.1 million in 2006/07 due
to the commencement of NEPSE as a market promotion and easier access
permitted a significantly greater number of market player to enter the market.
Because of improvement in market operation turnover has been increased.

3. Computerize Automatic Trading System

In the beginning of the 2007/08 fiscal year, NEPSE replaced the old open-out-cry
system of securities trading, which was in place since the beginning of secondary
trading in 1994, with the automated trading system (ATS). The ATS has not only
mechanized securities trading, but also reduced the manipulation of prices and
human errors. NEPSE has also reformed its organizational structure, right-sized

79
its human resources outsourced its cleaning and security services, started online
trading through WAN, disseminated real-time information and extended the
trading hours to make stock exchanges efficient. Trading through WAN has
formally started from 13 October 2007. Now stock brokers do not have to come
to the NEPSE’s office to sell or buy shares; they can do that sitting in their own
offices.

4. Increasing Participation of the Investors

The provision made in securities Exchange Act, and company Act has provides
reforms in securities market regulating practices. It can be taken as the very
important legislations of the securities market. Securities Exchange Act, 1983 has
been formulated to maintain the economic interest of the people. It has
contributed to the economic development of the country, to protect the interest of
the investors. This act set up a general framework for regulating securities
market, which has facilitated and encouraged the development of securities
market on Nepal.

5. Increasing Interest of Qualified People

Educated and qualified people are showing their interest towards stock market. In
past, the qualified people are interested to the government office, bank and NGO
only. But, now they are diverting to stock market because they are realizing its
advantages and benefits. Now, the members of the stock exchange have
reasonable background in corporate finance, capital market, economics and
financial engineering, etc.

80
6. Emeregence of Larger Company in NEPSE
The emergence of big company like NTC plays significant role to play in
NEPSE. These large companies issue huge amount of share floodting in market.
Many investors are interested to invest in large company’s shares.

7. Providing Liquidity and Return

Though the share investment exist more risk also provide reasonable return if the
market functions properly. The such return may be better than return obtained
from other investment like deposit held at commercial banks. Investors get yearly
bonus along with capital increment of their share investment. The market also
provides the liquidity to its investors.

8. Increasing Trend of Market Indicators

In Nepalese stock market, every stock market indicators are increasing in yearly
figure. NEPSE index was 348.43 in 2000/01 and it was 683.95 in 2006/07. No of
listed company, market capitalization is also increasing in yearly.

9. Nation’s Peace Keeping Process

In past, our country is passing through a turbulent phase resulting to the affect of
the economy. Most part of our budget is being expended for administrative and
security expenses. The heavy loss in public infrastructure, felling in the general
public have damaged the overall economic situation. But the situation has been
quite recovered which shows good prospect of the capital market as well as the
economy due to the nation’s contineous process to keeping peace.

81
4.5 Major Finding of the Study

Some major findings have been extracted from both secondary and primary
analysis. The empirical finding of the secondary and primary data analysis have
been described separately as below.

4.5.1 Empirical Findings from the Secondary Data Analysis

Through the analysis of secondary data in secondary market the following major
finding have been drawn out as:

1. The study shows that the total number listed companies are increasing and
reached to 143 in year 2007/08. The highest number of listed companies in
the year 2007/08 and the lowest number of listed companies was in the
year 2001/02 with 96 companies. Growth trend of listed companies are
positive in all years except in 2001/02 due to some of the companies
delisting from NEPSE as the company are not disclosing information
properly and timely. No of traded company also increasing and reached to
116 in year 2006/07.

2. The growth trend of share traded was found fluctuationg. The total of
4,989 thousand share traded in year 2000/01. Except in 2002/03 and
2005/06, share trading in NEPSE are in increasing trend.The decrease in
trading of shares were due to reasons like share market crash, political
instability and market strikes.

82
3. Commercial bank, in sector wise study, covered 66.55 percent of total
trading amount. Share of commercial banks are found more liquid and
satisfactory performance than other sectors. But the hotel sectors covered
only .0084 percent of total trading amount with insignificant presence.

4. In the fiscal year 2002/03 the market capitalization was decrease to Rs

35240.4 million due to market crash and decrease in NEPSE index at that
time. It was the highest decrease of market capitalization in 12 year’s of
NEPSE history. But after this period the market capitalization has started
to increase. The market capitalization of listed securities in the fiscal year
2006/07 rose to Rs 186301.3 million. Percent of turnover to market
capitalization was increase in all the years.

5. The NEPSE index under study periods was found fluctuating. In the fiscal
year 2001/02 and 2002/03 the NEPSE index decline drastically with
227.54 points and 204.86 points and the same time the NEPSE had delisted
25 companies from its listing. Then afeter the index has found in
contineous increased and reached to 683.95 points in the year 2006/07.
This showed the good to indicate Nepalese share in terms of the NEPSE
index.

6. Market capitalization on nominal GDP measures the proportionate

contribution of stock market to national income. Market capitalization on
nominal GDP is increase in decreasing trend in the year 2002/03 due to
market crash. Afterwards it has observed in increasing trend and the year

83
 2006/07 the market capitalization contribute 27.78 percent out of Rs
670589 million gross domestic products.

7. The growth rate of national GDP as compare to growth rate of NEPSE

index was found better in the beginning four year but the last three year the
case is opposite with the growth of NEPSE index finding better than
growth rate of national GDP. The growth rate of NEPSE index is
increasing in higher ratio than the national GDP for the last three years of
study periods.

4.4.2 Empirical Findings from the Primary Data Analysis

The primary analysis was based on face to face interview to different personnel
and developing questionnaire about primary market. The followings are major
findings drawn out:

1. Primary analysis concluded that the stock market in Nepal is in developing

stage. However, majorities of respondents are not satisfied with growth
trend of market.

2. The primary analysis reflects that the stock market is not performing and
growing due to the absence of transparency in information. Information is
not information unless it is communicated. Majority of respondent agree
that the company register office is more responsible for the not presenting
the information. Shortcoming rule and regulation, lack of coordination
between security board and Nepal rastra bank, restriction to foreign

84
 investors in Nepal stock market are the problems of the stock market and
minimizing the confident of investors. Respondent agree that the
centralized stock market is located in Katmandu only; and Nepal stock
market has the characteristic of rumor based market.

3. Majority of respondents agrees that investment in stock is more liquid and

highely marketable, maximum return. Respondent are also agree that the
large companies are starts to listing in NEPSE, increasing interest of
educated people towards the stock market, solve the political problem and
crises and NEPSE replaced the old open-out-cry system of securities
trading with the computerize automatic trading system are also the
prospect on Nepal stock market.

4. Majority of respondent agree that the relationship of stock market and

national economy is highly correlated. And performance of stock market
for development of economy is most important. The respondent are also
agree that the role of government is most important to increase the
investment in the stock market.

5. Majority of respondent agree that the investor are purchase the share after
analyzing the profit and loss of the particular company and sell their shares
when the market price and profit of particular company starts to decline.
Due to marketability and profitability investors are motivated to invest in
the shares.

85
6. 60 percent of respondent are agree that buying the share of secondary
market is more risky. 66.67 percent of respondent are agree that the global
depression is affecting the Nepalese stock market.

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 Chapter V

Summary, Conclusion and Recommendations

This chapter consists of three sections, first section provides the summary of the
study, the second draws the conclusion of the study and the third section proposes
recommendation to deal with the problems observed on the basis of finding.

5.1 Summary

The capital market is a part of financial market. It is the market where financial
assets having a time to maturity of typically more than one year are traded.
Capital market facilitates the exchange of assets by bringing together buyers and
sellers of securities. Capital market provides an effective way of raising money
for commercial enterprises and at the same time provides an investment
opportunity for individuals and institutions. Stock market is the backbone of
investment sector of the country. So, by promoting the stock market, government
can also develop the economic sector. Capital market is a medium through which
scattered saving and investable resources are converted in actual investment.

The study mainly aims to examine the position, performance, problem and future
prospect of Nepalese stock market. The specific objectives of the study are to
examine the development trend, current position and performance of Nepalese
stock market, to identify the existing problems and challenges faced by Nepalese
stock market and to evaluate future prospects of Nepalese stock market.

87
To meet the desired objectives, the necessary secondary data were collected for
the period 2000/01 to 2006/07 from the annual reports, bulletin of NEPSE and its
website, the annual report of SEBON and its website. And necessary primary
data, there were 13 questions had been distributed to 60 respondents, which are
directly related to stock market. The respondent person and intuitions was
professional investor, all types of SEBON staff, NEPSE staff, finance teacher,
stock brokers.

The study covers almost all sectors like banking, finance, development bank,
insurance company, hotel, manufacturing and trading company and other
company. To accomplish its objectives statistical tools like table, diagrams and
chi-square test which is applicable were used. To trace out the picture of stock
market, position, performance, problem and prospect, the necessary primary data
has been collected from the research questionnaire and interview of the
respondent.

From the secondary data analysis researcher was analysis the listed company,
traded company, no of traded shares, sectors wise trading amount, market
capitalization, etc are the determination for the development trend and position of
Nepalese stock market. And analysis the NEPSE index, index vs. GDP and
market capitalization vs. GDP etc are the determination for the performance of
Nepalese stock market.

The no of listed new companies was not in satisfactory condition as it was in very
few increases in numbers during this time period. According to the stock

88
exchange act 1983, there is provision of deleting the companies, which are not
able to furnish the documents regarding annual general meeting audit report and
unable to pay the annual fees at that time NEPSE deleting the 25 companies. This
type of activities badly affects the growth of stock market and its size. No of
traded companies were increasing trend. Number of share traded were fluctuating
trend, in 2002/03 and 2005/06 number of share traded were decrease because of
market crash. Commercial bank is main bodies out of listing companies; it has
covered 66.55 percent of the trading amount. Amount of market capitalization
were in increasing trend during the year. Percent of turnover to market
capitalization increase in positive trend. There was a lot of fluctuation in NEPSE
index in the year 2001/02 and 2002/03 due to the decline in the investor’s
confidence level and market crash on the capital market. But it has caught pace
and started to climb up. Market capitalization on nominal GDP is satisfactory
level.

From the primary data analysis, is found that the growth of stock market is not
satisfactory. Political instability, unfavorable economic condition, absence of
transparency in financial and non financial information and weak regulatory
discipline hinders the growth of capital market. Lack of investor’s confident;
shortcoming existing rule and regulation, restriction of foreign investor, rumor
base characteristics of stock market and lack of well trained and qualified
manpower are main problem of stock market. The number of listed companies
and it’s turnover is in increasing trend, peace talks with Maoist is affection
positively to the stock price, increasing participation of investors and educated
public in stock market were most significantly agreed observation by all
respondents. Stock market provide liquidity and marketability, increase in listing

89
of large company is positive affect the stock market. Respondents are agreeing
that positive relationship between stock market and national economy, good
performance of stock market can help the development of the economy,
government can play important role to increase investment in the stock market.
Respondent are agreeing that investor are purchase the share when the particular
company’s profit is increased and sell their share when the particular company’s
profit is decreased. Respondent are also agreed that the global economic
depression affect the Nepal stock market also.

5.2 Conclusion

This thesis paper addressed overview analysis of Nepalese stock market reference
with Position, Performance, Problem and Prospect of Nepalese stock market. The
study is based on Nepalese stock market.

From the study, it can be concluded that the number of listed companies, number

of traded company and number of share traded are increasing trend except the
year 2001/02 and 2002/03. Out of listing company commercial bank play
important role in NEPSE. Its trading amount is high and covered 66.55 percent of
total trading amount. Invest in commercial bank’s share is more liquidity and
marketability. Amount of Market capitalization is increasing yearly and it have
seen satisfactory level. Percent of turnover on market capitalization is also
increasing level. NEPSE index is not in increasing in good pace of growth rate.
NEPSE index is more volatile because of rumor base characteristics of Nepalese
stock market. Now it seems to be increasing level but not satisfactory. Growth

90
rate of national GDP was better than growth rate of NEPSE index in the
beginning four year but the last three year the growth of NEPSE index was better
than growth rate of national GDP. In last three year the growth rate of NEPSE
index is increasing in high ratio. But national GDP is increasing in low ratio.

Another conclusion drawn from the opinion based survey with respondent is that
SEBON, NEPSE and office of company’s registrar are insufficient in their
responsibilities. They need to improve acts, regulation, laws and guidelines for
effectives in their performance. The current status of information can not be
taken as satisfactory. Investors are not aware about the financial position of the
stock market. Investor’s confidence in Nepalese stock market is relatively low
because of stock market is volatility, inadequate information, lack of financial
markets instruments and investors not knowing about the risk of the stock market
investment. The size of the market in terms of market capitalization and number
of issue is relatively small. Market for corporate debt instruments is
underdeveloped. The retailers also dominate present stock market in the absence
of foreign investors and local institutional investors. Only a small portion of
shares is actively traded while others are traded either in small number or
infrequently which lead to poor liquidity and small turnover in the market.

NEPSE should extend its branches to other region and foreign investors should
also be allowed to participate in stock market. Transparency and openness of
transaction, quality professional services, adequate corporate financial,
disclosures and supervisory framework are the urgent needs of Nepalese stock
market. The government has to play major role to encourage individual investor’s
participation and sustaining in stock market in order to develop the stock market.

91
Any effort for protecting investor’s interest or boosting their confidence or
developing the stock market is necessary that should be enabled to operate in an
environment that leads to growth and expansion of Nepalese stock market.

The development of stock market in Nepal so far cannot be considered

satisfactory. This is evident form facts and figure available in the stock market
performance during last seven year. But there is enough long term liquidity in the
market. Investors are in search for investment opportunities in the equity of the
corporate bodies. The diverse sector is coming up that need capital. The only
requirement to fulfill the objectives of both parties is to create a conductive
atmosphere where investors can reward the required capital from the market at
low cost. The stock market has a good prospect for the resource mobilization to
finance the productive enterprises in the Nepalese economy. Now the investors
are interested to invest their resource in the shares of corporate sector through the
stock market in Nepalese economy.

5.3 Recommendations

The findings of this study provide important information for those who are
directly or indirectly concerned with the stock market activities. Thus, major
recommendations are as follows:

1. It is to be understood by all people that the political stability in the nation

is one important component for the development of securities market as
well as national economy.

92
2. Most of the respondents have agreed that investors are unaware about the
financial position of the company. So it is recommended that the
information should be provided to the investors with investment guidelines
from news and media. The listed companies at least, should publish their
current working results on quarterly basis.
3. The government is major responsible body that should bring the various
public awareness programs to potential investors. This can be done
through promotional campaigns, seminars, publications and programs in
other electornic medias like ratio and television. The information about
Nepales share market available in the website should be up to date.
Investors should be educated on online trading and and its benefits.
4. The government should allow foreign investors to invest in Nepalese
capital market not only to atract the potential investors but also make the
market more competitive and thus to develop Nepales stock market.
5. The NEPSE market should not confined only in Kathmandu valley but it
should launch the market outside the valley in order to provide the services
to investors living outside.
6. The laws and policies regarding capital market are not very clear creating
confusion among investors. So, government should not only to make clear
and specific plans and policies to expand the capital market but also
implement effectively.
7. The numbers and servives of brokers need to be increased to broaden the
financial market.
8. Investors should be aware in terms of their strengths, weaknesses, needs,
desires, risk taking capabilities and to reacting behavior to different and
ever-changing market condition. This is the game where self knowledge,

93
 better ability, sound understanding on the information of stock market can
only give a winning edge to investment.
9. The number of staff should be adequate and proper training in all aspects
for securities market. It should bring new and emerging stock market
regulatory regimes to match international standards.
10.The government should provide appropriate policies for improving the
environment for private sectors development, the efficient mobilization of
savings through the stock market. Investment in corporate sector should
be encouraged.
11.Large and ineffective government corporation should be privatize in order
to develop the Nepalese stock market through the wide spread distribution
of share to public investors.

94
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Shrestha, Manohar Krishna, Shareholders’ Democracy and Annual General
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SEBON, “Annual reports”, Various Volumes, Thapathali Kathmandu.
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Website
www.nepalstock.com
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www.sebonp.com

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 Appendix 1
Questionnaire

Dear Respondents

I have been conduction a research on “An overview analysis of NEPSE: position,

performance, Problem and prospect”. This questionnaire has been developed and
presented before you as part of this study. The issues raised in this questionnaire
are the key problems identified by researchers related to topic during the course
of study.

I humbly request you to fill it up at the vest of your knowledge. Your

cooperation in this regard will be of immense value for me.

I shall be highly obliged for your prompt response as far as possible.

Thanking you,

Researcher Respondents
Shyam Chandra Rupakheti Name:
Education:
Organization:
Position:
Date:

Instruction: please tick (♪) and Rank in appropriate place

Questions:

No: 1 Rank the following problem of Nepalese Stock Market. (No 1 is most
important)

[ ] A. in sufficient knowledge of investors about the stock market

[ ] B. Lack of investors confidence
[ ] C. Shortcoming on existing securities rules and regulation
[ ] D. Lack of co-ordination between Security Board and Nepal Rastra Bank

99
[ ] E. Restriction to foreign investors

No: 2 Rank the following points that provide prospects to Nepalese Stock
market. (No 1 is the most important)
[ ] A. Stock market provides maximum return
[ ] B. limited opportunities to invest investors long-term saving instead of
share investment
[ ] C. liquidity and marketability of securities
[ ] D. increasing interest of educated public towards stock market
[ ] E. increasing number of large companies listed on Nepal stock exchange

No 3. What do you think about growth trend of Nepalese Stock market? (Please
tick)

[ ] A. Good
[ ] B. Bad
[ ] C. Do not know

No 4. To what extent Nepalese Stock market and Nepalese Economy are related
to each other? (Please rank)

[ ] A. High
[ ] B. Moderate
[ ] C. Low

No 5. Are you satisfied with the performance of stock market for the
development of national economy? (Please tick { })

[ ] A. Yes
[ ] B. No
[ ] C. Do not know

No 6. Do you think Nepal stock exchange and security board Nepal provide
necessary information correctly and timely? Please tick

[ ] A. Yes
[ ] B. No
[ ] C. Do not know

100
No 7. Who can play the important role to increase the investment in stock
market? Please tick

[ ] A. government
[ ] B. investor
[ ] C. SEBO
[ ] D. NEPSE
[ ] E. stockbrokers

No8. Listed company do not present financial statement with in time to NEPSE
& SEBO, who is main responsible to this weakness? Please tick

[ ] A. the office of the company register

[ ] B. security Board Nepal
[ ] C. Nepal Stock Exchange
[ ] D. Investors/ Brokers
[ ] E. particular company

No9. How would you make a decision to purchased share of particular company
in stock market? Please tick

[ ] A. consults a broker
[ ] B. act on whim
[ ] C. analyzes the company’s management
[ ] D. analyzes the past profit and loss of company
[ ] E. if other, please specify….

No10. When you like to sell your share in secondary market? Please tick

[ ] A. when company’s profit decline

[ ] B. when company fails to pay dividend
[ ] C. when cash is needed
[ ] D. when high market prices and starts to decline
[ ] E. if other, please specify….

101
No11. What factors motivate you to make investment in stock market? Please
tick

[ ] A. Social status
[ ] B. Marketability and profitably
[ ] C. friends and family
[ ] D. Share broker
[ ] E. if other, please specify…..

No 12. Which investment is more risky in the stock market?

[ ] Buying the share when first issued.

[ ] Buying the share in the secondary market
[ ] Both of them
[ ] None of them
[ ] Do not know

No.13 Does global economic depressions affect the stock market? Please tick

[ ] A. Yes
[ ] B. No
[ ] C. Do not know

102
 Appendix 2

Calculation of Questionnaire by testing Chi square

(Question are shown in Appendix 1)
Qes.1
Number Observed Expected O-E (O-E)2 (O-E)2/E
value( O) value(E)
A 25 12 13 169 14.083
B 15 12 3 9 .75
C 10 12 -2 4 0.333
D 5 12 -7 49 4.083
E 5 12 -7 49 4.083
∑(O-E)^2/E= 23.33

Qus.3
Number Observed Expected O-E (O-E)2 (O-E)2/E
value( O) value(E)
A 15 20 -5 25 1.25
B 35 20 15 225 11.25
C 10 20 10 100 5
∑ (O-E)2/E = 17.5
Qus. 4
Number Observed value Expected O-E (O-E)2 (O-E)2/E
( O) value(E)
A 25 20 5 25 1.25
B 20 20 0 0 0
C 15 20 -5 25 1.25

∑ (O-E)2/E = 2.5

Qus.5
Number Observed Expected O-E (O-E)2 (O-E)2/E
value( O) value(E)
A 28 20 8 64 3.2
B 22 20 2 4 .2
C 10 20 10 100 5

∑ (O-E) 2/E = 8.4

103