When you look at the Nepse and analyze underlying companies of Nepse you will see the dominance of three sector, financial, hydro and insurance and two of them are cyclical in nature. Cyclical business usually perform well when country’s GDP growth doing well (in general all business do well at high gdp growth environment) and enough liquidity into the system. For Nepal the liquidity usually relies on remittance and cost of commodity such as oil and natural gas. The current situation of commodity is extremely tight because of the short supply of oil due to ongoing Russian invasion as well as extremely low CAPEX or minimum investment into sector over last decade after 2008 financial meltdown. Now the question arise what would be the more normal oil price going forward, to my analysis it should be around 60-80 per barrel range and current price lead to demand distruction as well as leading to global economy into recession which always kill commodity price.

By the year end all commodity price going to cool down significantly as major economies will grapple with recession. This phenomenon lead to another cycle of monetary easing, in simple term lower interest rate environment because human productivity and innovation always lead to deflation. ( if labor cost spiral robot will replace human workforce which is accelerating this yr by 40% jump on y/y sales of robots.

Lower interest rate always favor market and Nepali stock market will also start to rise again. Nepali stock market is pure speculative play because of the lack of innovative companies listing as well as most of the companies do bonus share distribution which is worst way to generate value because it simply dilute yr holding. Ironically, many investors in Nepal like this and believe is good for their investment, when you compare that with US market it exactly opposite. No one like more share coz it dilute yr position and put you one more tax regime.

Having all of these disadvantage NEPSE overall performance from last 20 yr is 15% y/y compounded return. It is very likely that this base line return might hold over longer term, here are the reason;

1 real state market is mostly saturated (more detail analysis extrapolate remittance data from 1993 upto now and overly with real state performance during this period, you will see the picture or even you can put another total urbanization change data of that period on side)

2. This lead to greater number of participants into market ( remember gambling nature of human does not go away bcoz of underpinning greed and fear psychology). So my base case for Nepse entry point is 1800-1600 range and next Nepse bull can hit around 5k

Note: when Nepse was above 3k range I was suggesting my own brother to get out by analyzing level of speculation into market as well as market risk. Honestly, I had hard time to convince him. To succeed into market you need to be highly data dependent and flexible like water

Analytical Scientist at Morderna, Inc