Kathmandu: Nepal's stock market has entered a prolonged downturn, with the Nepal Stock Exchange (NEPSE) Index falling to around 2,600 points—its lowest level in six months. Despite the formation of a new government and the announcement of investor-friendly policies, market confidence has remained weak, leaving investors disappointed rather than optimistic.

The market had been expected to rally after the government led by National Independent Party (NISP) senior leader Balendra Shah (Balen) assumed office. The party had also promised stock market-friendly reforms in its election manifesto. However, instead of rising, the market has steadily declined since the new administration took charge.

The NEPSE Index stood at 2,950.16 points on Chaitra 12, a day before the new government was sworn in. Since then, it has fallen by nearly 350 points to around 2,600, marking one of the sharpest declines in recent months. The last time the benchmark traded at this level was on Poush 9, when it closed at 2,597 points.

Budget Measures Failed to Lift Market Sentiment
Investor expectations were also high ahead of the government's budget for the fiscal year 2083/84, particularly after Finance Minister Dr. Swarnim Wagle pledged to make capital gains tax legally recognized as the final tax—a long-standing demand of investors.

The budget also introduced around 10 measures aimed at strengthening the capital market, including restructuring the Nepal Stock Exchange and allowing greater participation by Non-Resident Nepalis (NRNs).

However, the positive announcements failed to translate into market gains. The NEPSE, which closed at 2,782 points before the budget, dropped 26.72 points on the first trading day after the budget was unveiled. Overall, the market has fallen by about 86 points since the budget presentation.

Investor Confidence Remains Fragile
According to Nepal Shareholders Association President Ghanshyam Pandey, uncertainty surrounding recent arrests of businesspersons has created anxiety among large investors, preventing fresh investment in the market.

"The market is largely driven by institutional and large investors. Many of them are now cautious due to uncertainty, which has weakened overall market confidence," Pandey said.

He added that while the budget included several positive policy measures, investor sentiment remains subdued because of concerns over the broader business environment.

Monetary Policy Also Disappoints Investors
After the budget failed to revive the market, investors turned their attention to the Nepal Rastra Bank's monetary policy, hoping for stronger support for the capital market.

Instead, the central bank introduced one of its shortest monetary policies in recent years, allowing higher share-backed loans only against shares of financially sound companies with strong net worth.

The market reacted negatively. Since Governor Dr. Bishwanath Poudel unveiled the monetary policy on Ashad 23, the NEPSE has declined for three consecutive trading sessions, losing around 51 points.

Former Nepal Rastra Bank Governor Chiranjivi Nepal believes the lending policy has significantly influenced market behavior.

"Nearly 70 percent of Nepal's stock market consists of banks and financial institutions. Any policy affecting lending naturally has a major impact on the market," he said.

He added that investors holding shares of financially weaker companies may now face greater difficulty obtaining margin loans, reducing buying capacity across the market.

Market Awaits Regulatory Reforms
Pah Investment Pvt. Ltd. CEO Kamal Dhital said the monetary policy offered little specifically for the stock market, leaving investors looking toward the Securities Board of Nepal (SEBON) for further reforms.

"Nothing significant came from the monetary policy for capital market development. Investors are now waiting for regulatory measures from SEBON," he said.

Market data also reflects this trend. While the NEPSE moved within a relatively narrow range before the monetary policy announcement, it has witnessed a much sharper decline afterward.

Seasonal Pressure Adds to Selling
Pandey also noted that seasonal factors have contributed to the recent decline. As the fiscal year-end approaches, investors have been selling shares to settle accounts, while brokers have tightened margin limits and sought settlements from clients.

He added that Nepal's stock market remains highly sensitive to speculation and rumors, making investor sentiment particularly vulnerable during periods of uncertainty.

With policy announcements from both the government and the central bank failing to restore confidence, analysts say the market is likely to remain cautious until investors receive clearer signals on economic stability, regulatory reforms, and the broader investment climate.