Problem and Prospects of Nepalese Share Market

Problem and Prospects of Nepalese Share market

A capital market is a market for securities which can be either debt or equity, where business enterprises which includes companies and governments can raise long-term funds. In other words, it is defined as a market in which money is provided for a period of more than a year. The capital market includes the stock market where the equity securities are traded and the bond market where the debt securities are traded.

Adhikari (2013) states that poor accounting and auditing practices, capital gain tax, and low number of informed and professional investors, relationship-based lending practices, and margin landing through financial institutions are some of the issues that inhibiting the development of capital market in Nepal. So, the provisions related to accounting practises, well defined tax laws related to capital gain and margin financing and aggressive awareness program could bring strong prospect on the developing capital market of Nepal.

(Shrestha, 2013) indicated that lack of transparency and accountability of listed companies affected the confidence of the market. It is because of minority participation of shareholders in the board meeting and not having voice during the meeting which leads to weak governance of listed companies. Hence, the minority participation in the board meeting can be the strong prospect on to the Nepalese share market.

Stock market has been found to respond significantly to changes in political environment and the policy of Nepal Rastra Bank. These findings help to design policies to stabilize or stimulate the share market (Subedi, 2014.). So, the policy makers should keep eyes on the stock market development and be ready to take appropriate measures, to prevent the build-up of bubbles and collapse in the market. Share market is influenced by rumours, news and speculations (Shrestha, 2014.). So, the transparency should be increased in this market by making information easily accessible. Transparency and communication should in fact be enhanced by the concerned authorities to clear the gossips and rumours in the market.

The entry and exit to the investors is only through stock exchange intermediaries located mostly in Kathmandu, which has a limited clientele base. The absence of alternative trading mechanism like over the counter (OTC) trading have restricted the trading of shares of those companies not meeting stock exchange listing norms and for the trading of debenture or bonds (Kafle, 2005). Hence, expansion of the trading network through alternative trading mechanism can be prospects in the development of the capital market.

Lower transaction cost incurred in secondary trading of securities helps to o stabilize capital market by reducing volatility in pricing, Adhikari (2013) explains that it provides investors a safe place to invest, promotes liquidity in the capital market and