Nepal Stock Exchange Limited (NEPSE) is the stock exchange of Nepal. As writing of this article, NEPSE has two major owners – Nepal Government (58.66%) and Nepal Rastra Bank (34.60%). Other owners are Rastriya Banijya Bank (6.12%) and Members or Brokers (0.62%). It is regulated by the Securities Board of Nepal (SEBON).
There are about 245 companies listed in NEPSE. Nepali person who wants to buy or sell those companies shares and bonds can trade through NEPSE. To facilitate buying and selling NEPSE has given license to about 50 brokers (brokerage firms) throughout Nepal.
Suppose company XYZ is doing great in business. Its product is doing great and has a high demand among consumers. To increase its production capacity, it needs to add a new machine in its factory. To add a new machine, the owner of the company XYZ can either go to banks for a loan or go to potential investors to invest in the company. If the owner goes to a bank for a loan, the owner has to pay interest with the loan amount after a certain time. If the owner goes to potential investors, the owner can assure investors that XYZ will do better in the future and investors can make lots of money.
For owner to raise money from investors, he has to go to the Securities Board of Nepal (SEBON) and provides company XYZ documents. SEBON verifies document and if company XYZ gets approval then XYZ will announce it in the media to investors that XYZ is raising money through investment. This is called Initial Public Offering (IPO). In Nepal, each share in IPO is of Rs. 100 (unless stated more than 100). That means if you invest Rs. 1000 in company XYZ, you will get 10 shares. This is also called the Primary Market.
There may arise a time where you have to sell those shares and convert them into money. For this, you have to go to NEPSE brokers and sell it to potential buyers. This is called Secondary Market. Instead of selling your shares back to company XYZ, you sell your shares to other potential buyers and get cash from it. This process of converting shares to cash is called liquidation.
For any Nepali who wants to buy shares either in the Primary market or in the secondary market, he/she needs a Demat account. Demat account is like a normal bank account but instead of holding cash like normal bank account Demat account holds shares. You can create a Demat account from banks or even from brokerage firms. When you buy shares, it will show in your Demat account and when you sell shares it gets removed from your Demat account.
When the company you invest gives you return as bonus shares, it is also directly sent from the company to your Demat account. If the company you invested in gives you a cash dividend, then the company will send it to your normal bank account. So, the Demat account is for shares only. It is advised that you have two accounts one Demat account for holding shares and normal bank account for holding cash dividends (if your invested company gives you cash dividends.)
After you create the Demat account then the next process is creating a trading account in the brokerage firm. You can choose 1 out of 50 brokers – the best advice is to choose one whose office is near you as all 50 have the same commission rates. Brokers will help you buy and sell shares in minimal commission fees. You can either get online login from them, call them, or personally meet them to give orders in buying and selling shares.
Currently in Nepal, when you buy shares in the secondary market, your shares will get in your Demat account at T+3 (Transaction plus 3 days) principal – that is when you pay your buying share price, it will be shown to Demat account after 3 days. For selling, it has T+5 (Transaction plus 5 days) principal – that is when you sell your shares you will get your money after 5 days.
As of writing this article, NEPSE operates 5 days a week – Sunday to Thursday from 11:00 AM to 03:00 PM apart from national holidays. You can place your buying or selling order to your broker during the opening hours of the NEPSE trading floor (11:00 AM – 3:00 PM).
You can buy or sell shares through brokers. You can give instructions to a broker in many ways – buy or sell in exact price or specific price range or below or above a certain price. It can also be of a specific date or date range. When your instructions are met, you will get notifications that buy or sell has been confirmed. And you have to go to your broker for either depositing buying amount or selling instructions slip – this is called Transaction.
There are about 245 companies listed in NEPSE. NEPSE has made categories of each company which is called sub-indices and there are currently following sub-indices: