Price uncertainty is the major feature of the stock market. The stock’s market price is dependable on the company’s information. If a company publishes positive information then the particular stock price will rise and vice versa. Currently stock market is witnessing a bullish market all over the world.
Although a bullish market gives a lot of profit to investors, it creates fear as well. Fear of starting a bearish market. Therefore, a market crash is a scenario where the stock market index experiences a rapid fall by double-digit. There is no certain formula and percentage about the exact market crash day.
So, if the market declines on a continuous basis we called that stock market crash. After the 2008 economic recession stock was crashed all over the world. Likewise, the stock market was crashed a couple of times in Nepal.
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Reason for Stock Market Crash
There are many things that affect the stock market price. The things which affect the company’s profit or growth affect the stock market as well. The government policy, decisions made by a particular company’s AGM, and other internal and external factor can impact the stock price.
When different decisions and policies affect positively then the market index will up and negatively impacted can cause towards a market crash. The major reason is as follows:
1. Panic Sell
This is the major reason for a stock market crash. There are many institutions that can affect the stock market directly and indirectly such as the government and finance ministry, central bank, stock regulatory body, and investors group.
When one of those institutions issue the notice regarding the market and if that makes a negative impact on investors then it might create panic sell. Therefore, fear about the market increase the panic sell. Panic sales increase share supply and high share supply with low demand will drop the stock price significantly.
2. Natural and Man-made Disasters
Natural disasters like floods, landslides, and different diseases and man-made disasters like war, and other related pandemics could crash the stock market. Recently, Coronavirus grim the world’s economy, and many industries are shut down which affected directly the stock market.
For instance: in Nepal, there was a landslide in the hilly region which the hydro company’s stock price. Therefore, any kinds of disasters can affect the stock market directly and indirectly.
3. Economic Crisis
2007-2008 economic crisis was the biggest example. Economic crisis decreases the company’s profit, EPS, and distributable profit that will impact the overall stock price. Recently, after 2007-008 the stock market was crashed. Likewise, liquidity crisis in banks, increment ratio of bad debt are part of economic crisis.
4. Speculation
Faith and expectation towards the particular company is the major reason for investment. The company or people invest their money with the speculation of good returns in the future. But if invested company’s performance disappoints investors then it increases the supply massively.
In 2001, the stock market was crashed because of the speculation of booming internet companies. It is also known as a dotcom-bubble-induced crash of 2001. Likewise, in 2007 the downfall of the stock market was started because of the economic crisis, and the high bad debt of real state businesses.
Current Stock Market Crash Status in Nepal
Currently, Nepal is witnessing a bull market. Many new investors are coming to the Nepalese stock market. Recently, NEPSE reached at 3000 index which is an all-time high. Also, the daily turnover was around Rs. 19 Arba which is almost 3 times more compared to the previous year. A bullish market brings the opportunity of making a high profit and fear of starting a bearish market. The bearish market always creates confusion of buy, hold or sell stock.
As per NEPSE index Nepalese stock market witnessing the best time in history. Although Corona’s effect significantly in Nepalese industries, the stock market booms every day and makes history. At the same time, many investors are saying that the bearish trend will start soon.
NEPSE Trend
NEPSE started its trading floor in 1994 AD. Here, we analyze the NEPSE index of the last 21 years. Also, we will find a conclusion about the bullish and bearish market of Nepal.
| S.N. | Year | NEPSE Index |
| 1 | 2055/56 | 216.9 |
| 2 | 2056/57 | 360.7 |
| 3 | 2057/58 | 348.4 |
| 4 | 2058/59 | 227.5 |
| 5 | 2059/60 | 204.86 |
| 6 | 2060/61 | 222.04 |
| 7 | 2061/62 | 286.67 |
| 8 | 2062/63 | 386.86 |
| 9 | 2063/64 | 683.95 |
| 10 | 2064/65 | 963.36 |
| 11 | 2065/66 | 749.1 |
| 12 | 2066/67 | 477.73 |
| 13 | 2067/68 | 362.85 |
| 14 | 2068/69 | 389.74 |
| 15 | 2069/70 | 518.33 |
| 16 | 2070/71 | 1036.1 |
| 17 | 2071/72 | 961.2 |
| 18 | 2072/73 | 1718.2 |
| 19 | 2073/74 | 1582.67 |
| 20 | 2074/75 | 1200.09 |
| 21 | 2075/76 | 1259.01 |
| 22 | 2076/77 | 1362.34 |
| 23 | 2077/78* | 2865.34 |
The above table shows that the NEPSE index always fluctuated. Within 23 years, 8 years market was at the bearish trend and other 15 years in a bullish trend. If you see the market trend from 2056/77, every bearish market started after the five years of a bullish market.
Overall, the Nepalese stock market is still undervalued. So, if you invest in a good company for the long term you will get a good return. However, investing in a weak company for short might be the trap of share cornering by big investors and companies.
Will Nepalese Stock Market Crash in 2021?
There are many assumptions are made about the starting of a bearish market in Nepal. Recently, the NEPSE index crossed the milestone of 3000. Many new investors are coming to the NEPSE floor sheet every day. Increment in the NEPSE index also increases the share cornering and insider information.
So, new should be very careful and informative. Although corona pandemic Nepalese stock market is very high because investors think it is a good place to invest money and earn wisely.
This is the 3rd year of a bullish market and many share analysts saying that this bull market will go on for at least six years. Also, after seeing the above table Nepalese stock market will ups and downs. In the last 23 years, there is 4 bullish market:
- 2055/56 to 2056/57 = 2 years
- 2060/61 to 2064/65 = 5 years
- 2068/69 to 2072/73. = 5 years
- 2074/75 to current = 3 years
Therefore, all bullish trend was for five years so the current NEPSE index will go further. At the same time, there will be certain corrections from time to time but the market will not be crash at least for 2 more years.
Conclusion
Price ups and downs are common things in the stock market. No one can stop crashing the stock market. But the government, regulatory body, or another factor can help to make the price stable. In Nepal, SEBON played a significant role to minimize the risk to investors which can bring in a bullish market. So, for now, investors can select a good company and invest. In conclusion, Nepalese stock market investors will not face the stock crash for at least 2 or 3 more years.