Navigating the Ups and Downs of NEPSE

The Nepal Stock Market (NEPSE) has been experiencing increased volatility in recent times, causing concerns and questions among investors. The fluctuations in the index, sometimes sharp and unpredictable, have left many wondering about the reasons behind what is happening and how to act in the current situation. The purpose of this article is to provide retail investors with a clear understanding of the current market situation, expert analysis of the prospects of key sectors of the Nepalese economy, and practical investment strategies for the second half of 2025. In this uncertain environment, it is especially important not to give in to emotions, but to rely on knowledge and balanced analysis to make informed investment decisions. Understanding the underlying causes of market fluctuations is the first step to successful investing.

Understanding Market Fluctuations: What is Volatility and Why Does it Matter to You?

Before diving into the analysis of the current situation on NEPSE, it is important to understand the concept of volatility and its significance for an investor.

Definition of volatility in simple words
Volatility is essentially a measure of how much and how quickly a stock price or the overall market moves up or down. High volatility means large price swings over a short period of time; low volatility indicates greater price stability.¹You can draw an analogy with the weather: there are calm, windless days (low volatility), and there are stormy days with sudden changes (high volatility).

Volatility Indicators (Explained in Simple Terms)
There are several ways to measure volatility, but two of the most common are:

• Standard deviation: This is the most common way to measure volatility. It shows how much, on average, a stock’s price has deviated from its average price over a given period. The higher the standard deviation, the higher the volatility.²
• Beta coefficient (Beta): This metric compares the volatility of a particular stock to the volatility of the market as a whole (for example, the NEPSE index).

• Beta = 1: The stock moves in sync with the market.
• Beta > 1: The stock is more volatile than the market.
• Beta < 1: The stock is less volatile than the market.²

Volatility: Risk or Opportunity?
Perception of volatility often depends on the investor and his strategy:

• Risk: High volatility means there is a higher risk of rapid losses if prices fall sharply. This can be a stressful factor for many investors.²
• Opportunity: For investors with a high risk tolerance, volatility can also mean the chance of making a bigger profit if prices rise. Day traders often look for volatile stocks.²
• For the long-term investor: Understanding volatility helps you manage expectations and build a sustainable portfolio. Low volatility is often preferable for stable, gradual growth.²

It is important to understand that volatility is not just about falling prices. The very definition of volatility¹ refers to degrees of variability prices over time. This volatility can be either downward (falling prices) or upward (rising prices). Therefore, a stock whose price is rising rapidly is also considered volatile. This nuance is important because investors often associate “volatility” only with negative market movements or increased risk of loss. However, it also includes the potential for quick profits, which is what attracts some traders.²Thus, volatility management is management/price changes, both positive and negative, in accordance with the investment strategy and risk attitude.

In addition, the perception of volatility itself can influence market behavior. When volatility increases in the stock market, it usually signals increased concerns about a downturn.²Fear can lead to panic selling, which can further exacerbate price declines and increase volatility. Conversely, a period of low volatility can lead to complacency, potentially making investors less prepared for sudden shocks. This suggests a feedback loop where expectation or measurement volatility itself can be a factor driving market trends. Therefore, understanding market sentiment regarding volatility is as important as understanding the statistical indicators. News and general investor discussions can amplify or dampen reactions to price movements.

Nepal Economic Pulse: Mid-2025 Outlook

To understand the situation on the stock market, it is necessary to assess the general state of the country’s economy.

• Nepal’s Economic Growth Trajectory
  GDP growth forecasts for the 2024/25 financial year (FY25) from various institutions paint a similar picture:

• World Bank: 4.5%³
• Asian Development Bank (ADB): 4.4%⁴
• Government of Nepal: 4.61%⁶

These figures show the resilience of the economy, which is growing from around 3.9% in FY24.³, despite challenges such as natural disasters in late 2024.³The driving forces behind growth are increased domestic trade, hydroelectric power and rice production.³, as well as robust consumption supported by remittance inflows and rising private/public investment.⁴The services sector remains a key driver of long-term growth.³

Inflation and Monetary Stability
Average consumer inflation is at around 4.72%⁶, down from 5.01% a year earlier (data as of mid-February 2025)⁹). The ADB forecasts inflation at 5.2% for 2025.⁴The Nepal Rastra Bank (NRB) maintains a stable monetary policy: the policy rate is 5%, the deposit rate is 3%, and the bank rate is 6.5% (as of February 2025).¹⁰). The Nepalese rupee is expected to remain pegged to the Indian rupee.¹¹

Key economic pillars

• Money transfers:Their volume grew by 9.4%, reaching 1.051 trillion rupees.⁶This supports private consumption.⁴
• Foreign exchange reserves:They are at a record high, sufficient to cover 14.3 months of imports.⁶This creates an important safety buffer.
• Trade:Exports grew by 57.2%, imports increased by 11.2% (in the first eight months of FY24/25⁶). Exports to India, China and other countries increased.⁹

FY 2025-26 Budget Highlights and Potential Market Impact
The total budget is approximately 1.964 trillion Nepalese rupees.⁷Priorities include economic growth, infrastructure development, social security and governance reforms.¹³Key allocations include support for startups (Rs 730 crore in subsidized loans at 3% per annum)¹²), social security (109 billion rupees¹²) and health insurance (10 billion rupees¹²). A major reform was allowing Nepalese businesses and individuals to partially invest abroad – a historic shift.¹³Support for the industrial sector is envisaged: rent exemption for new enterprises in special economic zones (SEZ), reduction of rent in SEZ and incentives for export-oriented production.¹³Customs and tax rates for electric vehicles (EVs) remain unchanged.¹³

Overall Economic Outlook: Resilience Amid Risks
Overall, the economy is expected to remain resilient.³However, there are also risks: geopolitical and trade uncertainty, potential further deterioration in asset quality in Nepal’s financial sector, the risk of policy incoherence due to frequent bureaucratic changes in the government and delays in capital expenditure budget execution.³

Table 1: Key Economic Indicators of Nepal (Projected for 2024-25)

Despite generally positive macroeconomic data, such as robust GDP growth, controlled inflation and significant external buffers in the form of remittances and foreign exchange reserves³, there is a certain disconnect between this macroeconomic stability and the sentiment in the stock market. The following analysis will show that NEPSE is showing volatility and investors are cautious.¹⁴This suggests that positive economic news does not always translate directly and immediately into bullish market behavior. It is likely to be influenced by factors specific to the capital market itself, such as regulatory uncertainty, concerns about the health of the financial sector³ or the past experience of market participants. Investors should not expect a direct, instantaneous correlation between good economic news and rising stock prices; other market-specific factors come into play.

In addition, permission in the FY 2025-26 budget for partial overseas investment for Nepalese¹³represents a double-edged sword for NEPSE. On the one hand, it could lead to capital outflows from the domestic market, potentially reducing the liquidity available to NEPSE if overseas opportunities prove attractive. On the other hand, it signals the maturity of the economy and could expose Nepalese investors and businesses to global best practices, which in the long run could lead to new skills, capital and a more sophisticated investment culture. It could also reduce pressure on the domestic market if it is perceived to have limited capacity to absorb all domestic savings. The impact on NEPSE in the second half of 2025 may be initially minor while the appropriate mechanisms are worked out, but it is a significant long-term structural change. While this is a positive step for economic liberalisation, investors should be aware of any immediate impact on domestic market liquidity.

NEPSE Roller Coaster: Making Sense of Current Market Fluctuations (First Half of 2025)

The first half of 2025 at the Nepal Stock Exchange (NEPSE) was marked by significant volatility, periods of decline and attempts at recovery.

• NEPSE Index Performance Review (First Half of 2025)
  The market has been volatile. For example, on May 13, 2025, the NEPSE index fell by 14.87 points (0.56%) to close at 2,634.23, with a turnover of Rs 9.63 billion.¹⁷On June 4, 2025, NEPSE declined 11.97 points (0.65%) to 2,646.95 with turnover falling to Rs 5.16 billion from Rs 6.67 billion the day before.¹⁴The week ending June 6, 2025, saw the index fall by 1.93% with volatility of 91.30 points; the daily RSI was 44.64 (neutral-bearish), and the index was below the 5-day and 20-day exponential moving averages (EMA), indicating bearish sentiment.¹⁶Between March 11 and April 10, 2025, the NEPSE index fell by 84.63 points (-3.07%).¹⁵Daily turnover also fluctuated, reflecting changing investor activity.

Key factors influencing the market

• Regulatory changes and the role of SEBON: New guidelines from the Securities Exchange Board of Nepal (SEBON) have raised caution among investors.¹⁵Increase in capital requirements for brokers (from Rs 20 million to Rs 200 million) is encouraging consolidation.¹⁵The slowdown in IPO approvals (only 5 out of 84 applications have been approved since November 2024) has limited opportunities to raise capital and investment.¹⁵SEBON directs Butwal Power Company to suspend sale of Nyadi Hydropower shares due to conflict of interest¹⁸signals tightening of controls. SEBON’s ban on trading in shares of individuals and entities on UN sanctions lists is aimed at combating money laundering and improving market integrity.¹⁹
• NRB Monetary Policy and Financial Sector Stability: As part of the medium-term review of monetary policy (February 2025), the loan loss provisions for high-quality loans were reduced from 1.10% to 1%.¹⁰This could boost bank profits, but requires monitoring amid concerns about asset quality. Key interest rates (base rate, deposit rate, bank rate) remained unchanged.¹⁰The World Bank has pointed to “potential further deterioration in asset quality in Nepal’s financial sector” as a risk.³
• Investor sentiment: Generally cautious.¹⁵RSI indicators have at times indicated neutral-bearish sentiment.¹⁶There are concerns about market manipulation that could undermine confidence.²⁰NEPSE is described as an emerging market with issues such as limited investor participation and occasional price manipulation.²⁰
• Liquidity conditions: Fluctuations in turnover¹⁴indicate variable liquidity. Market manipulation is easier to carry out in markets with low liquidity and diversification.²⁰
• Volatility of global markets: External factors are also contributing to caution in the local market.¹⁵

SEBON’s tightening of regulations aims to strengthen the market, increase transparency and protect investors in the long term¹⁵, is something of a double-edged sword in the short term. While measures such as higher capital requirements for brokers and more thorough due diligence on trades are necessary to build a mature and robust market, they may cause uncertainty and caution among investors in the short term.¹⁵Broker consolidation may temporarily disrupt existing relationships or reduce competition, and the slowdown in IPOs limits new investment opportunities. The current volatility and cautious sentiment are therefore partly a reaction by the market to adjust to a more stringent regulatory environment. Investors will need to be patient.

NRB decision to cut provisions for possible losses on “good loans” to 1%¹⁰, taken at the request of the Nepal Bankers Association to ease the burden on financial institutions facing mounting bad loans, can be seen as a calculated risk. The move is likely to increase the banks’ reported profits in the short term. However, the World Bank³and other sources⁸explicitly warn of “potential further deterioration in asset quality in Nepal’s financial sector.” Reducing provisions for quality loans amid concerns about asset quality may be perceived as a measure to improve the apparent financial health without addressing the underlying risks. If “good loans” are later reclassified as “bad,” the hit to profitability could be more significant. Bank stock investors should look beyond the immediate profit boost from this measure and critically assess the actual health of banks’ loan portfolios and risk management practices. This regulatory forbearance may provide temporary relief, but does not address underlying concerns about asset quality.

Key sectors in focus: where to look for opportunities in the second half of 2025?

Analysis of individual sectors will help identify potential growth points and risks for investors.

A. Banking and financial sector: navigating between stability and growth

• Current status: It constitutes a significant part of NEPSE. The dynamics are influenced by interest rates and demand for loans. Sub-indices of commercial banks, development banks and finance showed a decline in the first half of 2025.¹⁴
• Possibilities: An economic recovery could boost demand for loans. Lower loan loss provisions could temporarily improve profitability.¹⁰
• Problems: Asset quality– a key issue. The World Bank notes the potential for further deterioration.³Lending slowed as banks focused on debt collection.⁸Policy inconsistency and bureaucratic changes could impact the sector.³Global geopolitical events and cybersecurity risks also pose challenges.²¹
• Forecast for the second half of 2025: Cautious. Dependent on actual improvement in loan repayments and overall economic stability. Focus on fundamentally strong banks with prudent risk management.

B. Hydropower: Investments in energy – potential and pitfalls

• Current status: A priority sector for Nepal to drive economic growth.³The hydropower sub-index showed volatility.¹⁴
• Possibilities: Huge potential: Nepal’s economically viable potential is ~72,000 MW; ~3,400 MW is currently generated.²² Export to India: Long-term agreement to export 10,000 MW to India²²– this is a game changer.Government support: The energy development roadmap aims to produce 28,500 MW within 10 years.²²Budgetary allocation of Rs 86.10 billion to the Ministry of Power, Water Resources and Irrigation.¹³ Private sector participation: ~80% of the contribution in hydropower comes from the private sector; total estimated investment is ~Rs 1.5 trillion.²²Power purchase agreements (PPA) for ~11,000 MW have been signed.²²
• Problems: High capital investment and long payback periods. Political and macroeconomic uncertainty may affect large projects.²³Implementation of projects and timely completion.³Difficulties with PPA pricing, especially for accumulation projects.²³Seasonal variations in production (wet and dry seasons).²³
• Forecast for the second half of 2025: Positive, especially for companies with ongoing projects, clear PPAs and export prospects. The long-term outlook is very strong.

C. Insurance: Assessing Growth and Penetration

• Current status:The sector has seen significant growth in premiums (up 14.03% to Rp 1.76 trillion in the first month of FY 2081/82 (roughly mid-2024 to mid-2025)).²⁴Life insurance premiums increased by 15.55%, non-life insurance premiums by 8.86%.²⁴The life insurance sub-index was one of the growth leaders (+3.51%) in March-April 2025¹⁵, but the non-life insurance sub-index declined (-4.55%).¹⁵
• Possibilities: Low penetration: Only 16.77% of the population is covered by standard life/non-life insurance policies (excluding policies for migrant workers)²⁴, indicating a large untapped market.²⁵Overall coverage (including policies for migrant workers) is 44.64% – 47.39%²⁴, which leaves room for further development. Growing awareness and efforts by companies to expand.²⁴The emergence of microinsurance companies.²⁵The budget allocates Rs 10 billion for reforms to the national health insurance scheme.¹³
• Problems:Expanding coverage beyond urban centres and to low-income populations.²⁴Conversion of temporary/migrant worker policies to standard policies. Economic downturns may impact the purchase of new policies and lead to their early termination.²⁵
• Forecast for the second half of 2025: Positive: Growth is likely to continue due to low penetration and increased awareness. Companies with strong distribution and innovative products will have an advantage.

D. Manufacturing and Processing: Building Blocks of the Future

• Current status: The contribution to GDP is projected at 12.83%.⁶The sector is attracting foreign interest.²⁶The production and processing sub-index showed growth (+2.11%) in March-April 2025¹⁵, but recorded losses on June 4.¹⁴
• Possibilities: State support: the budget emphasizes policy stability, investment protection, rent exemption in SEZs, and incentives for export-oriented production.¹³FDI: Around 100+ new manufacturing projects have been registered recently with an investment of ~Rs 65 billion.²⁶Interest is shown in sectors such as clothing production, cement, and electronics assembly.²⁶Improved agricultural production and increased electricity generation could support the sector.¹¹Renewal of Indian BIS certification for Nepalese manufacturers boosts exports.⁷
• Problems: Limited private sector capacity, inadequate infrastructure, landlocked.¹¹Competition from imports. Ensuring consistent policy implementation.
• Forecast for the second half of 2025: Moderately positive. Government incentives and FDI are positive signals. Success depends on overcoming structural problems.

E. Tourism and hospitality: riding the wave of recovery

• Current status: Strong recovery from the pandemic. The tourism and hotel business sub-index showed a decline (-2.71%) in March-April15, which indicates that stock dynamics may be lagging behind the actual recovery of the sector.
• Possibilities: Record arrivals: In April 2025, the highest ever monthly tourist arrivals were recorded (116,490).²⁷For the first 4 months of 2025: 415,048 tourists.²⁷2025 could surpass the pre-pandemic peak of ~1.2 million tourists.²⁸Drivers: Improved health protocols, digital visas, advertising campaigns, Nepal’s appeal as a nature/adventure tourism destination.²⁷Completion of the Tribhuvan International Airport (TIA) upgrade (November 2024 – March 2025) should remove the previous flight restrictions.⁷
• Problems: Stagnant growth from key markets such as India and China requires strategic intervention.²⁷Ensure sustainable tourism practices. Develop infrastructure to support growing tourist numbers. Services exports (including tourism) declined slightly in the first half of FY25 due to TIA upgrades and reduced tourism services⁷, the situation must change.
• Forecast for the second half of 2025: Very positive. The strong recovery momentum is likely to continue. Companies in this sector are in a favorable position.

F. Brief overview of other sectors:

• Trade: Volatile. The trade sub-index was one of the outsiders (-12.15%) in March-April¹⁵, but rose on June 4.¹⁴Lost 2.68% on May 18.²⁹Highly dependent on news from specific companies (eg Salt Trading Corp.¹⁵).
• Microfinance: The sub-index decreased (-5.24%) in March-April.¹⁵From May/June 2025, MFIs must set interest rates based on the base rate to ensure fairer pricing.¹⁰Important for financial inclusion, but comes with its own operational risks.
• Development banks: The sub-index decreased (-5.44%) in March-April.¹⁵Similar challenges and opportunities to commercial banks, but often with a greater regional focus.

Table 2: Summary of forecasts by key sectors (second half of 2025)

It is important to note that the performance of sectors on NEPSE may not always mirror their real economic performance in the short term. For example, the tourism sector is experiencing a record boom in arrivals²⁸, however, the NEPSE Hotels and Tourism sub-index registered a decline during certain periods of the first half of 2025.¹⁵Likewise, hydropower is an engine of growth³, but its subindex also showed a decline.¹⁴This suggests that stock prices may be influenced by general market sentiment, liquidity, and investor caution.¹⁵and other factors beyond the immediate operational success of companies in the sector. Investors should therefore distinguish between the fundamental long-term prospects of a sector/company and its short-term stock market performance. Opportunities can arise when fundamentally strong sectors are temporarily undervalued by the market.

In addition, inter-sector dependencies are critical to the overall health of the market. Growth in hydropower²²provides reliable energy that is critical to the expansion of the manufacturing sector.¹¹Healthy banking and financial sector³ needed to finance projects in hydropower, manufacturing and tourism. Increased tourism²⁸stimulates the inflow of foreign currency, supporting overall economic stability and potentially increasing demand for banking and insurance services. A significant inflow of remittances⁶ fuels consumption, which benefits retail, manufacturing, and the service sector, and provides deposits for the banking system. So while analysing individual sectors is important, investors should also consider the symbiotic relationships between them. A slowdown or crisis in one major sector (such as banking) can trigger a chain reaction in others, affecting the overall dynamics of NEPSE. Conversely, synergistic growth can create a more robust investment environment.

Smart Investing in Turbulent Times: Practical Strategies for Retail Investors on NEPSE (2nd H2025)

Volatile markets require a special approach to investing.

A. NEPSE Investor Guidelines:

• Take a long-term perspective: Volatile markets can be worrisome. Avoid making hasty decisions based on short-term noise. Focus on the long-term growth potential of Nepal’s economy and well-managed companies.³⁰
• Diversification is the key to success: Don’t put all your eggs in one basket. Spread your investments across asset classes (if available other than NEPSE stocks, such as bonds or mutual funds), sectors and individual companies. This helps reduce risk.³⁰Different assets perform differently in different conditions; if one sector falls, another may rise, rebalancing the portfolio.³¹

Understand your risk tolerance and financial capabilities:

• Risk tolerance: How prepared are you for potential losses?³⁰
• Financial capabilities (Risk Capacity): How much loss can you afford given your income, savings, and time horizon?³⁰
• Align your investments with these factors. Younger investors with a longer time horizon can afford to take more risk.³¹
• Conduct your own research: Don’t invest based on rumors or “hot tips.” Research the company’s business, its financial health, the quality of its management, and its growth prospects (implicitly follows from²⁰about market manipulation and³²on identifying growth sectors).

B. Selecting an Investment Approach for NEPSE:

Growth Investing:

• Focus: Companies that are expected to grow profits and revenues faster than average (e.g. hydropower, tourism, high-tech manufacturing).³³
• Features: These are often young companies that can reinvest profits to expand and trade at higher P/E ratios.³³
• How to identify in Nepal: Look for companies in fast-growing sectors (see Section 4), with a strong history of earnings growth (if available), positive outlook and good management.³²

Value Investing:

• Focus: Stocks trading below their intrinsic or book value.³³
• Features: They may be temporarily out of favor, but have solid fundamentals.
• Application in emerging markets such as Nepal: Focus on companies with sustainable competitive advantages, good return on equity (ROE) compared to cost of equity (COE), and smart capital allocation. Avoid “value traps” (cheap stocks of bad companies).³⁵ Look for a strong balance sheet, potential to reduce leverage or improve asset performance.³⁵
• What’s best for NEPSE in the second half of 2025? A mixed approach may be appropriate. Opportunities for growth exist in sectors such as hydropower and tourism. Opportunities for value investing may arise from market volatility, when fundamentally strong companies are temporarily undervalued.

C. Practical Steps and Considerations for NEPSE Investors:

• Identifying promising sectors and companies: Use the sector analysis (Section 4) as a starting point. Study sector analyses and compare sector growth to the market average.³²Look for companies with strong management, a clear strategy and good corporate governance (especially important given²⁰about market manipulation and¹⁸about SEBON’s actions).
• Consider Systematic Investment Plans (SIPs): Investing a fixed amount on a regular basis (e.g. monthly) can help average out the cost of your purchases, especially in volatile markets (the concept of dollar-cost averaging).³⁴). The launch of Prabhu Capital Systematic Investment Scheme (PSIS) indicates the availability of such products.¹⁶
• Stay up to date with regulatory changes: The actions of SEBON and NRB have a significant impact on the market.¹⁰Stay up to date with reputable financial news.
• Beware of market manipulation: NEPSE, as an emerging market, may be susceptible to this.²⁰Stick to fundamental analysis.
• Portfolio rebalancing: Review and adjust your portfolio periodically to maintain your desired asset allocation and risk level.³¹
• Cost and tax management: Be aware of brokerage fees and any capital gains taxes.³¹

In a volatile and emerging market like NEPSE, a hybrid Growth at a Reasonable Price (GARP) strategy can be more effective than pure growth investing or deep value investing. Pure Growth Investing³³can be risky if valuations become excessively high, especially in a market prone to sentiment swings. Deep Value Investing³³In an emerging market, value traps may occur if corporate governance is weak or catalysts for value unlocking are lacking; information asymmetries may also be higher. Nepal has certain growth sectors such as hydropower and tourism (Section 4). Market volatility (Section 3) may create opportunities to buy shares of these growth companies when their prices are temporarily depressed, offering a “sensible price”. This approach combines growth potential with some valuation discipline, which is suitable for retail investors looking for a balance. Investors should therefore look for companies with strong growth prospects, but also pay attention to their current valuations to avoid overpaying, especially during periods of market frenzy.

In addition, efforts by regulators to implement Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures, although a compliance step, indirectly support fundamental investing. SEBON is strengthening its enforcement of Targeted Financial Sanctions guidelines and urging market participants to be vigilant against suspicious investors/transactions.¹⁹This is part of a broader effort to curb illicit financial flows and improve market integrity, especially following Nepal’s inclusion on the FATF’s grey list.¹⁹Cleaner markets with less “hot money” or manipulative trading²⁰tend to more accurately reflect underlying economic fundamentals. When markets are driven more by fundamentals rather than speculative or illicit flows, research-based investment strategies (both growth and value) become more effective. While these regulatory measures may seem like operational hurdles, they contribute to a healthier market environment in which good research and long-term strategies are more likely to be rewarded, which benefits genuine private investors.

Looking Ahead: NEPSE’s Journey in the Second Half of 2025 and Beyond

To sum up, we can outline the expected trajectory of market development.

Forecast summary:

• In the short term, volatility is expected to remain as the market digests regulatory reforms and navigates economic uncertainty.
• However, the basic stability of the economy³ and strong fundamentals in key sectors such as hydropower²²and tourism²⁸, provide grounds for cautious optimism in the medium and long term.
• Investor sentiment¹⁵will be a key factor; restoring broad trust is critical.

Key trends and indicators for investors to monitor:

• Regulatory changes: SEBON’s next steps (IPO approval, broker consolidation, market supervision)¹⁵) and NRB (interest rates, liquidity management, banking sector health⁹).
• Macroeconomic data: GDP growth, inflation, remittance trends and level of foreign exchange reserves.³
• Quality of assets in the banking sector: Reports on non-performing loans (NPL) and overall financial stability.³
• Progress on key projects: Updates on major hydropower projects and infrastructure development.
• Foreign direct investment (FDI) flows: Especially in manufacturing and energy.
• Market liquidity and turnover: A consistent increase in turnover will signal the return of trust.

Final Thoughts: Empowering the Private Investor
It is worth reiterating that while volatility poses challenges, it also highlights the need for informed, strategic investing. Investors are encouraged to continue to educate themselves, be patient, and focus on their long-term financial goals. Adapting to Nepal’s evolving capital market will be key.

NEPSE’s success in the second half of 2025 and beyond largely depends on effective collaboration and clear signals between regulators (SEBON, NRB) and the government. The World Bank highlights “the risk of policy incoherence due to frequent bureaucratic changes in the government” and “delays in capital budget execution” as downside risks.³New SEBON guidelines and IPO slowdown have left investors cautious.¹⁵NRB monetary policy and banking supervision are critical to financial stability.⁹Government budgets and development plans (e.g. for hydropower, manufacturing) provide the basis for sectoral growth.¹³If these structures operate in isolation, or if policies are inconsistent or poorly communicated, investor confidence will remain weak and market volatility may persist despite positive economic fundamentals. Coordinated efforts to ensure policy stability, timely project delivery, and transparent market regulation are imperative. Investors should therefore monitor not only individual company news, but also the broader governance and regulatory environment. Clear, consistent, and growth-oriented (but cautious) signals from authorities will be the key catalyst for market recovery and sustainable growth.

Nepal’s inclusion in FATF’s “grey list” and subsequent regulatory responses¹⁹could act as a medium-term positive catalyst for attracting more robust, long-term institutional investment, ultimately benefiting retail investors. Greylisting signals weaknesses in the anti-money laundering and counter-terrorist financing (AML/CFT) regime. SEBON Directive to Suppress Trading by Sanctioned Persons and Strengthen Due Diligence¹⁹is a direct response. Successfully addressing the issues identified by FATF and moving off the grey list will improve Nepal’s international financial reputation. A better reputation may attract more scrupulous Foreign Institutional Investors (FIIs), who are often wary of markets with weak AML/CFT controls. Increased participation by long-term FIIs may bring more stability, liquidity and professionalism to the market, indirectly benefiting retail investors through improved pricing and market depth. While being on the grey list itself is a negative development, corrective actions, if sustained and effective, may lead to a healthier and more attractive market structure in the future. This is a long-term trend worth watching.

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A publishing and analytical center specializing in the economy and business of Nepal. Our expertise includes: economic analysis, financial forecasts, market trends, and corporate strategies. All publications are based on an objective, data-driven approach and serve as a primary source of verified information for investors, executives, and entrepreneurs.

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