Nepal’s Economy Under Pressure: NEPSE and Growth Outlook After Recent Unrest
Nepal’s economy is facing new challenges after recent political and social unrest disrupted markets, halted NEPSE trading, and caused public property damage. With investor confidence shaken and fiscal pressure mounting, the path forward for both the economy and the stock market is uncertain.
Introduction
Nepal’s economy has long been sensitive to political and social shocks, and the latest wave of instability once again underscores this vulnerability. Markets were disrupted, NEPSE closed for two trading days, and investors are now left to reassess risks in an already fragile system.
The economic consequences go beyond stock prices: property destruction, fiscal strain, and disrupted trade are weighing on short-term growth prospects. At the same time, investor psychology has taken a hit, with NEPSE struggling to maintain stability.
1. NEPSE Closure and Market Reaction
The Nepal Stock Exchange (NEPSE) suspended trading for two days, citing safety and operational concerns during the unrest. Such closures are rare, but when they happen, they signal deep instability.
When trading resumed:
The NEPSE Index fell below 2,700, its lowest level in two months.
Banking and insurance stocks faced heavy selling pressure.
Trading volumes declined as investors adopted a wait-and-see approach.
For many retail investors, the closure itself was as damaging as the decline. With no ability to manage positions during uncertainty, panic selling increased once the market reopened.
2. Economic Disruptions and Damage Costs
Public Property and Fiscal Strain
Widespread property damage added billions of rupees in losses. Rebuilding administrative buildings, public vehicles, and damaged infrastructure will divert government funds away from development priorities.
This fiscal strain comes at a time when Nepal is already:
Managing high public debt levels.
Coping with slower-than-expected remittance inflows.
Struggling to revive post-pandemic growth momentum.
Business and Trade
Curfews, closures, and transport disruptions hit the private sector:
Shops, banks, and small enterprises saw revenue collapse.
Cross-border trade with India slowed, delaying shipments of fuel and goods.
Tourism and aviation were disrupted as flights were suspended or rerouted.
3. Investor Sentiment: Confidence Shaken
Investor psychology in Nepal is highly sensitive to political signals. The recent disruptions reinforced perceptions that:
Markets remain vulnerable to governance failures.
Liquidity is fragile — selling pressure builds quickly when uncertainty rises.
Sector-specific risks (banking, insurance, hydropower) are amplified by instability.
As a result, investors are demanding higher returns to offset risk — effectively raising Nepal’s political risk premium.
4. Sectoral Impact in NEPSE
Banking and Finance: Faced the sharpest selling pressure as investors worried about loan quality, margin trading exposure, and policy risk.
Insurance: Likely to see increased claims due to property damage, reducing near-term profitability.
Hydropower: Perceptions weakened slightly as government PPAs and approvals may face delays.
Tourism and Hospitality: Not directly listed in large numbers, but sector-related stocks face sentiment risk from disruptions in air travel and tourism.
Mutual Funds: Units traded at discounts as retail investors sought liquidity.
5. Broader Macro-Economic Implications
Growth Outlook
Economic activity slowed as curfews and disruptions halted commerce. While long-term fundamentals remain intact, GDP growth for the quarter may be revised downward.
Inflationary Pressure
Supply chain delays, particularly for imports of food and fuel, risk pushing inflation higher in the coming months.
Fiscal Burden
Rebuilding costs for public property and administrative infrastructure will place further strain on the national budget. Development spending may face cuts as reconstruction is prioritized.
External Position
Nepal’s reliance on remittances remains its buffer. However, foreign investor interest in NEPSE may weaken as headlines of instability circulate globally.
6. Lessons for Investors
✅ Avoid Panic Selling
History shows that market recoveries often follow closures. Exiting at lower circuits locks in losses.
✅ Diversify Across Assets
Mutual funds and defensive sectors can cushion against volatility. Investors may also look to gold or fixed income as stabilizers.
✅ Focus on Fundamentals
Stocks with strong balance sheets and steady cash flows will weather uncertainty better than speculative names.
✅ Be Prepared for Policy Shifts
Watch NRB and SEBON closely. Regulatory measures could be introduced to restore stability.
7. Path to Recovery
The road to economic recovery will depend on:
Political Stability: Clear governance direction will restore confidence faster.
Fiscal Discipline: Transparent rebuilding plans will reassure investors.
Policy Continuity: Markets crave consistency in NRB’s monetary policy and SEBON’s capital market regulation.
Investor Education: Building retail resilience against panic-driven behavior is crucial for a healthier NEPSE.
Conclusion
Nepal’s recent instability has once again highlighted the close link between politics, economy, and markets. NEPSE’s closure and subsequent decline show how quickly confidence can unravel.
For the broader economy, the dual burden of property damage and fiscal strain adds pressure at a time when growth is already fragile. Yet crises can also bring reform opportunities. If handled with discipline and transparency, Nepal can rebuild confidence, stabilize NEPSE, and set a stronger foundation for future growth.
Until then, both the economy and the market remain in a delicate balance — waiting for stability to return.