Political Stability Signals a Market Turnaround as Investors Eye Quality Stocks
Nepal’s stock market is slowly regaining momentum as signs of political stability, lower interest rates, and policy reforms improve investor sentiment.
Nepal’s equity market is showing early signs of recovery as improving political stability, easing interest rates, and policy reforms help restore investor confidence after months of uncertainty.
Market sentiment, which had weakened due to political unrest and widespread disruptions, has begun to stabilize. With major political parties now preparing for elections and the government pledging to conduct polls on schedule, analysts say the environment for capital markets is turning favorable once again. Nepal Investors Forum Chairman Tulsi Ram Dhakal noted that lower borrowing costs, adequate liquidity, and the market’s current low valuations create an attractive window for long-term investors.
According to Dhakal, the market had already started building momentum several months earlier, supported by declining interest rates and abundant liquidity. However, the Gen-Z protest movement and the resulting economic setbacks temporarily depressed investor morale. As the political environment normalizes and election-related uncertainty recedes, Dhakal believes the market has a stronger basis for sustained growth.
The government has implemented parts of the capital market reform task force’s recommendations, addressing several long-standing structural issues. Improvements from Nepal Rastra Bank have also eased regulatory bottlenecks, though banks are still constrained by the 40% ceiling on margin-lending exposure. With more than NPR 11 trillion in deployable liquidity in the system and limited credit demand from the real sector, market participants are calling for a higher lending limit to support equities.
Similarly, the Nepal Securities Board and Nepal Stock Exchange have gradually resumed overdue reforms, overcoming internal administrative friction that had slowed progress earlier. Dhakal argues that, with multiple regulatory improvements now underway, investors no longer face the type of risk seen in previous months. Instead, he describes the current environment as an opportunity to selectively accumulate high-quality companies.
Despite these reforms, the market has yet to see a surge in investor enthusiasm. Dhakal attributes this to lingering psychological effects from political unrest and the hesitation around election timing. Borrowing has become cheaper, but investors remain cautious. Even so, he sees signs of a more mature market response, with price movements reflecting economic conditions rather than speculation-driven volatility.
Dhakal maintains that underserved sectors, low interest rates, and cheap stock valuations present a rare opportunity. In his view, long-term capital gains remain more important than short-term dividend announcements, which often coincide with short-term price drops due to market behavior rather than company fundamentals.
On macroeconomic performance, Dhakal notes that hydropower companies have benefited from falling interest rates, while banks and financial institutions face pressure due to rising non-performing loans, weak credit demand, and lingering effects of recent unrest. Asset management companies designed to handle distressed loans have yet to operate at full capacity.
On the regulatory front, Dhakal argues that the capital market task force’s recommendations—while valuable—are not sufficient for long-term market development. He emphasizes the need for timely implementation of broker-level margin lending and broader structural reforms. Margin facilities offered through brokers, he says, would allow investors easier access to leverage while enabling brokers to monitor and guide trading behavior more effectively.
The government has also initiated moves to restructure NEPSE, which analysts say is crucial for supporting a growing and more complex market. The current infrastructure, originally built for transactions worth only a few billion rupees, struggles under increased trading volume. Proper restructuring, Dhakal suggests, would enable the introduction of new financial instruments beyond traditional equity trading and improve overall market reliability.
With the economy slow and other sectors struggling, Dhakal stresses the importance of revitalizing the capital market to stimulate broader economic activity. A stronger market, he says, would increase household income, encourage small enterprise formation, and improve government revenue. For investors, he calls the present period “a rare investment window” unlikely to repeat soon.