Illustration: Sarah Grillo
Nepal’s stock exchange has seldom lacked activity. What it has lacked is direction. In 2024 the NEPSE index drifted upwards by under 7%. By mid-2025 it had surged nearly 25%. Trading volumes doubled. Market capitalisation reached three-quarters of GDP. What had seemed like a small frontier bourse began to behave like a market with momentum and appetite.
The rally was stunning in both scale and spread. The sensitive index, which tracks large firms, climbed 23%. The float index, which includes only freely tradable shares, rose 27%. Banks rebounded after a muted previous year, gaining 24%. Investors, who had ventured into smaller and riskier listings in 2024, pivoted back towards larger, Group A firms. Volatility, oddly, stayed steady, suggesting more participants had entered the fray rather than existing ones growing erratic.
Retail enthusiasm is hard to miss. There are now 6.86m dematerialised accounts, and over 5.93m individuals are registered on Mero Share, the government’s digital share platform. Online trading accounts exceed 2.6m. In a country with some 30m people, this represents a retail investor base large enough to move prices—and occasionally regulators.
Supply has not matched demand. Between July 2024 and July 2025 the Securities Board of Nepal (Sebon) approved public offerings worth Rs45bn ($340m). A third came from rights issues, mostly by hydropower and insurance firms, to shore up balance-sheets. Ordinary equity offerings amounted to less than Rs4bn, though some signs of diversification emerged, with pharmaceutical companies, micro-insurers and even a cable-car operator joining the queue. Mutual funds raised a similar amount to rights issues, reflecting growing interest in collective investment vehicles. Banks turned to the debt market, issuing Rs10.6bn in debentures, including green-labelled instruments from the infrastructure bank.
With equity supply rising modestly and investor demand surging, prices climbed faster than fundamentals. Paid-up capital increased by only 6%, while the index rose four times as much. Too much liquidity chasing too few assets rarely ends elegantly. Regulators have been cautious with new approvals, wary of feeding speculative bubbles. That prudence may help prevent the sort of sudden correction that undermines retail confidence, but it also perpetuates the imbalance.
The market’s composition is narrow. Hydropower and insurance dominate equity issuance; banks account for nearly all listed bonds. Mutual funds may help broaden participation and dampen volatility, but their impact depends on governance as well as transparency and skilled management: qualities that have not always been in ample supply. Without a wider base of sectors such as manufacturing, services or technology, Nepal’s bourse may stay limited in its capacity to channel savings into productive investment.
Some critics argue the rally reflects churn rather than genuine capital formation. Defenders cite rising turnover ratios (market liquidity climbed to 46%) as signs of market depth and efficiency. Both views are plausible. Trading has grown more sophisticated, and the market is deeper than it was a few years ago. Yet the stock exchange still plays a limited role in financing infrastructure or industrial growth. An active secondary market is useful, but only if it feeds a steady pipeline of credible new listings.
The macroeconomic backdrop has helped. Economic growth is soaring, if unspectacular. Bank deposit rates have trailed inflation. Equities, by contrast, promise higher returns and liquidity. That logic has fuelled similar rallies in other frontier markets. The risk is that expectations accelerate faster than corporate earnings, or that speculative excesses draw a heavy regulatory hand.
Nepal’s capital markets are at a hinge point. If Sebon can expand approvals while insisting on stronger disclosure, and if fund managers improve their standards, the bourse could develop into a real source of long-term finance. If not, it may stay where it has been before: lively and largely disconnected from the real economy. ■
