I was wrong
IN THE sun-drenched courtyards of Kathmandu’s old-money neighbourhoods, the talk is rarely of discounted cash flows or structural reform. Instead it is of “the tap”. To the uninitiated, this might sound like a plumbing concern. To the seasoned punter on the Nepal Stock Exchange (NEPSE), it is the only thing that matters. When the Nepal Rastra Bank opens the liquidity faucet, the market is a geyser; when it tightens the valve, the market is a desert.
Everywhere you look, the traditional rules of investing seem to have been abandoned somewhere below base camp. In a sane world, an investor buys a piece of a company because it produces something people want at a profit. In Nepal you buy a ticker because the cost of borrowing just dropped a quarter-point and the crowd is starting to run. It is a market where timing beats talent, and where the “what” of a portfolio is consistently crushed by the “when”.
For those who arrived in early 2021, the NEPSE felt like a money-printing machine. Between January and June of that year, the index climbed from roughly 2,300 to nearly 3,000. It was a classic “liquidity ignition”. The world was grappling with the tail-end of a pandemic, and with few places for capital to go, it flooded the only game in town.
The data is uncompromising. During that surge price gains accelerated long before there was any visible improvement in corporate earnings or national productivity. In Nepal money arriving matters more than balance sheets improving. If you were in early, you were a genius. If you waited for “fair value”, you were left standing on the platform, waving as the train disappeared.
By August 2021, the market hit a peak of 3,180. This was the “blow-off top”, a period of pure euphoria where retail turnover crossed a staggering Rs90bn weekly. At this height, fundamentals were not just stretched: they were irrelevant.
The odd logic of the NEPSE shows up clearly when you look sector by sector. Start with banks. They are the spine of the economy. Profitable, regulated, boring—in other words, exactly what prudent investors claim to like. Their valuations are modest and dividends steady. Yet they tend to make up less than 7% of trading turnover. Wallflowers. Now look at hydropower, drowning in debt and at the mercy of the monsoon. And still they command more than 40% of market activity. The “smart money” is not buying a bank’s earnings stream. It is buying the momentum of a dam. Fundamentals might act as gravity in the long run, but in the short term, timing is the weather. And in the Himalayas, the weather decides who lives.
What goes up must eventually collide with the central bank. In late 2021 the NRB introduced the “4/12 crore” rule, a cap on margin lending that acted like a bucket of cold water on a grease fire. The result was a brutal 40% drawdown that saw the index crater to 1,860 by mid-2022.
Those who “believed in fundamentals” and held through the cycle were punished for their patience. They waited three full years just to get back to break-even. Meanwhile, the traders who recognized the liquidity vacuum exited early, preserving capital to hunt another day.
Déjà vu, with gusto
History, as it tends to do in emerging markets, repeated itself with a vengeance. From June 2022 to August 2024, the index rose over 60%. Again, this wasn’t driven by a sudden boom in exports or a miraculous reform of the bureaucracy. It was the “Liquidity Re-entry”. The NRB eased credit, margin lending limits were raised and the retail crowd, suffering from short memories, rushed back in. Between July and August 2024, the market sprinted, with the index jumping from 2,200 to 3,000 in a matter of weeks.
Put two investors side by side and the lesson is brutal. One buys near the 2021 peak and vows to hold. Two years later he has nothing to show for it. The other buys in June 2022, amid gloom and silence, and sells into the 2024 frenzy. He pockets 60–70%. The difference is not brains or spreadsheets: it is the entry point. The NEPSE does not reward belief. It rewards nerves—and a sharp eye on the central bank’s window.
What then does the NEPSE say about the nature of power and policy in Nepal? It suggests a market that is less an engine of capital allocation and more a barometer of regulatory whim. When the regulator tinkers with margin limits, it is deciding who gets rich rather than adjusting a technical lever. This creates a volatile environment where “good companies” can fall 50% simply because they are used as collateral, and mediocre firms can triple because they are easy to pump.
The consequences are that the “winners” are those who can read the tea leaves of the NRB’s monetary policy. The “losers” are usually the retail investors who enter at the peak, lured by stories of easy wealth, only to be left holding the bag when the liquidity dries up.
Making a killing here demands a particular Himalayan mindset. You must be prepared for the climb, but even more prepared for the sudden, sharp descent. Because as every climber learns sooner or later, the mountain has no interest in your plans. It only cares when you chose to be on it. ■
