IN THE TEA shops around the Nepal Stock Exchange in Kathmandu, nobody spends much time arguing over discounted cash flows or the magic of compounding dividends. The talk runs elsewhere. Liquidity. Interest rates. A rumour about the Nepal Rastra Bank, the central bank, and whether it is about to turn the tap a notch. To an outsider, this can sound unserious. In grown-up markets, the balance sheet is sacred text. In Nepal it is stage scenery. The drama is the cycle. The only clock anyone really watches is the one ticking credit in and out.
The past five years provide a sobering lesson for anyone tempted to import Warren Buffett’s “buy and hold” gospel to the banks of the Bagmati. Between July 2021 and June 2022 the NEPSE index fell almost 40%, sliding from near 3,000 to about 1,860. An investor who trusted in the intrinsic worth of Nepal’s corporate champions and sat tight did more than practise patience. They served a three-year sentence just to get back to square one. Someone who showed up instead in mid-2022 enjoyed a very different fate: by August 2024 their money was up more than 60%. That windfall had little to do with a burst of productivity or a sudden outbreak of good governance. Liquidity returned and sentiment turned. That was enough.
Here is the Kathmandu market’s central puzzle. Fundamentals matter: without them companies do not survive. But timing is what creates wealth. If earnings were really in charge, prices would drift along at the pace of a glacier. Instead they slosh about like a mountain stream. Weekly moves of 5% or 10% barely raise an eyebrow. These swings do not reflect new insights into value. They reflect positioning under stress. Participation, rather than valuation, sets the direction. Trading volumes balloon near the top and wither near the bottom, a reliable sign that the crowd is keenest to buy when prices make the least sense.
The limits of fundamentals show up clearly in the market’s favourite contrast: banks versus hydropower. On paper, commercial banks look like model citizens. They anchor the formal economy and trade on modest multiples. Yet they tend to linger at the edge of the dance floor. By late 2025 they made up only a sliver of total turnover. Investors are not avoiding them because they are broken: they are avoiding them because they are dull. Steady growth does not deliver the quick, borrowed gains that speculators chase.
Hydropower by contrast has become the arena for bravado. Many projects carry heavy debt and live at the mercy of seasonal rivers. None of that seems to matter. The sector has tended to swallow more than 40% of all trading. Valuations stretch to levels that would embarrass a Silicon Valley start-up. Nobody is buying these shares for their dividends: they are buying volatility. High beta stocks move more than the market, and when liquidity surges, they move first and fastest.
In Nepal the real market maker is the central bank (rather than a slick investment bank). The exchange lives and dies by regulatory turns. The bull run of 2021 was no hymn to economic strength: it was the offspring of pandemic liquidity and ultra-low rates. When the Nepal Rastra Bank rolled out the “4/12 crore” rule, capping margin lending, the market collapsed rather than gently cooling. Credit dried up. Earnings, however healthy, could not save the grass from turning brown.
Now the cycle hints at another turn. Looser margin-loan limits and softer rates have proved more persuasive than any earnings reports. As borrowing gets easier, retail investors—who drive the market’s mood—drift back in. Seasoned watchers focus on this second-order effect. It is not how strong the company is that matters most. It is whether the buyer can borrow.
In such a setting, investment virtues flip on their head. Diversification and careful research can keep an investor alive through the lean years. They rarely deliver the sudden, almost indecent gains NEPSE sometimes hands out. That takes nerve. Buying when the tea shops fall quiet and volumes dry up. Selling when the noise becomes overwhelming.
The uncomfortable truth for the serious analyst is that Nepal’s stockmarket does not price the future. It prices the current supply of cash. It rewards those who understand the plumbing of the central bank, instead of those who just foolishly believe in the long-term promise of domestic enterprise. Those who can tell a genuine shift from a passing liquidity wave can do very well. The rest are left wondering why good companies stagnate while mediocre ones double. In Kathmandu mastery of the clock beats mastery of the spreadsheet. ■
