NEPSE represents the short form of Nepal Stock Exchange and NEPSE index indicates the increase or decrease of total market capitalization of companies’ transactions that are listed in Nepal Stock Exchange. This indicates the increase or decrease of overall market; therefore it has significant importance to investors.
The investors who cannot analyze the share market, they make decision of purchasing or selling of shares with the help of this index. The countries in the world where stock exchange exist calculate one or more market index, but in Nepal only one index is calculated.
History:
The history of securities market began with the floatation of shares by Biratnagar Jute Mills Ltd. and Nepal Bank Ltd. in 1937. Introduction of the Company Act in 1964, the first issuance of Government Bond in 1964 and the establishment of Securities Exchange Center Ltd. in 1976 were other significant development relating to capital markets. Securities Exchange Center was established with an objective of facilitating and promoting the growth of capital markets. Before conversion into stock exchange it was the only capital markets institution undertaking the job of brokering, underwriting, managing public issue, market making for government bonds and other financial services. Nepal Government, under a program initiated to reform capital markets converted Securities Exchange Center into Nepal Stock Exchange in 1993. The only secondary capital market in Nepal, NEPSE operates under Securities Act,2007.
Method of Index Calculation:
After purchasing the shares in primary market, it can be purchase or sale again in another market, which is known as secondary market. This secondary market is Nepal Stock Exchange (NEPSE). This is only one market in Nepal. The companies who issue Initial Public Offering (IPO) to make transaction in secondary market have to list its stocks to Nepal Stock Exchange accompanied with certain fees. After 7 days of listing the shares/ stocks, it can be transacted (purchase or sale) in secondary market (NEPSE) through the brokers.
For example:
Suppose Bank of Kathmandu Limited issued the ordinary shares in (IPO) of 20 lakh kitta. To create environment of purchasing or selling of shares in secondary market (NEPSE) by ordinary shareholders, the Bank has to list 20 lakh kitta shares in Nepal Stock Exchange. After 7 days of listing such shares, the transaction of 20 lakh kitta of BOK start to be transacted through brokers.
214 companies are listed in Nepal Stock Exchange till Poush 2068. These companies' shares may or may not be transacted in Nepal Stock Exchange every day. In purchasing or selling of shares of particular company, it may be transacted in various price levels in single day. Among the various price levels in single day, closing price of particular company is considered to calculate the market capitalization by multiplying closing price with number of shares listed in NEPSE. If there is no any transaction occurred during the day for any company the closing price of prior day is considered to calculate market capitalization.
For example:
Suppose in NEPSE Chilime Hydropower Company Limited has made following transaction in Poush.
14, 15........18
To calculate market capitalization of CHCL in Poush 18, closing price of Poush 17 is not given because in Poush 16 and 17 CHCL shares transaction does not occur in NEPSE. Therefore to calculate market capitalization of CHCL closing price of Poush 15 is considered.
Market capitalization= closing price (Poush 15) × no. of total shares listed by CHCL
In this Way, market capitalization of companies that are listed in NEPSE will be calculated individually, by adding such individual market capitalization, total market capitalization is calculated.
For example:
214 companies are listed its ordinary shares in NEPSE. First of all NEPSE calculate market capitalization of 214 companies shares individually and sum the 214 companies individual calculation and find total market capitalization.
Market capitalization of company 1 xxx
Market capitalization of company 2 xxx
Market capitalization of company 3 xxx
...................................................... xxx
....................................................... xxx
Market capitalization of company 214 xxx
Total market capitalization xxxx
From 30 Magh 2050, NEPSE INDEX was started to be calculated and first day index is supposed to be 100.
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