CIT suggested to mobilize Rs 5 billion to stabilize capital market
KATHMANDU, Aug 8: The security market regulator the Security Board of Nepal (Sebon) has suggested Citizen Investment Trust (CIT) to set up a Rs 5 billion fund by involving different institutions to stabilize the country´s volatile stock market.
The team led by Nabaraj Adhikari, deputy director of Sebon has already submitted a report to the Sebon highlighting the necessity to set up the fund to give charge to CIT to work as the market maker- a institution that prevent the abnormal phenomenon in the capital market.
“We are studying the report, which would be approved by our board of directors before submitting it to the Ministry of Finance (MoF) for necessary process,” said Rishiram Gautam, executive director of CIT.
The MoF had recently announced that the fund would be collected as an investment from CIT, Employees´ Provident Fund and Rastriya Beema Sansthan. The MoF had also agreed in principal to give the responsibility of market maker to CIT. “The MoF should coordinate the process to set up the fund,” said Gautam.
The report has also concluded that the existing stock market software used in Nepal Stock Exchange (Nepse) is not compatible to support the stock market maker.
The report has also suggested that the market maker had to invest in the companies having good profit per share or having no negative net worth to avoid loss due to fluctuation of share prices in the market.
“To stabilize the market from abnormal price fluctuation we need market makers that would carry out buying and selling of large volume of shares as per the need,” said Neeraj Giri, director of Sebon.
CIT has been given responsibility to undertake the responsibility of market maker amid continued slowdown in stock marker though Nepal Rastra Bank soften the policy on lending and the government lower the capital gain tax to 10 percent and five percent for institutional and individual investors respectively.
Nepal stock market is lacking market maker that will also play the role as the institutional investors to prevent the share market from fluctuating abnormally.
At the time of abnormal fluctuation of prices of shares in the stock market, the market maker company fixes the purchase and selling price of shares to stabilize the market.