Balen Government Faces Red Signal as Nepal Stock Market Loses Over Rs 6 Trillion in Five Months

Nepal’s stock market has witnessed a significant decline in the five months since the formation of the government led by Prime Minister Balendra Shah, commonly known as Balen Shah. The sustained fall in the NEPSE Index and market capitalization has raised concerns among investors and market observers about investor confidence, economic policy and the government’s approach toward the capital market.

When the new government was formed on March 27, 2026, the NEPSE Index stood at around 2,950 points. By Monday, August 25, the index had fallen to approximately 2,593 points, representing a decline of more than 350 points.

During the same period, Nepal’s total stock market capitalization dropped from more than Rs 50 trillion to around Rs 44 trillion. This means the market lost more than Rs 6 trillion in value within roughly five months.

NEPSE Decline Raises Investor Confidence Concerns

The NEPSE Index is widely regarded as an important indicator of activity and sentiment in Nepal’s financial market. Although the stock market does not necessarily represent the entire economy, prolonged weakness in the index can reflect concerns about investor sentiment, business confidence, liquidity and economic expectations.

Nepal’s stock market has struggled to regain its previous momentum for several years. The NEPSE Index reached its all-time high of 3,198 points on August 18, 2021, but it has yet to sustainably surpass that level.

The latest decline has therefore renewed questions about what is preventing the market from entering a stronger and more sustainable growth cycle.

Investors Waiting for Stronger Economic Signals

Market participants say the biggest problem currently facing Nepal’s share market is a lack of confidence.

Despite significant liquidity in the banking system and relatively low interest rates, investors have not developed enough confidence to increase their exposure to equities.

According to him, around Rs 1.4 trillion remains parked in the banking system, while interest rates are at historically low levels. Under normal circumstances, such conditions could provide support to the stock market and credit expansion.

However, the expected improvement in the NEPSE Index has not materialized.

Similarly, Radha Pokharel, president of the Nepal Capital Market Investors Association, said that assurances alone are insufficient to restore confidence among investors.

She pointed to the need for policy clarity, regulatory stability and concrete reforms in the capital market and broader economy.

Weak Business Activity Adds to Market Pressure

Investors and economists also argue that excess liquidity has not translated into sufficient expansion of businesses and industries.

When banks have substantial liquidity but businesses remain reluctant to borrow and invest, it can indicate weak private-sector confidence and economic activity.

Pokharel argued that the strength of the stock market is closely connected to the performance of the broader economy.

If businesses expand, investment increases and employment opportunities grow, listed companies can potentially benefit through stronger earnings and valuations. Conversely, weak economic activity can put pressure on corporate performance and investor expectations.

Changes in capital gains tax and uncertainty surrounding government policies have also been cited as factors affecting investor sentiment.

Government Actions Under Investor Scrutiny

Some market participants have expressed concern about government actions involving businesses and investigations related to financial crimes and money laundering.

According to investor representatives, uncertainty surrounding major businesses and investors can make large investors more cautious. When institutional and high-net-worth investors reduce their market participation, smaller investors may also become more hesitant.

The result can be lower market liquidity, reduced trading activity and weaker investor sentiment.

However, the market decline cannot be attributed to a single factor. Interest rates, corporate earnings, economic growth, regulatory policy, political developments, liquidity conditions and investor psychology all influence stock prices.

Government Has Promised Priority to the Capital Market

The government has previously indicated that it intends to give greater priority to Nepal’s capital market and financial sector.

Prime Minister Balendra Shah held discussions with key capital-market stakeholders in early August. Following the meeting, the Prime Minister’s Secretariat stated that the government considers the capital market important for economic development and prosperity.

The government has also emphasized promoting entrepreneurship, creating employment and making Nepal’s capital market more professional and credible.

For investors, however, the key question is whether these commitments will translate into measurable reforms and improved economic activity.

Three Major Signals From the NEPSE Decline

Identified several important signals emerging from the current weakness in the stock market.

1. Excess Liquidity Is Not Translating Into Investment

Banks have substantial liquidity and lending rates remain relatively low, yet credit demand has not increased sufficiently.

This could indicate that businesses are still cautious about expanding operations and making new investments.

2. Private-Sector Confidence Remains Weak

The continued decline in the NEPSE Index may also reflect concerns among businesses and investors about the policy environment and economic outlook.

For the stock market to enter a sustained bullish cycle, investors generally need greater confidence in future corporate earnings and economic growth.

3. Capital and Entrepreneurs May Be Looking Abroad

There are also concerns that younger entrepreneurs and investors may increasingly consider opportunities outside Nepal.

If domestic capital moves toward foreign markets instead of productive investment within Nepal, it could create another challenge for the country’s long-term economic growth.

What the Numbers Say About Nepal’s Investor Base

Nepal has experienced a rapid expansion in participation in the capital market.

According to the latest annual report of the securities regulator, the number of Demat accounts in Nepal is around 7 million. The number of investors who have obtained online trading usernames is approximately 2.8 million.

However, market observers estimate that only around 400,000 to 500,000 investors actively participate in regular share trading.

This gap between registered investors and active traders highlights an important issue: Nepal has successfully expanded access to the stock market, but it still needs to strengthen long-term investment participation, financial literacy and investor confidence.

What Does This Mean for Nepal’s Stock Market?

The fall in the NEPSE Index and the more than Rs 6 trillion decline in market capitalization should not automatically be interpreted as a complete reflection of Nepal’s economic condition.

The stock market has its own dynamics, and share prices can be influenced by liquidity, interest rates, corporate earnings, investor expectations and market psychology.

Nevertheless, a prolonged decline in the NEPSE Index can provide an important warning signal about financial-market confidence.

For the government, the challenge now is to convert policy commitments into practical reforms, encourage private-sector investment, improve regulatory predictability and create an environment where businesses and investors feel confident about Nepal’s economic future.

For investors, the current market environment also highlights the importance of fundamental analysis, diversification, risk management and long-term investment discipline rather than relying solely on short-term market sentiment.