NEPSE Falls 11.74% in Six Months as Capital Market Reforms Continue

Nepal's stock market has experienced a significant decline during the first six months of the government led by Prime Minister Balendra Shah, despite several policy changes aimed at improving the country's capital market.

When the government took office in March 2026, investors had high expectations following the post-election rally in the Nepal Stock Exchange (NEPSE). However, the market struggled to sustain its upward momentum, with the benchmark index and overall market capitalization declining over the following six months.

NEPSE closed at 2,950.16 points on March 26, 2026, the final trading day before the government was formed. Six months later, on September 30, 2026, the index stood at 2,603.71 points.

This represented a decline of 346.45 points, or approximately 11.74%.

Market capitalization also decreased from around Rs. 50.09 trillion to Rs. 44.79 trillion during the period, representing a reduction of approximately Rs. 5.30 trillion.

While the government and regulators introduced several capital market initiatives, the market's performance highlights the difference between announcing reforms and translating them into improved investor confidence and market activity.

Key NEPSE Market Figures: March to September 2026

Major Capital Market Developments Under the Balen Government

The six-month period included changes to trading arrangements, capital gains tax, margin lending and the regulatory roadmap for Nepal's stock market. The following developments were highlighted in the original report.

1. Changes to the Share Trading System

Following the formation of the government, changes were introduced to the share trading framework.

Investors were allowed to place buy and sell orders outside regular market hours, including through a 24-hour order-entry facility. However, the facility to place orders outside market hours did not mean that regular stock trading itself operated around the clock.

Changes were also made to the pre-open session and price-limit arrangements. These measures were intended to improve the trading process and support more effective price discovery.

2. Capital Gains Tax Increased in the Budget

The government's first full budget for fiscal year 2083/84 initially increased capital gains tax on share sales.

Under the budget provisions:

• For individual investors holding shares for more than one year, the tax rate increased from 5% to 7.5%.

• For shares held for one year or less, the rate increased from 7.5% to 10%.

The changes generated debate among investors about their potential impact on trading activity, investment returns and participation in the secondary market.

3. Margin Lending Rules Became More Flexible

Nepal Rastra Bank introduced greater flexibility in share-backed lending through its monetary policy for fiscal year 2083/84.

Under the reported provisions, eligible listed shares could be used to obtain loans of up to 80% of the applicable value, compared with the previous ceiling of 70%, subject to the relevant conditions.

Although the relaxation expanded borrowing capacity for eligible investors, it did not, by itself, reverse the market's downward movement.

4. SEBON Published a Capital Market Development Roadmap

The Securities Board of Nepal (SEBON) introduced the Capital Market Development Roadmap 2083 in August 2026.

The roadmap included proposals and plans to develop a wider range of market instruments and services, including:

• Margin trading

• Intraday trading

• Securities lending and borrowing

• Short selling

These initiatives are intended to diversify Nepal's capital market beyond the conventional model of buying and selling shares. Their actual impact will depend on implementation, supporting regulations, market infrastructure and investor participation.

5. Government Announced a 21-Point Capital Market Revival Plan

On September 14, 2026, the government announced a 21-point action plan focused on strengthening and revitalizing the capital market.

The plan covered several areas, including IPO process improvements, restructuring of NEPSE, expansion of the bond market, development of new financial instruments, capital market infrastructure and tax-related reforms.

The plan established a broad policy agenda. Its effectiveness will depend on how quickly and consistently the proposed measures are implemented.

6. Capital Gains Tax Rates Were Reduced Again

One of the notable policy changes during the six-month period was the revision of the capital gains tax rates that had been increased through the budget.

The revised rates took effect on September 22, 2026.

The revision reduced the tax rates below their previous levels. It also meant that the rates introduced in the budget had been changed again within six months.

Investors should check the applicable tax rules and their individual circumstances before calculating the tax payable on share transactions.

7. Banks Received More Flexibility in Share Investments

On September 25, 2026, Nepal Rastra Bank reduced the minimum holding period for shares and debentures held by banks and financial institutions from six months to 45 days, subject to the applicable rules and conditions.

The change provided financial institutions with greater flexibility in managing their investments.

However, a shorter minimum holding period does not necessarily mean that every institution will sell its holdings. Investment decisions remain subject to the relevant regulatory requirements, institutional policies and market conditions.

8. SEBON Advanced the Intraday Trading Concept

On September 24, 2026, SEBON published a concept paper relating to intraday trading and advance public disclosure requirements for major shareholders intending to sell shares.

These proposals were part of the broader capital market reform process. As described in the source report, publication of the concept paper did not mean that all the proposed provisions had already come into full effect.

Investors should distinguish between a policy proposal, an approved regulation and a facility that is operational in the market.