Nepalese Stock Market: Presentation survey disclosure

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Nepalese Stock Market: Presentation survey disclosure

  1. 1. Welcome Survey Findings Disclosure Session IB&MS Complex Bagbazar8/27/2011 1Sudarshan Kadariya
  2. 2. Market Reactions to Tangible and Intangible Information: A Case of Nepal By Sudarshan Kadariya Kathmandu August 27, 2011
  3. 3. Presentation Plan 8/27/2011 3 2:30 to 3:30 p.m. • History of stock market in the World • Brief history of stock market development in Nepal • Market reactions to tangible and intangible information: Survey findings 3:30 to 3.45 p.m. • Tea time 3:45 to 4:30 p.m. • Continue…. • Major findings and conclusion Sudarshan Kadariya
  4. 4. The History of Stock Market in the World What is the oldest Stock Exchange in the World? 1. Amsterdam Stock Exchange in 1602 in the city of Amsterdam, Netherlands. What are the first 10 securities exchanges in the World? 2. Paris Bourse in 1724 in Paris, France. 3. Philadelphia Stock Exchange in 1790 in Philadelphia, USA. 4. London Stock Exchange in 1801 in London, England. However, a market had existed previously (with records beginning in 1698: agro-commodity) at Jonathan’s Coffee House, also in London. 5. Milan Stock Exchange in 1808 in Milan, Italy. Source: http://www.stockexchangesecrets.com/stock-market-history.html 8/27/2011 4Sudarshan Kadariya
  5. 5. 6. New York Stock Exchange in 1817 in New York, USA. This exchange was preceeded by the Buttonwood Agreement of 1792. 7. Frankfurt Stock Exchange in 1820 in Frankfurt, Germany. 1820 denotes the first records of shares being traded. There was, however, a market for bonds (debt instruments) since the late 18th century. 8. Bolsa de Madrid in 1831 in Madrid, Spain. 9. Toronto Stock Exchange in 1861 in Toronto, Canada. 10. Australian Stock Exchange in 1872 in Sydney, Australia. Source: http://www.stockexchangesecrets.com/stock-market-history.html Useful: http://www.money-zine.com/Investing/Stocks/Stock-Market-History/ 8/27/2011 5Sudarshan Kadariya
  6. 6. What about the Indian Stock Market? • Bombay Stock Exchange in 1875. What about Nepalese Stock Market? • Nepal Stock Exchange (NEPSE) in January 13, 1994. 8/27/2011 6Sudarshan Kadariya
  7. 7. Now, the history of (common) stock The oldest existing stock certificate was issued in 1606 for a Dutch company (Vereinigte Oostindische Compaignie) Lets guess what could be the value of a stock that initially invested for the company? In Nepal, Biratnagar Jute Mills Limited, in 1937 A.D. issued the first common stock in Nepal. http://www.stockmarketstory.com/ 8/27/2011 7Sudarshan Kadariya
  8. 8. Brief History of stock market development in Nepal • Stock market began with the issue of shares by Biratnagar Jute Mills Ltd in 1937. • Security Marketing Centre (SMC) was established in April 1977 under Industrial Policy, 1974 with the objective of facilitating the transaction of government development bonds and corporate securities. • SMC started secondary trading of securities in November 1981 which restricted to government bonds. • Security Exchange Act, 1983 was enacted in 1983. 8/27/2011 8Sudarshan Kadariya
  9. 9. • The then SMC was converted into Securities Exchange Centre (SEC) in 1984. SEC opened its floor for corporate share trading in November 1984. • The first amendment in Securities Exchange Act, 1983 in 1993 paved the way for the restructuring of stock market in Nepal, which led to establish Securities Board of Nepal (SEBON) in 1993 with a mandate to regulate and develop the stock market. • The first amendment in the Act also led to convert the then SEC into NEPSE, a full-fledged open-out- cry trading system with the induction of stock brokers in January 13, 1994. 8/27/2011 9Sudarshan Kadariya
  10. 10. Who can predict the stock market (accurately)? 8/27/2011 10Sudarshan Kadariya
  11. 11. Survey (A) Market reactions Tangible information Intangible information Conducted on June/July, 2011 Survey (B) Investor Awareness Access to Information Level of stock investment Conducted on Oct/Nov, 2010 Survey Findings 8/27/2011 11Sudarshan Kadariya
  12. 12. Why we conduct the research/survey/discussion? o For knowledge o For solution of the problem What are the objectives of this survey: o To examine the investors’ opinions in Nepalese stock market on price, returns, investment alternatives, and the practices o To determine the factors affecting the investment decision making 8/27/2011 12Sudarshan Kadariya
  13. 13. Who are the audience of this study? • Nepalese stock investors (individuals as well as institutions) – Experienced stock investors – Beginners, and – Potential investors • Students • Listed companies, and • Policy markers • In sum, the Nepalese investment communities 8/27/2011 13Sudarshan Kadariya
  14. 14. Questionnaire – personal information 8/27/2011 14Sudarshan Kadariya
  15. 15. Relationship between education and age of the investors Educational background of the respondents Education Age Group (in years) Total Below 30 30 to 40 Above 40 No % No % No % No % Intermediate 0 0 1 2.04 4 8.16 5 10.20 Bachelor degree 7 14.29 11 22.45 4 8.16 22 44.90 Master degree 9 18.37 7 14.29 6 12.24 22 44.90 Total 16 32.65 19 38.78 14 28.57 49 100 Finding: Most of the stock investors are well educated and middle of the career development age. 8/27/2011 15Sudarshan Kadariya
  16. 16. Employment of the respondents Sector of employment of the respondents Employment Total No % Government 2 4.00 NGO/INGO 4 8.00 Private Sector 21 42.00 Self-employed 23 46.00 Total 50 100.00 Finding: The proportion of self-employed investors is high in the stock market. 8/27/2011 16Sudarshan Kadariya
  17. 17. Relationship between (stock market) work experience and age of the respondents Work experience of the respondents Experience Age Group (in years) Total Below 30 30 to 40 Above 40 No % No % No % No % below 5 years 14 29.17 11 22.92 3 6.25 28 58.33 5 to 10 years) 1 2.08 6 12.50 7 14.58 14 29.17 Above 10 years 1 2.08 2 4.17 3 6.25 6 12.50 Total 16 33.33 19 39.58 13 27.08 48 100.00 Findings: Nepalese stock market starts to attract younger investors in recent period as the majority of the stock investors are younger. And, most of the stock investors recently entered in the trading activities. 8/27/2011 17Sudarshan Kadariya
  18. 18. Relationship between volume of investment and age of investors. Level of stock investment of the respondents Volume Age Group (in years) Total Below 30 30 to 40 Above 40 No % No % No % No % Less than 5 lakh 10 20.00 5 10.00 2 4.00 17 34.00 5 to 10 lakh 4 8.00 5 10.00 2 4.00 11 22.00 10 to 25 lakh 1 2.00 6 12.00 7 14.00 14 28.00 More than 25 lakh 2 4.00 3 6.00 3 6.00 8 16.00 Total 17 34.00 19 38.00 14 28.00 50 100.00 Finding: There are strong voice of small investors in the Nepalese stock market. 8/27/2011 18Sudarshan Kadariya
  19. 19. Investors – brokerage firms and investors opinion regarding the market price No % Moderate 8 16.00 Don't know 2 4.00 Low 30 60.00 Very low 10 20.00 Total 50 100.00 ( ) High ( ) Moderate ( ) Don’t know ( ) Low ( ) Very low 14. In general, what do you think about the current trading prices of stocks in the market? Accounts No % 0 9 18.00 1 13 26.00 2 13 26.00 3 9 18.00 4 3 6.00 7 1 2.00 10 1 2.00 15 1 2.00 Total 50 100.00 Finding: Most of the stock investors have 1 or 2 accounts with brokerage firms. Findings: Majority of stock investors perceived that the existing market price is low followed by very low.8/27/2011 19Sudarshan Kadariya
  20. 20. Respondents’ opinion and practices Stock return Preference Return Frequency Percent Cumulative Percent Cash dividend 8 16.00 16.00 Stock dividend 8 16.00 32.00 Increase in market price 32 64.00 96.00 Others 2 4.00 100.00 Total 50 100.00 Findings: Majority of the stock investors prefer capital gain rather than the usual cash dividends and seasonal issues. In another extreme, some investors feel the prestige while investing rather than expectation of returns.8/27/2011 20Sudarshan Kadariya
  21. 21. Factors affecting investment decisions Factors Frequency Percent Cumulative Percent Family 2 4.17 4.17 Friends 14 29.17 33.33 Relatives 2 4.17 37.50 Media 20 41.67 79.17 Brokers 2 4.17 83.33 Others 8 16.67 100.00 Total 48 100.00 Findings: The limited investors use their own skills and analytical power in investment decision. The most influencing factors for decision making are media and friends. 8/27/2011 21Sudarshan Kadariya
  22. 22. Investors’ practice No % Daily 11 22.00 Weekly 15 30.00 Fortnightly 2 4.00 Monthly 10 20.00 Quarterly 1 2.00 Bi-annually 2 4.00 Annually 6 12.00 Others 3 6.00 Total 50 100.00 Finding: Most of the investors monitor their investment weekly, daily and monthly, in order. 8/27/2011 22Sudarshan Kadariya
  23. 23. Investors’ opinion Popular sector of investment Sector of investment Frequency % Ranking Banking and finance 43 87.76 1st Insurance 14 58.33 4th Hotels 15 65.22 3rd Hydropower 19 67.86 2nd Manufacturing 8 34.78 5th Findings: Banking and finance sector remains the most popular investment sector among the Nepalese investors followed by Hydropower. The least preferred sector is manufacturing. 8/27/2011 23Sudarshan Kadariya
  24. 24. Investors’ opinion Popular information prior investing Information (tangible and intangible) Frequency % Ranking Dividend 39 79.59 1st Earnings 34 69.39 2nd Number of equity 17 34.69 4th Book-to-market equity 18 36.73 3rd Party (UML, Maoist, NC) led government 16 32.65 5th Findings: The tangible components such as dividends, earnings, number of equity, and book-to-market ratio and the intangible component like political party led government are considered the top five most important factors for investment decisions as per the opinion of individual stock investors in Nepal. 8/27/2011 24Sudarshan Kadariya
  25. 25. Investors’ opinion Methods 1 Always 2 3 4 5 Not at all (A) Analyze debt/equity, price/earnings, assets and liabilities, dividends, cash flow, sales, earnings estimates, growth rates, etc. (A) Trend analysis, momentum, price cycle analysis, chart analysis, moving average, etc. Both (A) & (B) Noise in the market, newspapers and informal talks, etc Analysis and revision of own investment in different alternatives Stock indices movement in foreign markets Analyze the government policies (tax rates, margin lending, etc) 15. Indicate the level of importance attach to different methods while making investment decisions. (1 = Always, 2 = Sometime, 3 = Rarely, 4 = No, 5 = Not at all) 8/27/2011 25Sudarshan Kadariya
  26. 26. Methods for investment analysis N Mean S.D. (A) Analyze debt/equity, price/earnings, assets and liabilities, dividends, cash flow, sales, earnings estimates, growth rates, etc. 45 1.644 0.712 (B) Trend analysis, momentum, price cycle analysis, chart analysis, moving average, etc. 45 2.933 1.321 Both (A) & (B) 36 2.667 1.287 Noise in the market, newspapers and informal talks, etc 45 1.933 1.116 Analysis and revision of own investment in different alternatives 42 2.214 1.279 Stock indices movement in foreign markets 42 4.048 1.209 Analyze the government policies (tax rates, margin lending, etc) 42 2.286 1.215 Findings: The most used methods of investment is fundamental analysis, and the next is market noise, media and informal talks. The most unpopular is the foreign stock market indices. 8/27/2011 26Sudarshan Kadariya
  27. 27. Investors’ perception When you are able to earn (profit), what is the most important reason? Frequency Percent Proper recommendations or advice from broker and analyst 1 2.00 Proper recommendations or advice from family and friends 4 8.00 In general, the market perform well 14 28.00 Own experience, instinct, carefulness and knowledge 28 56.00 Good luck 3 6.00 8/27/2011 27Sudarshan Kadariya
  28. 28. Investors’ perception When you incur loss, what is the most important reason? Frequency Percent Improper recommendations or advice from family and friends 1 2.00 In general, the market does not perform well 23 46.00 Own experience, instinct, carefulness and knowledge 19 38.00 Bad luck 7 14.00 Correlation Analysis Pearson Correlation 0.20 p-value 0.16 N 50 Finding: Nepalese stock investors believe on their own ability and knowledge when they earn & blame for market when they incur losses. There is no correlation between responses at 16 &178/27/2011 28Sudarshan Kadariya
  29. 29. 8/27/2011 29Sudarshan Kadariya
  30. 30. Rotated Component Matrix(a) Component 1 2 3 4 It is important to look at debt and equity structure before investing 0.832 I do use the average prices (6 months, 1 yr, 2 yrs, etc) to determine the current prices 0.821 Political instability is not the major cause of stock market downturn 0.869 News/media largely influence my investment decision 0.748 I believe that success in stock market depends upon luck 0.847 I know how to interpret financial statements in a good way 0.710 The prices move in a direction (increasing/decreasing) provides insight about future price 0.931 Factor Analysis Findings: The capital structure and average pricing method is one factor that influence the investment decisions, the next is political and media coverage, the third factor is belief on luck and the financial education (literacy), and finally the forth component for stock market movement is trend analysis.8/27/2011 30Sudarshan Kadariya
  31. 31. Factor 1 Factor 2 Factor 3 Factor 2 0.02 (0.91) Factor 3 -0.23 0.16 (0.12) (0.30) Factor 4 0.05 0.01 0.05 (0.71) (0.93) (0.72) Sampling Adequacy Test Findings: The correlation analysis shows that these four factors are independent. These factors carries perfectly separate information or there is no information overlap between and among them. Kaiser-Meyer-Olkin (KMO) Measure of Sampling Adequacy. 0.621 Bartlett's Test of Sphericity Approx. Chi-Square 73.36 df 45 Sig. 0.00 These values justify Verification: Correlation Matrix Findings: This test shows that the sample size for the factor analysis is sufficient. 8/27/2011 31Sudarshan Kadariya
  32. 32. Major findings of Survey i. Nepalese stock market starts to attract younger investors in recent period as the majority of the stock investors are younger. ii. Most of the stock investors have 1 or 2 accounts with brokerage firms. iii. The proportion of educated investors is high in the market, most of them are self-employed and small investors have strong voice in the Nepalese stock market. iv. The limited investors use their own skills and analytical power in investment decision. The most influencing factors for decision making are media and friends.8/27/2011 32Sudarshan Kadariya
  33. 33. v. Majority of stock investors perceived that the existing market price is low followed by very low. vi. Majority of the stock investors prefer capital gain rather than the usual cash dividends and seasonal issues. vii. Banking and finance sector remains the most popular investment sector among the Nepalese investors. viii.The most used methods of investment are fundamental analysis, and the market noise, media and informal talks. 8/27/2011 33Sudarshan Kadariya
  34. 34. ix. Investors believe on their ability when they earn and blame for market when they incur losses. x. The tangible components such as dividends, earnings, number of equity, and book-to-market ratio and the intangible component like political party led government are considered the top five most important factors for investment decisions as per the opinion of individual stock investors. xi. The capital structure and average pricing method is one factor that influence the investment decisions, the next is political and media coverage, the third factor is belief on luck and the financial education, and finally the forth component for stock market movement is trend analysis. 8/27/2011 34Sudarshan Kadariya
  35. 35. i. The book-to-market decomposition indicates that the intangible information has the significant explanatory power for the explanation on the changes in stock returns. ii. The inverse and the strong relationship between profitability and the composite share issuance measure shows that the enterprises that have lower past seasonal issuance or the low composite share issuance will have the better future returns. iii. There is no reliable relation between the total tangible and total intangible components with future returns. The finding shows the mixed results when forecasting the future results. iv. The composite share issuance measure has more predictive power for future returns than other proxies. When the two proxies of the intangible information included in the analysis, the significance of the one variable tend to disappear thus both proxies does not significantly explain the future returns. 8/27/2011 35 Empirical results (2005-2010, Sample – 28 enterprises) Sudarshan Kadariya
  36. 36. Conclusion 8/27/2011 36 Nepalese stock market has started to recognize the impact of intangible information apart from the usual tangible information impacts The debt/equity structure and average pricing method; the political and media coverage; the belief on luck and the financial education; and the trend analysis are the most important factors that an investor collect the information and analyze prior to investment decisions. 1 2 Sudarshan Kadariya
  37. 37. 8/27/2011 37 The tangible and the intangible information does not accurately forecast the future results. The composite share issuance measure (seasonal issues) have more predictive power for future returns than other measures. 3 4 Sudarshan Kadariya
  38. 38. THANK YOU
  39. 39. Survey (B): Survey findings Survey topic: Investor awareness and level of stock investment in Nepalese stock market Conducted on October/November, 2010 8/27/2011 39Sudarshan Kadariya
  40. 40. Objectives o The aim of this study is limited on two major facets of the Nepalese capital market. To find the extent of relationship between investor awareness and volume of equity investment in secondary market. To identify the level of equity investors’ access to market information. 8/27/2011 40Sudarshan Kadariya
  41. 41. Some findings • Nepalese stock investors are aware. • The relationship between awareness and level of investment is positive i.e. as the awareness increases, volume of investment also increases. • There is problem on access to information for equity investors in secondary market. 8/27/2011 41Sudarshan Kadariya
  42. 42. • Majority of equity investors in secondary market are not satisfied with the available sources of information and efforts of information disseminating mechanism. • Equity investors with higher investment have more knowledge/aware in investment than those of small investors. • Equity investors with higher educational background have more investment than those of lower level of education. • Thus, the conclusion of the study is: the positive relationship between awareness and equity investment and there is problem on access to market information in Nepalese stock market. 8/27/2011 42Sudarshan Kadariya
  43. 43. For further information with these studies, please contact Email: su.kadariya@gmail.com Cell: (977) 9841 325859 8/27/2011 43Sudarshan Kadariya

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