Kathmandu: Currently, Nepal’s financial landscape appears remarkably healthy on the surface, with banks flushed with liquidity and interest rates trending downward.
Commercial banks have lowered their maximum interest rates for individual fixed deposits to an average of just 4.27 percent.
Furthermore, the country’s external sector is at a historic high; foreign exchange reserves have surged to a staggering Rs 3.7 trillion as of early 2026. This massive reserve is sufficient to cover imports for nearly two years, indicating that both internal and external economic indicators are comfortably stable.
On the political front, the chronic instability that historically plagued the country seems to have vanished. Following the elections on Falgun 21, a powerful government led by the Rashtriya Swatantra Party (RSP) under Balendra Shah was formed with a near two-thirds majority. From a policy perspective, there are no harsh restrictions currently in place that would naturally suppress the capital market. Yet, despite this rare combination of economic strength and political stability, the Nepal Stock Exchange (NEPSE) has entered a worrying downward spiral.
The market’s decline coincides almost exactly with the formation of the Balen-led government. Prior to the new administration taking charge, NEPSE stood at 2,950 points on Chaitra 12. Since then, the index has shed nearly 240 points, currently hovering around the 2,711 mark. Initially, the post-election atmosphere was electric; optimism about a stable, single-party government pushed the market up significantly, even triggering multiple positive circuit breakers as the index climbed toward 3,000 points. However, the mood soured almost immediately after the cabinet was sworn in on Chaitra 13.
A significant turning point occurred just days after the new government took office. The administration’s decision to arrest former Prime Minister KP Sharma Oli and former Home Minister Ramesh Lekhok sent shockwaves through the financial community. Critics labelled Home Minister Sudhan Gurung’s move politically immature and vengeful, warning of a looming period of domestic conflict. Investors reacted instantly to this perceived instability, and the market plunged over 71 points on the first trading day under the new government, a trend that has largely continued.
Many expected the market to find its footing following the announcement of the Fiscal Year 2026/27 budget. Finance Minister Dr Swarnim Wagle introduced several long-awaited reforms, including declaring Capital Gains Tax as a final tax and promising a total restructuring of NEPSE to include intraday trading, short-selling, and derivative instruments. However, these incentives were overshadowed by his stern declaration of “zero tolerance” against market cornering and insider trading. Rather than instilling confidence, these promises of aggressive regulation and crackdowns seem to have spooked the market further, leading to a sharp drop in both the index and daily turnover.
Market analysts suggest that the ongoing crackdown on high-profile figures and the heightened scrutiny of assets belonging to government officials and the private sector are the primary drivers of the bearish sentiment. With the government aggressively pursuing money laundering investigations and property probes, many large-scale investors are hesitating to make significant moves. This fear is compounded by a leadership vacuum at the Securities Board of Nepal (SEBON), where the delay in appointing a chairman has left the regulatory environment in a state of limbo, mirroring past periods of administrative paralysis.
The financial toll of this slump has been massive. In the three months since the RSP government took office, investors have seen their wealth erode by approximately Rs 400 billion as market capitalization shrank from NPR 5 trillion to Rs 4.63 trillion. While central bank data shows that margin lending—loans against shares—has actually increased by over NPR 21 billion in the last ten months, this credit injection has not been enough to offset the prevailing anxiety. High-profile investigations into individuals like Deepak Bhatta and Sulav Agrawal have made even brokers hesitant to facilitate large-volume trades, fearing regulatory backlash.
As the market looks toward the upcoming Monetary Policy, a sense of “wait and see” persists. While the government remains politically invincible with its massive majority, its aggressive stance on property investigations and the lack of a permanent regulatory head at SEBON have created a psychological barrier for investors. Until the government can balance its anti-corruption drive with a sense of market security, the stock exchange may continue to struggle despite the country’s strong economic fundamentals.
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