“NEPSE: A Puzzle That Defies Economic Logic”

 After finishing my postgraduate studies, I got the chance to train at a respected bank in Cologne, Germany. That experience, like a first love, left a lasting impression. The most valuable lesson I took away was simple but powerful: before buying any share, always study the company’s financial health in detail. My German mentors repeated this rule endlessly, calling it the golden rule of investing, and warned me never to ignore it.

Years later, while living in the US, I dabbled in small-scale personal trading on the NYSE and NASDAQ, usually in my free time. Friends often asked how I managed to do better than them. My answer was always the same: study the company’s financial reports and disclosures. In the US, listed companies are legally required to share accurate and complete information, and investors can choose between self-directed, broker-assisted, or robo-managed accounts, all under a clear and accountable regulatory system.

When I returned to Nepal, I wanted to remain financially independent. I wasn’t interested in starting large businesses or dealing with trade unions, so investing in shares seemed like the best option. The Nepal Stock Exchange (NEPSE), founded in 1993 under the Securities Exchange Act, provides a formal platform for securities trading. It’s regulated by the Securities Board of Nepal (SEBON), which is tasked with ensuring transparency and protecting investors. Today, NEPSE offers more than just stock trading—it also handles IPOs, bond transactions, and promotes financial literacy. The market has expanded to include mutual funds, corporate debentures, and government bonds.

Before investing, I researched NEPSE’s recent history through reports, financial news, and conversations with experienced traders. What I found was unsettling. During the COVID-19 pandemic, when stock markets around the world crashed, NEPSE surged to record highs. This made no sense—Nepal’s economy had shrunk, and company profits were falling, yet stock prices kept rising.

Even more puzzling, companies with no operations, heavy losses, or executives facing criminal charges saw their share prices skyrocket. Some stocks with a book value below Rs. 100 were trading above Rs. 3,000. Firms with no earnings or dividends had inflated valuations. This wasn’t optimism or scarcity driving prices—it looked like manipulation. It seemed like classic pump-and-dump schemes, where insiders inflate prices only to sell to unsuspecting investors.

There were also widespread allegations of insider trading. The SEBON chairman was removed over trading scandals, and NEPSE’s CEO resigned amid similar accusations. Both had ties to powerful politicians, raising questions about how long such practices had been tolerated. Even current SEBON officials are under investigation for corruption. Reports suggested politically connected individuals received free or preferential shares, casting doubt on the independence of regulators.

Other manipulative practices included share cornering (buying up shares to create scarcity), circular trading (buying and selling shares within a group to fake high volumes), and biased IPO approvals in return for commissions. Anti-corruption authorities even raided NEPSE for evidence of collusion. Calls for a second stock exchange sound appealing, but without systemic reforms, the same problems would likely repeat.

The most heartbreaking part is the effect on ordinary, well-meaning investors. People who carefully studied financial data, followed rules, and invested responsibly often ended up with heavy losses. They were told to “hold and wait,” but perhaps the better advice would be to “hold, wait, and pray.”

Banking and financial institutions performed somewhat better than other sectors, but even there, financial reports are not always fully reliable.

For most retail investors in Nepal, NEPSE remains a puzzle. It often rewards manipulation instead of discipline. It thrives on speculation rather than fundamentals. The principles of transparency and fair play that drive mature markets are still weak here.

For me, understanding NEPSE sometimes feels harder than deciphering the mysterious smile of the Mona Lisa. The golden rules of investing I learned abroad don’t always apply here.