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Behaviour of Nepal Stock Exchange Index Behaviour of Nepal Stock Exchange Index By: Ashok Basnet Exam Roll No: 48/2063 T.U. Registration No.: 7-1-32-890-99 A Thesis Submitted To: Office of the Dean Faculty of the Management TRIBHUVAN UNIVERSITY In partial fulfillment of the requirement for the Master of Business Studies (MBS) Saraswati Multiple Campus Thamel, Kathmandu Nepal July, 2010 RECOMMENDATION This is to certify that the thesis: Submitted by Ashok Basnet Entitled "Behaviour of Nepal Stock Exchange Index" Has been prepared as approved by this department in the prescribed format of Faculty of Management. This thesis is forwarded for examination. -------------------------- Associate prof. Keshav Raj Pantha (Thesis Supervisor) Date: ......................... i VIVA-VOCE SHEET We have conducted the Viva-Voce Examination of the thesis Presented by Ashok Basnet Entitled "Behaviour of Nepal Stock Exchange Index" And found the thesis to be the original work of the student written according to the prescribed format. We recommend the thesis to be accepted as partial fulfillment of the requirement for Master of Business Studies (M.B.S.). VIVA-VOCE COMMITTEE 1) Chairman (Research Committee) .................................... 2) Member (Thesis supervisor) .................................... 3) Member (External Expert) .................................... 4) Member .................................... 5) Member .................................... Date: .................... ii DECLARATION I hereby declare that the work reported in this thesis entitled “Behaviour of Nepal Stock Exchange Index” submitted to Saraswati Multiple Campus,office of the Dean, Faculty of Management, T.U., Kathmandu, is my original work done in the form of partial fulfillment of requirement for the Masters of Business Studies (M.B.S.), under the supervision and guidance of Keshav Raj Pantha, Associate Professor, Saraswati Multiple Campus. Date:…………………….. ………………………. Ashok Basnet (Researcher) TU Reg. No. 7-1-32-890-99 Roll No.48/2063 Saraswati Multiple Campus iii ACKNOWLEDGEMENTS I wish to acknowledge my sincere gratitude to all the individuals who assisted me in this work. Especially, I would like to thank all the teachers and staffs of the Saraswati Multiple Campus, Thamel, whose sound theoretical knowledge provide me the basis for the preparation of the thesis. I would like to express my great sense of gratitude to my respected research supervisor Mr. Keshav Raj Pantha, Associate Professor of Saraswati Multiple Campus, Thamel for this invaluable supervision, constructive comments and suggestions, which gave the final shape of this thesis. I would like to thank from the corner of my heart to my frend Jhala B.K. who provide me Lap Top to prepare this thesis. And I am also thankfull to my colleagues Keshav Thapa, Govinda K.C. and Sudeep Khanal for their effort and support in this research work. I also owe indebtedness to all the officials of various corporate bodies, NEPSE and SEBON for providing me the required information. Similarly I would like to thank librarians of T.U. & SEBO. Finally, I hope that this thesis will serve as a stepping stone to the students of business studies and to those who wish to make further research under this topic. Ashok Basnet iv TABLE OF CONTENTS Page. No. Recommendation i Viva-Voce Sheet ii Declaration iii Acknowledgements iv Table of Contents List of Tables v List of Figures vi List of Abbreviations vii CHAPTER-I: Introduction 1.1 Background of the study …………………………………………… 1 1.1.1 Nepal Stock Exchange (NEPSE) …………………………… 4 1.2 Focus of the study ……………………………………………… 5 1.3 Statement of the problem ……………………………………… 6 1.4 Objective of the study …………………………………………… 7 1.5 Significance of the study ………………………………………… 8 1.6 Test of Hypothesis ……………………………………………… 9 1.7 Limitation of the study ………………………………………… 11 1.8 Organization of the study ……………………………………… 12 CHAPTER-II: Review of Literature 2.1 Theoretical Review…………………………………………… 13 2.1.1 Technical Analysis Theory…………………………… 14 2.1.2 Fundamental Analysis Theory……………………….... 15 2.1.3 Efficient Market Theory ……………………………… 16 2.2 Review of Related Studies …………………………………… 23 2.2.1 Review of Foreign Research …………………………… 23 2.2.2 Review of Nepalese Research …………………………. 29 2.2.3 Review of Journals and News papers ………………… 37 CHAPTER-III: Research Methodology 3.1 Introduction ………………………………………………… 42 3.2 Research Design ……………………………………………… 42 3.3 Sources of data ……………………………………………… 43 3.4 Sample and Population ……………………………………… 43 3.5 Analysis and Presentation of data …………………………… 44 3.6 Data Processing Procedure …………………………………… 44 3.6.1 Tabulation …………………………………………… 45 3.6.2 Graph of Time Series or Histogram …………………… 45 3.6.3 Mean …………………………………………………… 46 3.6.4 Standard Deviation ……………………………………. 46 3.6.5 Hypothesis …………………………………………… 47 3.6.5.1 T-Test ……………………………………… 47 3.6.6 Karl Pearson's Coefficient of Correlation 49 3.6.7 Probable Error (P.E.) of Correlation Coefficient 50 3.6.8 Regression Analysis 50 3.6.8.1 Line of Regression of Y on X 51 CHAPTER-IV : Data Presentation and Analysis 4.1 Introduction ………………………………………………………… 52 4.2 The Trend of Annual Turnover of Nepal Stock Exchange (NEPSE) 52 4.3 Paid up capital of listed companies ………………………………. 55 4.4 The number of listed companies in stock exchange …………….. 56 4.4.1 The number of listed companies under different sector ….. 57 4.5 Market capitalization value of listed securities ……………………. 58 4.6 Behavior of NEPSE Index …………………………………………. 61 4.6.1 Sector wise movement of NEPSE Index ……………………… 64 4.7 Equity share price behaviour of listed companies ………………… 65 4.8 Analysis of the Environment effect on the stock price …………… 77 4.9 Correlation Coefficient Analysis..………………………………… 89 4.10 Regression Equation Analysis..……………………………..…… 90 4.11 Major Findings of the Study..………..……………………..…… 90 CHAPTER-V: Summary conclusion and Recommendations 5.1 Summary …………………………………………………………… 93 5.2 Conclusion ………………………………………………………… 98 5.3 Recommendations ………………………………………………… 99 Bibliography Appendix LISTS OF TABLES Table No. Title of the Table Page No. 1 Population and sample 43 2 Annual turnover 53 3 Value of paid up capital 55 4 Number of listed companies 56 5 Listing summary of companies 57 6 Market capitalization 59 7 Contribution of Sample companies 60 8 Summary of result from hypothesis paired t- test 88 9 Summary of correlation coefficient analysis 90 v LISTS OF FIGURES Fig. No. Title of the Figure Page No. 4.1 Annual Turnover 54 4.2 Yearly value of paid up capital 55 4.3 Number of listed companies 56 4.4 Listed companies of the FY 2008/09 58 4.5 Yearly value of market capitalization 60 4.6 Contribution of sample companies in the market capitalization 61 4.7 Monthly NEPSE Index 63 4.8 Yearly sector wise NEPSE Index 64 4.9 Monthly equity share price of HBL 66 4.10 Monthly equity share price of MBL 67 4.11 Monthly equity share price of CIT 68 4.12 Monthly equity share price of PFL 69 4.13 Monthly equity share price of NICL 70 4.14 Monthly equity share price of UNL 71 4.15 Monthly equity share price of TRHL 72 4.16 Monthly equity share price of BBCL 73 4.17 Monthly equity share price of NUBL 74 4.18 Monthly equity share price of BPCL 75 4.19 Yearly closing price of sample companies 76 4.20 NEPSE Index before and after 10 days of 22 parties on government 79 4.21 NEPSE Index before and after 10 days of Maoist on government 81 4.22 NEPSE Index before and after 10 days Jan Andolan-2 83 4.23 NEPSE Index before and after 10 days of Royal move on government 85 4.24 NEPSE Index 10 days before and after the Nepal’s entry on WTO 87 vi LIST OF ABBREVIATIONS ADB : Asian Development Bank AGM : Annual General Meeting BBCL : Bishal Bazar Company Limited BPCL : Butwal Power Company Limited CDS : Central Depositary System CFG : Corporate and Financial Governance CIT : Citizen Investment Trust Co. : Company Corporation CRA : Credit Rating Agency CTS : Computerized Trading System d.f. : degree of freedom EMH : Efficient Market Hypothesis fig : Figure FY : Fiscal Year GN : Government of Nepal HBL : Himalayan Bank Limited i.e. : That is Ltd. : Limited MBL : Machhapuchhre Bank Limited Neg. : Negative (-ve) NEPSE : Nepal Stock Exchange vii NICL : Nepal Insurance Company Limited NIDC : Nepal Industrial Development No. : Number NRB : Nepal Rastra Bank NUBL : Nirdhan Uthan Bank Limited OTC : Over the Counter PFL : Pokhara Finance Limited Pog. : Positive (+ve) Pvt. : Private Rs. : Rupees SEBO/N : Securities Exchange Board of Nepal SEC : Securities Exchange Centre tcal : Calculated value of t TRHL : Taragaon Regency Hotel Limited ttab : Tabulated value of t TU : Tribhuvan University UNL : Unilever Nepal Limited WTO : World Trade Organization viii BIBLIOGRAPHY A. Books Bajaracharya, B.C (2061), Business Statistics, Kathmandu: M.K Publishers and Distributors. Bhalla, V.K (2001), Investment Management: Security Analysis and Portfolio Management, New Delhi: S. Chand and Company Ltd. Chandra, P. (1994), Financial Management: Theory and Practice, New Delhi: Tata McGrawhill Publishing Company Ltd. Chaudhary, A.K. & Sharma P.K (2058), Statistical Methods, Kathmandu: Khanal Books Prakashan. Cheney, John M., & Edward A Moses (1992), Fundamental of Investments, New York: West Publishing House. Dongol, R. M. (1997), Management Accounting, Kathmandu:Taleju Prakashan. Francis, Jack Clark (1997), Investment Analysis and Management, New York, Fifth Edition, McGrawhill International Edition. Gitman, J. (1988), Principle of Managerial Finance, New York : Harper Collins Publishers. Gupta, S. C (2001), Fundamentals of Static, Delhi: Himalayan Publishing House. Joshi, P.R (2001), Research Methodology, Kathmandu: Buddha Academic Publishers and Distributors Pvt. 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