Banking News – The Securities Board of Nepal (SEBON) has made public the “Working Paper on Restructuring the Benchmark Index in the Securities Market, 2083” for developing a “benchmark” index (NBI) in the stock market. The Board is preparing to develop a new index while maintaining the current NEPSE index as the “NEPSE All Equity Index.”

The Board has stated that the benchmark will be developed based on the price fluctuations of shares traded by the general public in the market. The current NEPSE index is calculated based on the total market capitalization of all listed shares. The existing NEPSE index will be retained as it is and restructured as a broad index that measures the value of overall shares. The Board has stated that this will prevent unnecessary confusion in the market.

The Board has stated that the proposed new index can initially be branded as the NEPSE Free Float Benchmark Index or called the NEPSE Benchmark Index, keeping in mind product development with the international market. According to the Board, NEPSE may hold necessary consultations on name selection, and its basic working procedure will be a free-float adjusted index.

The Board has stated that the currently used NEPSE index is calculated by treating the market capitalization of shares that do not trade daily and locked-in promoter shares as the basis. Due to this, even though government-owned and locked-in shares are added to total market capitalization, they are not available for daily trading, meaning a realistic market index is not measured, and this has raised public concerns that it does not reflect a true picture of the market, which needs to be addressed.

For the implementation of this new benchmark, the Board has stated that a certain free-float factor will be applied based on the tradable portion by separating promoter, government, and locked-in shares. Currently, the Sensitive Index and Float Index are also being calculated. The Sensitive Index is calculated based on the base year value and current market value of the total shares of companies listed in the ‘A’ class by NEPSE. This index has been calculated since Poush 17, 2063.

Similarly, the Float Index is calculated based on the base value and current market value of tradable shares. The Float Index is derived based on the value of approximately one-third of the total listed shares that are tradable. The Float Index calculation began on Bhadau 30, 2065.

What Are the Objectives?

The development of the NBI aims to measure the actual performance of the investable equity market in Nepal. Similarly, other objectives include developing a benchmark for the performance of institutional investors’ portfolios, providing mutual funds, index funds, and ETFs for the future, building a basis that can be used as an underlying index for potential equity derivatives, and providing foreign institutional and portfolio investors with an index that meets international standards.

Similarly, objectives include reflecting the actual investable market weight of various sectors of Nepal, making market price discovery and investment decision-making more transparent, and making Nepal’s investment methodology comparable to international practice.