Every evening the news says something like "NEPSE rose 40 points today." Then you open your portfolio and it's red. Or the opposite: the index fell, and somehow your shares went up.
What's going on? The short answer is that the index and your portfolio are measuring different things. Here's the longer answer.
What the index actually is
The NEPSE index is a single number that summarises how listed shares moved overall. It's calculated using a defined method, and the important thing to know is that it's weighted by market capitalisation, which means bigger companies count for more.
Market capitalisation is just the share price multiplied by the number of shares. A large commercial bank with a huge number of shares has a much bigger effect on the index than a small hotel or manufacturing company.
So when a few large banks or big hydropower companies move a lot, they can push the whole index up or down, even if most smaller companies barely moved.
The index is a rough picture of the market as a whole. It isn't a picture of your shares.
What "40 points" really means
Points by themselves don't tell you much. A 40-point move when the index is at 2,000 is a 2% change. The same 40 points when the index is at 3,000 is about 1.3%.
Always look at the percentage, not just the points. A headline saying "NEPSE crashes 50 points!" might be a fairly normal day of movement.
Why your portfolio can disagree with the index
- Your mix is different. If you hold mostly small or mid-sized companies, the big names moving the index may not matter much to you.
- You're heavy in one sector. If you own mostly microfinance or hydro, a bad day for that sector hits you hard even on an "up" day for the index.
- A few companies did the lifting. A rising index doesn't mean every share rose. Often it's a handful of large companies carrying it while most others are flat or down.
- Corporate actions. If one of your companies just had book closure for a bonus or right share, its price adjusts down. That isn't a real loss, but it can make your portfolio look red.
It's a good habit to look at the advance-decline numbers: how many companies rose versus fell that day. If the index is up but 150 companies fell and only 60 rose, the "rally" was narrow.
There's more than one index
NEPSE publishes several indices, not just the headline one:
- NEPSE Index: the main one, covering listed companies
- Sensitive Index: based on a group of companies that meet certain criteria (often called "Class A")
- Float Index: calculated using only shares that are actually available for public trading, not promoter shares that are locked in
- Sector sub-indices: banking, development bank, finance, microfinance, hydropower, life insurance, non-life insurance, hotels, manufacturing, trading, investment and others
When someone quotes a number, check which one they mean. For your own purposes, the sector indices are often more useful. If you hold mostly banks, compare your bank shares against the banking sub-index, not the overall NEPSE.
For exact definitions and current methodology, check NEPSE's official website. Methods and constituents can change over time.
A short history lesson
NEPSE's history shows why you shouldn't treat any single level as "normal":
- The index has gone through long stretches of rising and falling, often linked to interest rates, liquidity in the banking system, political events and government policy.
- In 2021, low interest rates and lots of new investors pushed it close to 3,200.
- When NRB tightened policy and interest rates rose, it fell below 2,000 within about two years.
If you'd joined in mid-2021 and looked at the index two years later, you might have thought the market was broken. If you'd joined in late 2022, it might have looked like a bargain. Same market, different starting points.
What moves the index in Nepal
Our market has some unique drivers. Big movers include:
- Interest rates and liquidity: when banks have plenty of money to lend and rates are low, share prices tend to rise. When liquidity is tight, they tend to fall. Nepal Rastra Bank's monetary policy is watched closely for this reason.
- Margin lending rules: limits on loans against shares can affect how much money flows into the market.
- Political news: government changes, budgets and policy announcements.
- Bank results: because banks are such a big part of the index, their quarterly results matter a lot.
- Sentiment: rumours, social media hype and fear can move prices quickly, especially in the short term.
Don't read tomorrow from today
One big green day doesn't mean a bull market has started, and one red day isn't a crash. Even a week of gains doesn't tell you much about the next month.
The index tells you what happened. It says nothing reliable about what's next, and it tells you nothing about whether a particular company is healthy. A strong company can fall on a bad index day; a weak company can rise on a good one.
Technical analysis people will draw lines on the NEPSE chart and make predictions. Some of it might be useful for traders. But if you're a long-term investor, daily index movements are mostly noise.
How I use the index
- As context: is the overall market mood positive or negative right now?
- As a rough benchmark: over several years, has my portfolio done roughly as well as the market, or much worse? If much worse, maybe I should look at a mutual fund instead of picking shares myself.
- Not as a signal to buy or sell anything.
If you want to judge a company, the index won't help. You need to look at the company itself. Here's how I read an annual report without an accounting degree.
General information, not personal financial advice. Rules, rates and fees change, so check with the official source (SEBON, NRB, CDSC, IRD or the Nepal Insurance Authority) before you act. Have a question? Leave it in the comments.
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