Unveiling the Top Share Market Terms Every Nepali Investor Should Know

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The Nepal Share Market can be complex and overwhelming, especially for beginners. One of the most challenging aspects of investing in the Nepal Share Market is understanding investors’ and traders’ language. Share Market Terms in Nepal are not easy for new comers. 

Terms like market capitalization, price-to-earnings ratio, and dividend yield can be daunting for someone new to the stock market.

To help you navigate this unfamiliar territory, we have created a comprehensive glossary of terms used in the Nepal Share Market.

This glossary includes a list of crucial terminologies, definitions, and usage in the Nepal Share Market.

By familiarizing yourself with these terminologies, you will better understand the workings of the Nepal Share Market and make more informed investment decisions.

Whether you are a seasoned investor or just starting, this glossary of terms will be a valuable resource to help you understand the jargon used in the Nepali Share Market. So, without further ado, let’s dive into the world of Nepal Share Market terminologies and gain a better understanding of this exciting market.

Basic Terminologies

Investing in the Nepal Share Market can be confusing and overwhelming. One of the biggest challenges for beginners is understanding the fundamental terminologies commonly used in the Nepal Share Market.

Here are some basic terminologies before investing in the Nepal Share Market.

Share

A share represents a unit of ownership in a company. When you buy a share of a company, you become a shareholder and have a proportional stake in the company’s assets and earnings.

Stock

Stock refers to the total number of shares that a company has issued. It represents the company’s ownership and is divided into equal units called shares.

IPO (Initial Public Offering)

An IPO is the first time a company offers its shares to the public. This is often done to raise capital for the company’s growth and expansion.

Dividend

A dividend is a portion of a company’s earnings distributed to its shareholders. Dividends are usually paid quarterly or annually. They are a way for companies to share their profits with their shareholders.

Bonus Shares

Bonus shares are additional shares that a company issues to its shareholders at no cost. These are issued to reward shareholders and increase their ownership stake in the company.

Rights Issue

A rights issue is when a company offers its existing shareholders the right to purchase additional shares at a discounted price. This is done to raise capital for the company’s expansion or to pay off debt.

Market Capitalization

Market capitalization, or market cap, is the total value of a company’s outstanding shares. It is calculated by multiplying the total number of outstanding shares by the current market price of each share.

Face Value

The face value of a share is the nominal value assigned to the share by the company. It is usually a small amount and does not correlate with the actual market value of the share.

Book Value

The book value of a share is the value of a company’s assets minus its liabilities. It represents the theoretical value of a company’s shares if all assets were sold and liabilities were paid off.

Price to Earnings Ratio (P/E Ratio)

The P/E ratio is a valuation ratio that compares a company’s share price to its earnings per share. It is calculated by dividing the current market price of a share by its earnings per share.

Type of Shares

When investing in the Nepal Share Market, it is vital to understand the different types of shares available.

Each type of share has unique characteristics and benefits, and here are the main types of shares you should know about.

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Ordinary Shares

Also known as common shares, ordinary shares represent a company’s primary form of ownership. When you buy ordinary shares, you become a part-owner of the company and have the right to vote on important company decisions.

Preference Shares

Preference shares are a type of share that gives the shareholder a fixed dividend payment before any dividends are paid to ordinary shareholders. If the company distributes dividends, preference shareholders will receive their payment first.

Cumulative Preference Shares

Cumulative preference shares are similar to preference shares but with an added feature. Suppose the company cannot pay a dividend in any given year. In that case, the dividend payment for cumulative preference shares accumulates and must be paid in future years before any dividends are paid to ordinary shareholders.

Redeemable Shares

Redeemable shares are a type that the company can repurchase at a future date. This can be a way for the company to return capital to shareholders or to reduce the number of outstanding shares.

Convertible Shares

Convertible shares are a type of share that can be converted into another type of security, such as ordinary shares or preference shares. This provides flexibility for the investor and can be a way to increase their returns.

Founder Shares

Founder shares are a type of share that is typically held by the founders of the company. These shares often have special voting rights and can be a way for the founders to retain control over the company.

Market Participants

The Nepal Share Market is a complex ecosystem with various participants, each playing a different role in the functioning of the market. Understanding market participants’ roles can help you make better investment decisions.

Here are the leading market participants in the Nepal Share Market:

Investors

Investors are individuals or institutions that invest their money in the Nepal Share Market, expecting to earn a return on their investment. Investors can be classified as retail investors or institutional investors.

Brokers

Brokers are intermediaries between investors and the stock exchange. They execute buy and sell orders on behalf of investors and charge a commission for their services.

Stock Exchanges

Stock exchanges are the platforms where stocks are traded. Nepal’s leading stock exchange is the Nepal Stock Exchange (NEPSE). The stock exchange facilitates trading by providing a marketplace for buyers and sellers to trade shares.

Regulators

Regulators are entities that oversee and regulate the Nepal Share Market. In Nepal, the Securities Board of Nepal (SEBON) is the regulatory authority overseeing the stock market’s functioning.

Listed Companies

Listed companies are the companies that have issued their shares on the stock exchange. These companies must disclose their financial statements and other relevant information.

Market Makers

Market makers provide liquidity to the market by buying and selling shares. They ensure that there is a ready market for shares, which helps to facilitate trading.

Market Order Types

When you place an order to buy or sell shares in the Nepal Share Market, you can choose from different types of orders. Each order type has advantages and disadvantages, and it’s essential to understand the different types of orders before placing a trade.

Here are the main types of orders in the Nepal Share Market:

Market Order

A market order is an order to buy or sell a stock at the current market price. This type of order is executed immediately at the prevailing market price, which means you may get a different price than expected.

Limit Order

A limit order is buying or selling a stock at a specified price or better. This type of order allows you to set a specific price for buying or selling a stock. If the stock reaches your specified price, your order will be executed.

Stop order

A stop order is an order to buy or sell a stock when the stock reaches a specified price. This type of order is used to limit losses or to protect profits booking. Your order will be executed at the prevailing market price if the stock reaches the specified price.

Stop-Limit Order

A stop-limit order is similar to a stop order but with an added limit order. When the stock reaches the specified price, a limit order is placed to buy or sell the stock at a specific price or better.

Trailing Stop Order

A trailing stop order is an order to buy or sell a stock when the stock reaches a specified percentage or dollar amount away from the market price. This type of order is used to protect profits or limit losses.

Technical Analysis Terminologies

The technical analysis evaluates securities based on past market data, such as price and volume. Technical analysis uses charts and other tools to identify patterns and trends that can be used to predict future market movements.

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Here are some technical analysis terminologies that are commonly used in the Nepal Share Market:

Moving Average

The moving average is the average price of a stock over a specified period of time. It is used to identify trends and determine the market’s direction.

Support and Resistance

Support and resistance are levels at which a stock stops moving in a specific direction. Support is the level at which a stock tends to stop falling, and resistance is the level at which a stock tends to stop rising.

Trend Lines

Trend lines are lines that connect two or more price points on a chart. They are used to identify trends and determine the market’s direction.

Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a technical indicator that measures the strength of a stock’s price action. It is used to identify overbought or oversold conditions in the market.

Moving Average Convergence Divergence (MACD)

The Moving Average Convergence Divergence (MACD) is a technical indicator that measures the relationship between two moving averages. It is used to identify changes in the direction of the market.

Bollinger Bands

Bollinger Bands are a technical indicator that measures volatility in the market. They are used to identify overbought or oversold conditions in the market.

Fibonacci Retracement

Fibonacci retracement is a technical analysis tool that uses horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before the price continues in the original direction.

Technical analysis can be a powerful tool for investors, but it is important to remember that it is not foolproof. Investors should use technical analysis with other forms of analysis, such as fundamental analysis, to make informed investment decisions.

Fundamental Analysis Terminologies

Fundamental analysis evaluates securities based on the financial and economic factors that influence their value. It involves analyzing financial statements, industry trends, and macroeconomic conditions to determine the intrinsic value of a stock. Here are some fundamental analysis terminologies that are commonly used in the Nepal Share Market:

Earnings Per Share (EPS)

Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock. It is an important indicator of a company’s profitability and is often used to determine the stock’s value.

Price-to-Earnings Ratio (P/E)

The price-to-earnings ratio (P/E) is used to value a company’s stock. It is calculated by dividing the current market price per share by the earnings per share (EPS) for the last 12 months.

Price-to-Book Ratio (P/B)

The price-to-book ratio (P/B) values a company’s stock. It is calculated by dividing the current market price per share by the book value per share.

Dividend Yield

The dividend yield is the amount of dividends paid out by a company relative to its stock price. It is an important indicator of a company’s financial health. It can be used to compare the dividends paid out by different companies.

Return on Equity (ROE)

Return on equity (ROE) is a measure of a company’s profitability. It is calculated by dividing the net income by the shareholder’s equity. A higher ROE indicates a more profitable company.

Debt-to-Equity Ratio

The debt-to-equity ratio is a ratio used to measure a company’s financial leverage. It is calculated by dividing the total liabilities by the shareholder’s equity. A higher debt-to-equity ratio indicates a higher level of debt and a higher financial risk.

Price-to-Sales Ratio (P/S)

The price-to-sales ratio (P/S) is a ratio used to value a company’s stock. It is calculated by dividing the current market price per share by the company’s revenue per share.

 

Market Indices

Market indices are used to track the performance of a group of stocks in the share market. They provide investors with a benchmark against which they can compare the performance of their investments.

In the Nepal Share Market, the following indices are commonly used:

Nepal Stock Exchange (NEPSE) Index

The NEPSE index is the primary stock market index in Nepal. It tracks the performance of all the listed companies on the Nepal Stock Exchange. It is calculated by taking the weighted average of the market capitalization of the listed companies.

Sensitive Index (NEPSE)

The Sensitive Index is a subset of the NEPSE index that tracks the performance of the most liquid and actively traded stocks on the Nepal Stock Exchange.

Regulatory and Legal Terminologies

Regulatory and legal terminologies are essential for investors to understand as they help ensure that the share market operates fairly and transparently.

In Nepal, the following regulatory bodies and legal terminologies are relevant:

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Securities Board of Nepal (SEBON)

SEBON is the regulatory body that oversees the operation of the Nepal Share Market. It regulates the issuance, trading, and settlement of securities in Nepal.

Nepal Rastra Bank (NRB)

NRB is the central bank of Nepal and is responsible for overseeing the country’s monetary policy. It also regulates the Nepal Share Market by setting commercial banks’ interest rates and reserve requirements.

Securities Act, 2007

The Securities Act 2007 is the primary legislation that governs the issuance, trading, and settlement of securities in Nepal. It outlines the regulatory framework for the Nepal Share Market and sets out the rules and regulations that companies must comply with when issuing securities.

Bylaws of Nepal Stock Exchange (NEPSE)

The bylaws of the Nepal Stock Exchange set out the rules and regulations that govern the operation of the exchange. They cover many topics, including the listing requirements for companies, the trading procedures, and the settlement process.

Investment Strategies

Investment strategies are approaches investors use to select securities and manage their portfolios in the share market.

The following are some of the most commonly used investment strategies in the Nepal Share Market:

Buy and Hold

The buy-and-hold strategy involves buying and holding securities for the long term, regardless of short-term market fluctuations. This strategy is based on the belief that the share market will increase in value over the long term and that the returns from a diversified portfolio of stocks will outweigh any short-term losses.

Value Investing

Value investing involves selecting securities that are undervalued by the market and have a strong potential for growth. This strategy involves analyzing the financial statements of companies to identify stocks that are trading at a discount to their intrinsic value.

Growth Investing

Growth investing involves selecting securities with the potential for significant growth in earnings and revenue. This strategy involves analyzing companies’ growth prospects and selecting stocks that are expected to outperform the market.

Momentum Investing

Momentum investing involves selecting securities that have exhibited strong price performance in the recent past. This strategy is based on the belief that securities that have performed well in the past will likely continue to perform well.

Contrarian Investing

Contrarian investing involves selecting securities that are out of favour with the market and have been undervalued due to negative news or market sentiment. This strategy involves analyzing companies’ underlying fundamentals and selecting stocks with strong long-term growth prospects despite short-term market fluctuations.

It is essential for investors to understand the different investment strategies and to choose one that aligns with their investment goals and risk tolerance.

By selecting the right investment strategy, investors can increase their chances of achieving their investment objectives and maximizing their returns in the Nepal Share Market.

Risk Management Terminologies

Investing in the share market involves a certain degree of risk. As such, investors need to understand the different types of risks and manage them effectively. The following are some of the most commonly used risk management terminologies in the Nepal Share Market:

Volatility

Volatility refers to the degree of price fluctuation that a security experiences over time. Highly volatile securities are subject to significant price swings, while less volatile securities experience smaller price movements.

Liquidity

Liquidity refers to the ease with which a security can be bought or sold without affecting its market price. Highly liquid securities can be bought or sold quickly without significantly affecting the market price.

Market Risk

Market risk refers to the risk that an investment will be affected by macroeconomic factors such as interest rates, inflation, and political events. Market risk is also known as systematic risk.

Credit Risk

Credit risk refers to the risk that a borrower will default on their obligations, such as making interest payments or repaying the principal amount of a loan. Credit risk is primarily associated with bonds and other fixed-income securities in the share market.

Operational Risk

Operational risk is the risk that a company will experience losses due to inadequate or failed internal processes, people, or systems.

Systemic Risk

Systemic risk is the risk that an entire market or financial system will experience significant disruption or failure. Systemic risk is typically associated with significant economic events such as recessions or financial crises.

By understanding and managing these risks, investors can make informed decisions and reduce the potential for significant losses in the Nepal Share Market.

 

Conclusion

In this article, we have covered a wide range of terminologies and concepts that are commonly used in the Nepal Share Market. From the different types of shares to investment strategies and risk management terminologies, this glossary is a valuable resource for anyone who wants to learn more about the share market in Nepal.

Here are some of the key takeaways from this article:

– The Nepal Share Market is integral to the country’s economy, providing opportunities for investors to earn investment returns.

– Several types of shares are available in the Nepal Share Market, including standard, preference, and bonus shares.

– Technical and fundamental analysis are two basic approaches to analyzing securities in the share market.

– Different investment strategies, such as buy and hold, value, growth, momentum, and contrarian, can be used to achieve different investment objectives.

– Effective risk management is vital to successful investing in the Nepal Share Market.

– Finally, it is essential to continuously learn and stay informed about the latest developments in the Nepal Share Market to make informed investment decisions.

By using this glossary as a reference, investors can better understand the terminology and concepts used in the Nepal Share Market.


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