Ishwori Sharma
Nepal Rastra Bank’s decision to increase the margin loan ceiling from Rs 15 crore to Rs 25 crore has sparked renewed enthusiasm in the capital market. NEPSE has surged by 9.2% in just two weeks. But is this a signal of sustainable growth—or a prelude to speculative risk?
Margin Loan Expansion: A New Era for Nepal’s Capital Market?
Introduction
Nepal’s capital market is experiencing a renewed surge following a bold move by the Nepal Rastra Bank (NRB). In its Monetary Policy for Fiscal Year 2082/83 (2025/26), the central bank raised the margin loan ceiling from Rs 15 crore to Rs 25 crore per investor, aiming to boost
liquidity, restore investor confidence, and revitalize a sluggish stock market.
While welcomed by traders and retail investors, the expansion has reignited debate about the risks of speculative bubbles, especially when echoes of the COVID-era market frenzy remain fresh in public memory.
Policy Shift at a Glance
– New Margin Loan Limit: Rs 25 crore (previously Rs 15 crore)
– Loan-to-Value (LTV) Ratio: 70% of a stock’s market price or its 180-day average, whichever is lower
– Objective: Stimulate market activity and improve access to capital amid low alternative investment returns.
This move is part of NRB’s expansionary monetary stance, which also includes easing interest rates and encouraging lending across the financial sector.
Immediate Market Impact
The market responded with enthusiasm. Within two weeks of the policy’s announcement on July 11, 2025, the NEPSE index surged by 9.2%, climbing from 2,731.80 to 2,982.64 points by July 24—the highest level in nearly a year. Daily trading turnover also soared to Rs 18.49 billion, nearing levels seen during the pandemic boom.
Drivers of the Rally
1. Enhanced Liquidity through expanded borrowing capacity
2. Investor Optimism fueled by policy support
3. Low-Yield Alternatives in real estate and fixed deposits
4. Speculative Buying and herd behavior
5. Improved GDP Outlook, now projected at 5.1–5.2% for FY2025/26
A Flashback to the COVID-Era Boom
In 2020–21, Nepal’s capital market witnessed a similar rally:
– NEPSE hit a record 3,198.6 points (August 18, 2021)
– Turnover exceeded Rs 21.6 billion
– GDP rebounded from -2.4% to 4.8%
– But a tightening of liquidity later triggered a sharp correction, with many leveraged investors suffering heavy losses
Key Lesson: Without earnings growth and prudent regulation,
liquidity-fueled rallies may not be sustainable.
Expert Voices: Support and Caution
“This policy has energized the market by attracting both institutional and retail investors, significantly improving turnover.”
– Ramesh Shrestha, Stockbroker
“The NRB must strictly monitor margin loan disbursement. Without oversight, speculative trading could destabilize the market again.”
-Sita Adhikari, Economist
Economic Implications and GDP Link
Nepal’s economy is showing signs of a broader recovery:
– Pre-policy GDP growth (FY2024/25): 4.61%
– Post-policy forecast (FY2025/26): 5.1%–5.2%
– Potential with capital market support: 5.5%–5.7%
Capital Market’s Contribution to Growth:
– Wealth Effect: Rising asset values increase consumer spending
– Corporate Expansion: Easier equity fundraising supports business investment
– Multiplier Effect: Higher market activity feeds into job creation and consumption
Opportunities Ahead
1. Sustained Market Growth: If corporate earnings align with market optimism, NEPSE could maintain levels above 3,000 and potentially challenge its pandemic-era peak.
2. New Listings Deepen the Market: Over 40 hydropower companies—including Aarati Power,Mewa Developers, and Daramkhola Hydro Energy Ltd.—are preparing IPOs.
3. Capital Market Modernization: A broader equity base could accelerate adoption of mutual funds, corporate bonds, and derivatives.
4. Real-Economy Spillovers: Higher market returns may boost household consumption, while IPO-driven capital can fuel enterprise growth and job creation.
Risks to Watch
– Speculative Volatility: A sharp correction is possible if prices run ahead of earnings.
– Loan Defaults: Increased leverage heightens systemic risks during downturns.
– Regulatory Oversight: Inadequate monitoring of margin lending could repeat past mistakes.
Conclusion: Turning Point or Temporary Rally?
Nepal’s margin loan expansion has sparked a remarkable rally, pushing NEPSE close to its pre-pandemic high and reviving investor enthusiasm. If sustained by strong earnings, responsible lending, and regulatory vigilance, this momentum could indeed mark a new era for Nepal’s capital market—one characterized by deeper participation, stronger institutions, and more meaningful contributions to GDP. However, without structural reform and caution, the market could once again fall into the trap of short-term speculation over long-term value.
Nepal’s capital market stands at a pivotal juncture. With investor confidence revived by monetary reform, the real test lies in sustaining this momentum through prudent risk-taking, institutional maturity, and parallel economic development. Whether this is a revival or a bubble-in-the-making will be determined by how responsibly the newfound liquidity is channeled.