`Little guy' drags Nepse down

Nepal Stock Exchange (Nepse) today plummeted by 29.73 points to 708.11 points from last week's closing.

The first day of trading was suspended for half an hour after the index dropped by four per cent during an hour-and-a-half of the start of trading at the sole secondary market.

The market closed 4.03 per cent lower or 29.73 points less, though it resumed operation after half an hour. The investors lost confidence after a rumour spread that banks and financial institutions do not need to increase paid-up capital. "The rumour is not true," said Rabindra Bhattarai, a share analyst.

The Monetary Policy announced on Friday has not changed the minimum level of paid-up capital required.

The minimum level of paid up capital -- kept unchanged according to the policy -- is Rs 2 billion for commercial banks, Rs 640 million for development banks and Rs 200 million for finance companies. There is an unofficial rule in the stock business called the `Odd Lot Theory'. It states that when small investors buy into a stock it's a sell signal and visa-a-versa. A `small investor' is defined as someone who buys small lots or odd lots (less than one hundred shares). The reasoning is that small investor is consistently wrong about when and what to buy or sell. So if little guy is buying, it's time to sell and if the little guy is selling its time to buy.

"This unofficial rule is painfully accurate in the Nepali stock market," said one investor. The small investor consistently takes too little risk or too much risk or buys in after the market or an individual stock runs up. These are the only consistent qualities of this class and they always result in losses.

"Take a look at what the small investor has been doing lately in Nepse,"

Bhattarai said adding that they are nervous and trying to exit from the market by selling their shares whereas `the players' are comfortable and buying.

A week before the budget and a week after the budget Nepse gained, but the market on Sunday, the first day of this week, plummeted. Small investors -- fearing a further fall in the secondary market -- rushed to sell and the big investors gained from them.