Case II

Carefully read the following conversations between the investors and critically analyze it to answer the given questions at the end.

The Nepalese capital market has witnessed a big boom. The new daily record are observed in the Nepalese stock market in terms of market capitalisation and daily turnover. The SEBON and NEPSE is also working to improve the trading mechanism. The high liquidity and low interest rate is in positive factors to pull the market upward. Recently, the bull race both in price and volume in stock market observed despite COVID$-19.$ With these new developments, many new companies

and new investors came into primary and secondary markets. Ms$.$ Arpana Rana is a recent MBA graduate from Tribhuvan University. She is planning to invest in the stock market. So$,$ she consults with her family, friends, brokers as well as review daily economic news papers and watches televisions relating to stock market. She also actively participates in the stock market discussion forums. However, she is confused with different opinions on the stock market. A newspaper mentioned that right time to invest in the stock since the market is in increasing trend and completed its bearish trend. But when she consulted with her a friend, she told that the political situation is unfavourable to the market and overall economic activities are badly effect by COVID$19.$ A broker did not agree with her friend and said, $$I don$$t think so; it is yet to cross the previous

high index $(1881\mathrm{.}45$ of July $21,2016).$ So the bullish trend of the Nepali stock market is not over, yet. The liquidity in the bank is in comfortable and bank interest rate is low. I think it is highly possible that market will increase in near future. But she saw the market is increasing day by day without attractive movement in banking sector. Analysing the fundamental values of the stock she found that the current stocks are overvalued as per recently published quarterly reports of the companies for the insurance, hydropower and hotel sectors$.$ Similarly, the banking and financial institutions still have undervalued shares, but the Price$-$Earning $($P$/$E$)$ ratios of the some banks are around $25$ times. When she analyses charts, she found that the market cycle has already completed. A stock analyst remarks that it is right time to

invest in the stock since the market is in the increasing trend. But just the next day, news reported that the profits of bank and manufacturing industries were decreased and high possibilities to increase bad loan in future due to COVID$-19.$ Almost all companies reduced their dividends in this fiscal year. The market increased by $42\%$ within $9$ months. The Price$-$Earnings ratios of the companies are around $30$ times. A lot of right shares and FPO's are in pipeline, which will increase

share supply in the market. Similarly, Market to Book Ratio is around $20$ times to large$-$cap. So it is not a right time to invest, and better to wait for good time for investment. Again, yet another investor told her with big hope that the just started online trading, ASBA provide investor for online application, deposit dividend on banks of investors and so on$.$ It can create a market$-$friendly environment. Thus, there is a possibility for the market to rise again and seek to gain new heights. Questions

$($a$)$ What is $($are$)$ the major issue$($s$)$ of the case?

$($b$)$ Critically examine the market anomalies mentioned in the case.

$($c$)$ What are your suggestions to Ms$.$ Rana? Why? Explain.