Market Shakedown: NEPSE Sheds 2% as Regulatory Heat and Tax Drops Spook Investors

KATHMANDU — The Nepal Stock Exchange (NEPSE) faced a grueling week as a wave of broad-based selling wiped out approximately Rs. 80 billion in investor wealth. The benchmark index tumbled 52.60 points—a 1.95% drop—closing the final June trading week at 2,649.51.

While the market hovered around the comfortable 2,700 mark earlier this month, a mix of regulatory investigations, a massive decline in capital gains tax (CGT) revenue, and shifting micro-sentiments have left investors cautious and operating in a “fear zone”.

The Red Sweep: Sector Breakdown

The correction spared no one; all 13 sectoral indices wrapped up the week deep in negative territory.

• Manufacturing and Processing took the hardest hit, sliding 3.31%, heavily dragged down by drops in heavyweights like Sopan Pharmaceuticals.
• Hydropower followed closely with a 2.80% decline. Despite the overall bloodbath, a few outliers like Yambaling Hydropower and Taksar Pikhuwa Khola Hydropower defied the trend, each managing to squeeze out massive gains.
• Banking and Finance also faced steady downward pressure, despite high liquidity across commercial banks.

Why is the Market Shaking?

Market analysts and chartered accountants point to two major triggers behind this sudden loss of momentum:

1. Capital Market Investigations

The primary culprit crushing investor confidence is the ongoing regulatory scrutiny regarding capital market practices. With several brokerages under close investigation, retail and institutional players are choosing to sit on their hands. When buyers feel a regulatory squeeze, they wait for rock-bottom valuations before making a move.

2. Looming Realities of the 37.5% CGT Drop

Fresh data from CDS and Clearing Limited revealed that the government collected just Rs. 9.54 billion in Capital Gains Tax (CGT) over the first 11 months of the 2025/26 fiscal year. This marks a staggering 37.5% drop from the Rs. 15.27 billion collected during the same period last year. Because CGT directly tracks realized net profits, this number confirms what traders already feared: making a profit on NEPSE has become significantly harder this year.

The Silver Lining: Margin Lending to the Rescue?

Despite the grim week, market veteran Manish Aryal suggests a massive liquidity injection is just around the corner.

“At least Rs. 1 trillion is expected to be injected into the market as the new margin lending facility rolls out completely. Currently, 55 brokerage companies have already been authorized to issue margin loans, with the remaining firms fast-tracking their approvals. This could provide the exact demand shock NEPSE needs to reverse its course.”

Additionally, with the newly approved national budget implementing structures to make CGT a final withholding tax, the long-term policy framework is becoming more predictable—even if the short-term sentiment remains rocky.

The Takeaway for Investors: While the macro-liquidity environment remains stable (with average daily turnover holding steady at Rs. 4 billion), the immediate trend relies heavily on whether the upcoming central bank monetary policy updates address private sector credit growth demands. Keep an eye on margin lending data over the coming sessions.