THE CAPITAL'S MARKET CREDIBILITY GAP

Nepal’s capital market has evolved significantly over the past three decades, transforming from a nascent trading platform into a key pillar of the country’s financial system. The establishment of the Securities Board of Nepal (SEBON) and the Nepal Stock Exchange (NEPSE) in 1993 marked the beginning of modern securities regulation and organised market trading, replacing the former Securities Exchange Centre established in 1976.

Today, NEPSE lists 297 companies, while the number of registered investor accounts has surpassed 7.5 million, according to the Central Depository and Clearing System (CDSC). Market capitalisation stands at Rs 4.67 trillion, underscoring the market’s growing role in the economy. During the market rally five years ago, total market capitalisation briefly exceeded Nepal’s GDP, highlighting the scale of investor participation at its peak.

The market has also become an increasingly important source of liquidity. Nepal Rastra Bank reports that Rs 162.87 billion has been mobilised through margin lending against share collateral. Looking ahead, regulators are focused on strengthening market depth by improving liquidity, broadening the range of financial instruments and expanding investor participation. (See Table 1)

Despite its rapid growth, Nepal’s capital market remains largely speculative and heavily concentrated in the financial sector. Broadening market participation by attracting more real-sector companies has long been a policy priority, and recent years have seen notable progress, particularly with the increased listing of hydropower companies.

Much of this shift has been policy-driven. The market’s early expansion was underpinned by regulations requiring banks and financial institutions (BFIs) to offer at least 30% of their shares to the public, creating a broad investor base and deepening market participation. More recently, the Securities Registration and Issue Regulations have accelerated the entry of hydropower companies by requiring up to 10% of an initial public offering (IPO) to be allocated to local communities identified in a project’s Environmental Impact Assessment (EIA). As a result, hydropower companies now issue shares to project-affected area people (PAAP) before opening subscriptions to the general public, says Mohan Kumar Dangi, President of the Independent Power Producers’ Association, Nepal (IPPAN).

While the growing presence of real-sector companies is a positive development, persistent governance weaknesses and recurring concerns over market manipulation and corruption continue to undermine investor confidence. Strengthening transparency and regulatory credibility will be essential if Nepal’s capital market is to mature beyond speculation and become a more effective platform for long-term capital formation.

Regulatory failures continue to undermine market confidence

Despite the rapid expansion of Nepal’s capital market, regulatory weaknesses remain one of its most significant structural challenges. Frequent political interference, leadership instability at the Securities Board of Nepal (SEBON), and the perceived influence of vested interests have repeatedly raised questions about the regulator’s independence and effectiveness.

Market participants have long argued that governance failures create an uneven playing field. Retail investors often operate with limited information, while better-connected market players are perceived to benefit from privileged access and regulatory influence. Allegations of insider trading, share cornering and market manipulation have further weakened investor confidence, reinforcing the perception that the market rewards speculation over transparency.

These concerns have periodically been reinforced by high-profile investigations. Most recently, Nepal’s Central Investigation Bureau (CIB) uncovered alleged irregularities involving netting-based settlement after brokerage firm Himalayan Securities was accused of failing to transfer proceeds from securities transactions to institutional clients, resulting in money laundering charges being filed in court. The case highlighted broader concerns over market supervision and operational oversight.

The hydropower sector has also drawn scrutiny. While policy reforms have encouraged greater participation from real-sector companies, investors have questioned whether inflated project costs and governance shortcomings have disproportionately benefited promoters while limiting long-term returns for public shareholders. Although equity investment inherently involves risk, many retail investors argue that market distortions and speculative practices have discouraged genuine long-term investment. Even several companies traditionally regarded as blue-chip investments have struggled to deliver expected shareholder returns.

Another recurring source of controversy has been SEBON’s approval of premium-priced initial public offerings (IPOs). The regulator shifted away from the long-standing practice of issuing shares at the face value of Rs 100, allowing companies to price IPOs at a premium based on financial performance and valuation. Critics argue that inconsistent transparency and disclosure standards have fuelled disputes surrounding several high-profile issuances, including Sarbottam Cement and Himalayan Reinsurance.

Leadership instability has further complicated efforts to strengthen governance. The last four SEBON chairpersons have each faced significant controversy. Bhishma Raj Dhungana was removed by the Cabinet over allegations related to the approval of Sarbottam Cement’s premium IPO. His successor, Ramesh Hamal, completed his tenure amid criticism over the approval of Himalayan Reinsurance’s premium share issue and an unsuccessful attempt to license a new stock exchange, a process later scrutinised by Parliament’s Public Accounts Committee and challenged before the Supreme Court.

Following Hamal’s departure, prolonged disputes over the appointment of a new chairperson left the regulator without permanent leadership for 11 months before Santosh Narayan Shrestha assumed office in November 2024. Shrestha resigned in April 2026, once again exposing governance challenges within the institution. The government subsequently appointed former Nepal Rastra Bank Executive Director, Gopal Prasad Bhatta, as SEBON chairperson on June 19, 2026, placing renewed expectations on the regulator to restore credibility, strengthen oversight and rebuild investor confidence.

Ultimately, the long-term credibility of Nepal’s capital market will depend not only on attracting new listings and investors but also on establishing transparent regulation, independent oversight and consistent enforcement. Without stronger governance, efforts to deepen the market risk being overshadowed by recurring questions over fairness, accountability and investor protection.

A new roadmap for capital market reform

With the appointment of Gopal Prasad Bhatta as Chairperson of the Securities Board of Nepal (SEBON), attention has shifted from past controversies to the challenge of rebuilding confidence and accelerating market development. Soon after assuming office, Bhatta unveiled a reform blueprint that aims to position Nepal’s capital market as a key engine for long-term economic growth and capital mobilisation.

“We will develop the capital market as the second pillar of economic development,” says Bhatta.

His strategy prioritises stronger regulation, greater transparency and the adoption of international standards to modernise Nepal’s securities market. “The principles of the International Organisation of Securities Commissions (IOSCO), international best practices, government policies and capital market development plans will be duly implemented to foster a credible, dynamic and transparent market,” he says. “Many capital market instruments, particularly the bond market, remain underdeveloped in Nepal, and strengthening these segments will be central to our reform agenda.”

The roadmap reflects a broader ambition to deepen the market beyond equities, expand financing options for businesses and create a more resilient investment ecosystem capable of supporting Nepal’s long-term economic transformation.

IPO backlog tests reform agenda

While SEBON’s new leadership has outlined an ambitious reform agenda, one of its earliest tests will be clearing the growing backlog of pending initial public offering (IPO) applications. Prolonged delays have created uncertainty for businesses seeking to raise capital and have reinforced concerns over the efficiency and predictability of Nepal’s primary market.

For many investors, the credibility of the IPO process has been weakened by years of regulatory controversies and inconsistent decision-making. A financing mechanism intended to broaden public ownership and mobilise capital has increasingly become the subject of scrutiny, underscoring the need for greater transparency, stronger governance and timely regulatory action.

Rebuilding confidence will require more than policy announcements. As SEBON pursues structural reforms, it must also address the operational bottlenecks that have left dozens of companies waiting to access the capital market. The regulator’s ability to process applications consistently and within a predictable timeframe will be a key indicator of whether the promised reforms translate into meaningful institutional change.

At present, applications are pending from 18 companies in the hotel and tourism sector, 34 hydropower companies, 30 manufacturing firms, three micro-insurance companies, five investment companies and 14 businesses from other industries, reflecting robust demand for equity financing across the economy.

Among the applicants, more than a dozen companies have proposed premium-priced IPOs, including Shree Airlines (Rs 200 per share), Numbur Himalaya Hydropower (Rs 218), Shivam Holding (Rs 210), Jagadamba Steels (Rs 330), Shaurya Cement Industries (Rs 333), Maruti Cements (Rs 426), Riddhi Siddhi Cement (Rs 246), Ambe Steels (Rs 303), Hulas Infra (Rs 333.56), Hulas Iron Industries (Rs 255), Bhagawati Steel Industries (Rs 233), Chhaya Devi Complex (Rs 400), Kailash Helicopter Services (Rs 327) and Hulas Finserv Hire Purchase (Rs 358.85). How SEBON evaluates these applications—particularly those seeking premium valuations—will be closely watched as a measure of the regulator’s commitment to transparency, consistency and investor protection