NEPSE gains 23.61 points in holiday-shortened week as hydropower stocks dominate

The Nepal Stock Exchange (NEPSE) index climbed 23.61 points, or 0.86 percent, to close at 2,782.10 during a trading week shortened by public holidays. The market's performance was significantly influenced by the government's unveiling of its budget for the fiscal year 2026-27, which introduced new measures impacting the capital market.

Central to the budget's capital market provisions is the decision to classify capital gains tax (CGT) on listed securities as a final tax. This move has generated divided opinions among market participants. While some investors and analysts view the final tax provision as a positive step towards policy clarity and market development, others express concern over the accompanying tax hikes, fearing they could dampen investment activity.

The Finance Bill, 2083, has adjusted the CGT rates. Short-term traders holding shares for less than a year will now face a 10 percent tax, an increase from the previous 7.5 percent. Long-term investors, holding securities for over a year, will see their CGT rise to 7.5 percent from 5 percent. Market analyst Jagannath Dhungel acknowledged that the revised rates might cause short-term sentiment shifts but emphasized that the final tax treatment resolves a significant source of market confusion.

Despite the reduced trading days from May 25 to 27, most sectoral indices closed higher. The non-life insurance sector led with a 1.87 percent gain, followed closely by the hydropower sector, which rose 1.17 percent. Hydropower companies were particularly active, with Ankhu Khola Jalvidhyut Company topping the turnover chart. The benchmark's rise increased the total market capitalization by Rs42 billion to Rs4.746 trillion. Average daily turnover also saw a substantial climb, suggesting robust investor participation on trading days.

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the revised tax rates may affect investor sentiment in the short term because many participants will view them as a tax increase. However, the decision to treat capital gains tax as a final tax resolves a major source of confusion in the market.