Understanding the Basics of Share Market in Nepal : A Beginner's Guide


Basics of Share Market

Are you a beginner with zero knowledge in the Share Market? Don't worry; our blog will provide you with all the basic knowledge of the share market. Let's begin with the definition of shares.

What is Share?

Before learning about the share market, you should understand what a share is. A share refers to a unit of ownership in a company. When you buy shares of a company, you are acquiring a portion of ownership in that company. For example, if you buy 10 kitta (10 units) of shares in XYZ company, you own a specific quantity of the company's ownership. However, your ownership percentage is calculated by dividing the number of shares you own by the total number of outstanding shares. 

What is Share Market ?

The Share Market is the marketplace where the buying and selling of shares occurs. In the share market, shares of publicly listed companies are traded through, primary and secondary markets. It's essential to note that trading of shares from private and non-listed companies doesn't take place in the share market.

What is Public Listed companies?

Publicly listed companies are companies that have their shares available for trading on a public stock exchange. In context of Nepal, Nepal Stock Exchange (NEPSE) is only the Public Stock Exchange in the country. So, the companies listed in NEPSE are called public listed companies. 

Types of Share Market 

As mentioned earlier, the trading of shares of public listed companies occurs through the Primary and Secondary Markets. These are the two types of markets where you can buy and sell shares of public listed companies.

What is Primary Market ?

When a company aims to raise funds from the public, it conducts an Initial Public Offering (IPO). This is the company's first time sale of its ownership (shares) to general public. Investors directly purchase shares from the company itself. This market, where shares are acquired by investors directly from the company, is referred to as the Primary Market.

What is Initial Public Offering (IPO) ?

When a company offers shares to the public for the first time, it is called an Initial Public Offering (IPO). To issue shares to the public through an IPO, the company should be listed on a stock exchange. In the context of Nepal, this would be the NEPSE (Nepal Stock Exchange). After getting listed and obtaining permission to issue shares, the company offers shares to the public. These shares are purchased by public investors directly from the company, i.e from Primary Market.

How to apply for IPO ?

Applying for an IPO is an online process. You need to open a demat account, a Mero Share account, and have a CRN number (provided by your bank). Once you have these, you can log in to your Mero Share account and apply for an IPO if there is an active issue. 

What is Demat Account, Mero Share and CRN ?

A Demat Account is an electronic account that holds shares and securities in decentralized form. Just like you need bank account to keep your money, you need Demat account to keep your shares. Demat is used for replacing the old physical share certificates with an electronic format.

Mero Share is a website and application designed to help you manage your Demat Account. Similar to using mobile banking to manage your bank account online, Mero Share lets you handle your Demat Account online. It allows investors to check share holdings, view transaction history, and even apply for Initial Public Offerings (IPOs).

CRN, or Central Registration Number, is a unique identification number assigned to investors in the Nepalese share market. Your bank provides you with a CRN. Once you have a Demat Account, you can request your bank for a CRN either online or by visiting the nearest branch. CRN is essential for applying for IPOs and managing share holdings through the Mero Share platform. It facilitates efficient tracking and management of investor details. 

Read our blog "How to apply for IPO in Nepal?" if you want to know how to create Demat Account, Mero Share Account and CRN.

What is Secondary Market ?

Once shares are sold by the company to the general public through an IPO, the company is not obligated to buy back its shares. Therefore, if you want to sell these shares, you must sell it to other public who are willing to purchase. To facilitate these transactions, you need a stockbroker. Using the online service of stockbroker you can buy or sell shares online. 

This market where shares are bought or sold between the public, through the stock broker is known as the secondary market. In this market, the company whose shares are being traded is not directly involved. 

Who is stockbroker?

In general, a stockbroker is a company that facilitates the buying and selling of financial instruments, including shares, in the secondary market. In the context of Nepal, there are currently 79 stockbrokers providing share brokerage services. To buy and sell shares in the secondary market, you need to open a broker account with one of these broker companies.

How to Trade Share Online in Secondary Market?

When you open a stockbroker account, your stockbroker will provide you with a Trade Management System (TMS) account, which facilitates online trading of shares. Once you have the TMS account, you can log in and buy or sell shares within the active market hours.

What is active Market hours?

Active market hours refer to the time during which the secondary share market is open for trading. Typically, it's from 11:00 AM to 3:00 PM every Sunday to Thursday. However, the market may remain closed on public holidays. During active market hours, you can buy or sell shares through your TMS account.

How shares Prices are Increased or decreased?

When shares are traded in the secondary market for the first time, the traded price is considered the market price of that share. The price keeps fluctuating within the active market hours based on demand and supply. The share market operates on the principle of demand and supply. When the demand for a share is high, the price rises, and when demand is low, the price decreases. However, many others factors too influence the price of a share. 

This was a basic overview of shares and the share market. Here, we provided concise explanations about shares, the Share Market, publicly listed companies, Primary and Secondary Markets, IPOs, Demat Accounts, Mero Share and CRN, Broker accounts, and TMS accounts. We also covered how shares are traded and why share prices fluctuate.

If you want to delve deeper into the share market and aspire to become a professional investor, click to be directed to the Table of Contents Page, which encompasses comprehensive information about the share market, including technical analysis. Begin reading from the first chapter.