Investors expressed fear that it would push down the already falling market, whereas bankers said there should be no differentiation between public and promoter shares.
The Nepal Stock Exchange (NEPSE) sided with the share investors while Nepal Rastra Bank (NRB) sided with the bankers at a discussion organised at the Finance Ministry regarding the current situation of the capital market.
NRB has already allowed banks and financial institutions (FIs) to reduce their promoter shares to 51 percent from 70 percent. The existing rule prevents promoters to turn shares owned by them into public shares for five years.
President of the Ordinary Share Investors Association Deepak Karki claimed the rumour about possible entry of 19 percent of the shares in the stock market was responsible for the continuous downturn in the stock market. "The government must prevent it from coming to market." The stock market dropped to 512.34 points on Sunday from 1175.38 in September 2008. President of the Finance Companies Association of Nepal Ram Shanta Shrestha responded immediately saying that the move by banks and financial institutions to change promoter shares into public was not responsible for the decrease in the stock market.
He asked if the soaring of the stock index to 1175 points represented the country's economy or the financial status of the companies. "Investors were investing without standing on the ground and it was natural for them to see the downturn," he said. President of the Nepal Bankers Association Sashin Joshi said that nowhere in the world was there differentiation between promoter shares and public shares. "Promoter shares must be allowed to be traded like public shares," he said.
Chairman of the Nepal Stock Exchange Tanka Paneru, however, supported investors saying that that NRB's decision regarding 19 percent promoter shares had come at a time when the stock market was on a bullish trend and there was a need to increase the flow of shares in the market to adjust the market downward.
"Now, the market is on a bearish trend and the additional shares should not be allowed to come in the market now," he said. Chairman of SEBON Surbir Poudel said that the controversy over 19 percent shares would be solved if the Company Act was changed to resolve such issues. But acting governor of NRB KB Manandhar said that NRB could not stop banks
and FIs from selling their promoter shares as per the existing act and that they had just been prevented from doing so for five years.
They also asked the central bank to expand the optimum limit of loans investors could get against the market price of the stock from the existing 50 percent to 70 percent. But Manandhar rejected the investors' appeal saying that such a move would be dangerous and could result in default.
Stock analyst Rabindra Bhattarai mentioned various reasons including the current economic situation, liquidity crisis in the banking system, heavy flow of shares in the market and rising interest of investors to invest in real estate and gold as major reasons behind the declining trend in the stock market.