Banker Manoj Gyawali on the government's 21-point action plan to reform the capital market: 'It will add tremendous energy to the economy'
The Ministry of Finance has issued the Capital Market Strengthening and Revival Action Plan, 2083, encompassing 21 reform points from IPOs to share transaction taxes. Banker Manoj Gyawali expressed confidence that this step will add remarkable energy to the economy, providing detailed commentary on the impacts of institutional investment, tax incentives, and infrastructure improvements.
Kathmandu — The Ministry of Finance has made public a 21-point action plan to reform the capital market. The 'Capital Market Strengthening and Revival Action Plan, 2083', which covers topics from primary shares (IPOs) to taxes on share transactions, includes immediate measures to encourage investors alongside long-term policy arrangements.
Banker Manoj Gyawali expressed confidence that this government step will add 'tremendous energy' to the economy. Thanking the Finance Minister and the entire team, he provided detailed commentary on the main points of the action plan and their impacts.
1. Arrangements for Institutional Investor Investment
- Policy, legal, and infrastructural arrangements will be made to facilitate institutional investors' entry/investment in the capital market.
- Necessary investment policies and trading structures for institutional investors will be developed.
- Participation of institutional investors in the primary market will be increased.
Impacts:
- Large and long-term investors will increase in the capital market.
- The market's liquidity and depth will increase.
- The influence of excessively small/short-term investors in the market may decrease somewhat.
- The market will become more professional and stable.
2. Portfolio Rebalancing of Institutional Investors
- Arrangements will be made to rebalance the portfolios of institutional investors led by banks.
- Institutional investors such as the Employees Provident Fund, Citizen Investment Trust, Social Security Fund, insurance companies, and Mutual Funds will be encouraged to invest in the capital market.
Impacts:
- Large institutional savings will be mobilized in the capital market.
- Investment diversification will increase.
- The supply of long-term capital in the market will increase.
- It may help reduce the market's volatility.
- Demand in the market will rise, increasing the possibility of the market going up.
3. Capacity Enhancement of CDS & Clearing
- The institutional capacity of CDS and Clearing will be increased to effectively handle the growing size of securities transactions.
- A study on its structural reform will be completed.
Impacts:
- The settlement capacity and efficiency of transactions will increase.
- Systemic bottlenecks will decrease even during large transactions.
- Investor confidence and market infrastructure will be strengthened.
- Necessary digital infrastructure for future capital market expansion will be prepared.
4. PE/VC and Startup Financing
- Capital will be made available to early-stage industries and businesses.
- Startups and projects with high growth potential will be financed through Private Equity/Venture Capital (PE/VC).
- PE/VC will be organized in line with international best practices.
Impacts:
- Dependence on bank loans will decrease, and equity financing will increase.
- Capital will be available for startups, innovation, and technology-based businesses.
- New employment and entrepreneurship may increase.
- Opportunities for capital mobilization in productive sectors will increase.
5. Review of Banks' and Financial Institutions' Capital Market Investments
- Investments of banks and financial institutions in the capital market will be reviewed from the perspective of Exposure, interconnectedness, spillover effect, financial contagion risk, and systemic risk.
- Existing limits and risk frameworks related to securities investment will be reviewed.
Impacts:
- It will help control risks between banking and the capital market.
- Risks to the banking sector from excessive stock market exposure will be reduced.
- It will help strengthen financial stability.
- However, if limits are too strict, there remains a risk that institutional liquidity in the market may decrease.
6. Tax Incentives for Long-Term Investment
- Existing tax arrangements will be reformed to encourage long-term investment in the capital market.
- Under certain conditions, the tax arrangement on capital gains from the disposal of listed securities will be simplified.
- Tax rates will be reduced to 3.75% and 5%.
- Taxes will be paid only on net gains after setting off losses against profits.
Impacts:
- Long-term investment may become more attractive than short-term speculation.
- Investors' holding periods may increase.
- Stability and confidence in the market are likely to increase.
- If tax incentives are effective, new investment may also flow into the capital market.