Why Isn't NEPSE Making New Highs Under the Balen Government?

When Balendra "Balen" Shah was announced as the RSP's prime ministerial candidate, the market reacted with overwhelming enthusiasm. NEPSE surged nearly 6% in a single trading session, triggering the circuit breaker and halting trading for the day. Investors appeared to be pricing in a new era of reform, transparency, and stronger governance.

Yet only a few weeks later, the optimism has faded. On May 14, 2026, NEPSE closed at 2,730.17, marking its third consecutive losing session and remaining well below the levels many investors expected after the formation of the new government.

So why isn't the market making new highs?

1. The Market Already Priced In the Good News

One of the oldest investing principles is: "Buy the rumor, sell the news."

Much of NEPSE's rally occurred before the government was formed, as investors anticipated a Balen-led administration. Once the government officially took office, the speculative excitement began to fade. Markets tend to move on expectations, and investors are now waiting for concrete policy results rather than political promises.

2. Liquidity Remains the Market's Biggest Driver

NEPSE has always been highly sensitive to liquidity conditions.

Even a reform-oriented government cannot push stock prices higher if money is being pulled out of the system. Recent liquidity management measures by Nepal Rastra Bank have reduced excess cash in the banking sector, making it more difficult for the market to sustain strong upward momentum.

In a liquidity-driven market like Nepal, liquidity often matters more than politics in the short term.

3. Banking-Sector Uncertainty Is Weighing on Sentiment

The government's push for greater accountability, including investigations into the assets of current and former officials connected to financial institutions, has created uncertainty around the banking sector.

While stronger oversight and anti-corruption measures are positive for the economy over the long run, investors generally dislike uncertainty. Since banking and financial institutions account for a significant portion of NEPSE's market capitalization, caution in this sector has weighed on the broader index.

4. Interest Rates Are Still Relatively Attractive

Another challenge for equities is that deposit rates remain competitive.

When investors can earn attractive returns through fixed deposits with significantly lower risk, there is less incentive to shift capital into the stock market. Historically, NEPSE's strongest bull runs have occurred when interest rates were falling and liquidity was abundant.

That environment has not yet fully emerged.

5. Macroeconomic Constraints Remain

Nepal continues to operate within broader fiscal and monetary constraints, including commitments tied to international financial programs and economic reforms.

As a result, policymakers have limited room to introduce aggressive stimulus measures that might boost market sentiment in the short term. Investors hoping for immediate market-friendly interventions may need to be more patient.

The Bottom Line

The Balen government is not necessarily the reason NEPSE is struggling to make new highs.

Instead, it has inherited several structural challenges: tight liquidity, elevated interest rates, uncertainty within the banking sector, and a cautious macroeconomic environment. These are issues that cannot be solved within a few months, regardless of public support for the government.

The reforms many investors want—greater transparency, stronger institutions, and better governance—are generally positive for the market over the long term. However, they can also create short-term uncertainty as the transition unfolds.

For now, the factors that have historically driven major NEPSE rallies remain largely unchanged: improving liquidity, lower interest rates, and greater policy clarity. Until those conditions align, the market is likely to remain range-bound, regardless of how much optimism surrounds the new government.

Disclaimer: This article reflects personal analysis and commentary only. It should not be considered investment advice. Stock markets are influenced by a wide range of economic, financial, and behavioral factors beyond government policy.