Why Hydropower Stocks on NEPSE Could Be Poised for a Historic Rally

-

Why Hydropower Stocks on NEPSE Could Be Poised for a Historic Rally

August 31, 2020 (2077-5-15 BS)


Are you eyeing hydropower shares on the Nepal Stock Exchange (NEPSE)? Do you sense a “Hydro Bull” market brewing in the coming days? Many investors believe hydropower stocks—currently trading at what seems like their lowest ebb—could soon surge to all-time highs. Here’s an insightful breakdown of why hydropower might be the next big opportunity on NEPSE, backed by economic, policy, and market dynamics as of mid-2020.


1. Single-Digit Interest Rates Boost Profitability

Banks and financial institutions are offering loans to hydropower projects at single-digit interest rates—a sharp decline from previous years. For instance, rates that once hovered above 12% have dipped below 10%, driven by excess liquidity in the banking system. Lower borrowing costs directly enhance project profitability, making hydropower companies more attractive on NEPSE. With reduced interest expenses, cash flows improve, potentially lifting earnings per share (EPS) and stock valuations.


2. Resilience Amid the COVID-19 Storm

While the COVID-19 pandemic has battered industries like tourism and manufacturing, hydropower remains unscathed. Construction of projects continues uninterrupted, and electricity generation—once operational—faces no demand slump. This stability contrasts with other NEPSE sectors, positioning hydropower as a safe haven for investors seeking resilience in uncertain times.


3. Falling Construction Costs

The pandemic has inadvertently lowered the cost of key inputs like steel and cement, as global demand weakens. For hydropower firms, this translates to reduced capital expenditure on ongoing projects. Cheaper materials, combined with steady progress, could accelerate project timelines and improve return on investment—factors that savvy NEPSE investors watch closely.


4. Abundant, Affordable Labor

With thousands of Nepali workers returning from abroad due to the pandemic, the labor market is flush with skilled and semi-skilled talent. Hydropower projects, often located in rural areas, can now tap this workforce at competitive wages. Lower labor costs further bolster project economics, enhancing the appeal of hydropower stocks trading on NEPSE.


5. Central Bank’s Push for Hydro Financing

Nepal Rastra Bank (NRB) has mandated that banks and financial institutions allocate at least 10% of their outstanding loans to priority sectors like hydropower—shifting from the earlier approved-limit basis. This policy ensures a steady flow of capital into the sector at competitive rates. For NEPSE-listed hydropower firms, this means easier access to funding, reduced financial strain, and potential stock price appreciation as investor confidence grows.


6. Cash Flow Shifting to Hydropower

With traditional businesses reeling from COVID-19, traders and businessmen are redirecting their cash into hydropower investments. This influx of capital—both through direct project funding and stock purchases—could drive demand for NEPSE hydropower shares. Increased trading volumes and liquidity might spark a bullish trend in the sector.


7. Economies of Scale in Larger Projects

Nepal’s hydropower focus is gradually shifting from small-scale plants to mid- and large-scale developments (e.g., projects exceeding 100 MW). These larger projects promise lower per-unit production costs and higher revenue potential, especially with export opportunities to India. NEPSE investors could see this scale-up reflected in stronger financials and stock performance over time.


8. Government Prioritization and Refinancing Support

Hydropower tops the government’s investment agenda, backed by tangible incentives. Nepal Rastra Bank’s refinancing facilities offer loans at a subsidized 5% rate for six months, slashing borrowing costs for developers. For NEPSE-listed companies, this translates to higher net profits and a stronger case for dividend payouts—key drivers of share price growth.


9. Undervalued Stocks with High Upside

Many hydropower shares on NEPSE are trading at rock-bottom prices, even among blue-chip names with proven returns. This low entry point offers high market accessibility and significant upside potential. For instance, stocks with strong fundamentals but depressed prices due to market sentiment could rebound sharply as conditions improve.


10. Guaranteed Demand via Nepal Electricity Authority (NEA)

The NEA’s off-take agreements ensure that hydropower companies face zero demand risk once projects are operational. Power purchase agreements (PPAs) lock in revenue streams, nullifying default risk and providing cash flow certainty. For NEPSE investors, this stability underpins the sector’s long-term value proposition.


The NEPSE Perspective: Evaluate and Act

The confluence of these factors—low interest rates, pandemic resilience, cost advantages, policy support, and guaranteed demand—sets the stage for a potential hydropower boom on NEPSE. However, not all stocks are equal. Before investing, scrutinize company-specific metrics: management quality, debt levels, project timelines, and cash flow projections. A well-run firm with a near-complete project could outperform a heavily leveraged one still in early construction.


The risk is yours, but so is the reward. With NEPSE’s hydropower sub-index poised for a breakout, 2077 (2020-21) could mark the start of a historic rally. Evaluate wisely, invest strategically, and you might ride the “Hydro Bull” to substantial gains.

Comments

Post a Comment

Popular posts from this blog

The Global Gold Rush: Is It a Safe Bet for Nepali Investors?

-
Image
By Surya Prasad Sharma – Experienced Banker & Financial Expert Posted: April 2025 Introduction As a banker with nearly two decades of experience in Nepal’s financial sector, I’ve witnessed how economic shifts influence investment choices. Recently, the world has seen an unprecedented surge in gold prices, capturing the attention of investors globally—and here in Nepal too. Last week, gold prices in Nepal hit a remarkable NPR 1,80,300 per tola, sparking debates about its value as a safe investment. Let’s dive into this trend, explore its implications, and assess whether gold remains a risk-free option for Nepalis like The Global Gold Boom Gold has long been a symbol of wealth, from ancient kingdoms to modern economies. Today, its price has soared to over $3,125 per ounce internationally, driven by global uncertainties—geopolitical tensions, trade wars, and inflationary pressures. Historical data shows gold’s value has climbed from a modest $4.25 per ounce in 1717 to this historic hi...
Read more

The Ongoing Liquidity Crisis and the Nepalese Economy: Reasons and Measures

-
Image
Nepal has been grappling with a severe liquidity crisis over the past few months, raising concerns across the nation. Various stakeholders attribute this crisis to different factors. Many blame the banking sector for its reckless lending practices, which saw a 30% growth in loans within the first four months of the current fiscal year, far outpacing the 19% growth in deposits. Conversely, bankers and some economists argue that the crisis stems from delays in government capital expenditure. Others point to the Nepal Rastra Bank’s (NRB) recent monetary policy, which restricts banks from leveraging their capital, reserves, debentures, and new provisions for further market investments. Current Status of the Nepalese Economy In the first four months of the ongoing fiscal year, government capital expenditure reached only 6% of the budget, a sharp decline from the 10% recorded in previous years. Remittance inflows, a lifeline for the economy, have declined by 11% compared to the previous year...
Read more

Situational Leadership Training in Malaysia: Insights from a Transformative Experience

-
I, along with four branch managers from Siddhartha Bank Limited, had the privilege of participating in a four-day Situational Leadership training program in Malaysia. Held from August 19 to August 22, 2024, at the Wyndham Hotel in Kuala Lumpur, this opportunity was a remarkable blend of knowledge-sharing and professional growth. The program, enriched by the trainer’s expertise in AI, data analytics, machine learning, big data, and the paradigm shift of technology in daily life, offered practical insights that resonate deeply with my role in banking. Below, I share my key takeaways and reflections, aiming to inspire fellow leaders navigating today’s dynamic landscape. The Setting: Kuala Lumpur and the Program Kuala Lumpur, with its vibrant mix of modernity and tradition, provided an ideal backdrop for this training. The Wyndham Hotel’s sophisticated ambiance set the stage for an immersive experience. Organized for Siddhartha Bank’s leadership team, the program stood out for its relevanc...
Read more