The market’s reaction varies depending on the perceived stability of the government and the pro-business nature of the parties likely to lead.
During the 2013 Constituent Assembly elections, NEPSE experienced a strong rally. Investors were optimistic that liberal parties like Nepali Congress and CPN-UML would form a coalition government, which was expected to bring political stability and market-friendly policies. The index rose sharply before and after the election, reflecting high investor confidence. Trading volumes were strong, and speculative buying drove prices higher, with NEPSE crossing the 700-point mark, a peak not seen in years.
In contrast, the 2017 federal elections brought a more cautious response. With the country transitioning to a federal system, many investors were uncertain about which parties would form the new government and how their policies would affect the economy. This “wait-and-see” sentiment led to modest declines in the NEPSE index before and immediately after the elections. Although trading volumes remained high, investors largely traded cautiously, leading to limited gains and temporary declines. The uncertainty around coalition formation and new regulations created hesitation in the market.
By the 2022 general elections, NEPSE showed only mild volatility. On the trading day following the election, the index dipped slightly as small investors sold off short-term gains, but it quickly recovered over the following sessions. The presence of familiar political parties forming a coalition eased investor fears, and market activity remained healthy. Unlike previous elections, the overall impact on NEPSE was limited, demonstrating how market reactions have become somewhat muted in recent years when outcomes appear predictable.
Election periods affect NEPSE primarily through investor confidence, policy expectations, and liquidity. Investors tend to favor political stability and predictable economic policies, which can drive the market upward, while uncertainty or potential policy shifts can lead to caution and slower trading. Moreover, government spending and changes in monetary policy during election periods can influence liquidity and trading patterns, sometimes fueling speculative activity.
In summary, NEPSE’s reaction to elections depends on expectations about political stability and economic direction. The 2013 elections led to a strong positive rally due to investor optimism, the 2017 elections saw cautious trading and temporary declines amid uncertainty, and the 2022 elections caused only mild fluctuations with a quick recovery. Understanding these patterns helps investors anticipate market behavior during future election periods and highlights the close connection between politics and Nepal’s stock market.
