Chapter 8 · Week 8 — From the Macro Data to NEPSE
From the Macro Data to NEPSE
The transmission chain from a remittance dollar to a share price, and a twelve-number dashboard you can rebuild every month.
Seven weeks of indicators. This week they connect. You will build the transmission chain from a remittance dollar to a share price, learn what the release's own stock market table says, and assemble a one-page dashboard you can rebuild every month in about twenty minutes.
8.1 The transmission chain
Everything you have learned, in one diagram.
┌─────────────────────────────────────────────────────────────────┐ │ │ │ WEEK 4 remittances Rs 1,534 bn │ │ BoP surplus Rs 491 bn │ │ │ │ │ ▼ │ │ WEEK 4 NRB buys FC, reserves ▲ Rs 2,569 bn │ │ │ │ │ ▼ │ │ WEEK 5 reserve money ▲ 12.06 % │ │ broad money M2 ▲ 11.96 % │ │ deposits Rs 6,970 bn │ │ │ │ │ ▼ │ │ WEEK 5 credit ▲ only 8.19 % ◄── the bottleneck │ │ │ │ │ ▼ │ │ WEEK 6 excess liquidity │ │ T-bill 2.94 %, interbank 2.99 % │ │ deposit rate 4.29 % │ │ │ │ │ ▼ │ │ WEEK 6 real deposit return only +1.53 % │ │ │ │ │ ▼ │ │ WEEK 8 savings look for a better return │ │ │ │ │ ┌──────────┴──────────┐ │ │ ▼ ▼ │ │ LAND SHARES │ │ NEPSE 2,724 │ │ mkt cap/GDP 70.5 % │ └─────────────────────────────────────────────────────────────────┘
The bottleneck is the whole point. Money entered the system faster than the real economy could absorb it as credit, so it accumulated as financial claims and bid up the price of assets that already exist.
8.2 What the release says about the market
Table 58 of the workbook is the stock market, published by the central bank alongside everything else — a reminder that NEPSE is a macroeconomic variable in Nepal, not a sideshow.
STOCK MARKET INDICATORS, mid-June indicator 2024 2025 2026 Δ% ──────────────────────────────────────────────────────────────────── NEPSE index (closing) 2,112.30 2,655.39 2,724.03 +2.59 Sensitive index 374.18 454.09 467.10 +2.86 Float index 143.34 181.36 185.90 +2.50 Banking sub-index 1,121.94 1,353.08 1,439.98 +6.42 ──────────────────────────────────────────────────────────────────── Market cap (Rs bn) 3,349.5 4,423.0 4,654.6 +5.23 Paid-up value (Rs bn) 819.1 867.3 936.8 +8.02 Listed companies 270 272 297 +9.19 Listed shares (mn) 8,305.2 8,796.9 9,507.9 +8.08 ──────────────────────────────────────────────────────────────────── Market cap / GDP (%) 58.15 71.34 70.52 −1.15 12-mth rolling std deviation 93.23 172.18 110.91 −35.58 Turnover / market cap (%) 18.76 43.24 32.11 −25.74 Traded quantity ratio (%) 21.43 48.90 37.02 −24.29 ────────────────────────────────────────────────────────────────────
Four things to read out of that table.
The index rose 2.59% but the banking sub-index rose 6.42%. Banks led. Given Week 6 — falling rates, a squeezed deposit-lending spread — that is worth questioning rather than assuming.
Market cap grew 5.23% while the index grew 2.59%. The difference is new supply: 25 new listings and 711 million new shares. Market capitalisation can rise without a single existing share going up.
DECOMPOSING MARKET CAP GROWTH
Market cap growth ≈ price growth + new listing growth
5.23 % ≈ 2.59 % + ~2.6 %
Anyone quoting "market capitalisation grew 5%" as
evidence of a rising market has counted the IPOs.Turnover fell 25.74% and volatility fell 35.58%. The market went quieter as it went slightly higher — participation cooled even as the index held.
Market cap / GDP slipped from 71.34% to 70.52%. The market grew, but the economy grew slightly faster. This ratio is the honest measure of whether equities are outpacing the real economy, and this year they did not.
8.3 The valuation question
MARKET CAPITALISATION / GDP, the series 2016/17 60.34 ████████████ 2017/18 41.53 ████████ 2018/19 40.62 ████████ 2019/20 46.10 █████████ 2020/21 92.15 ██████████████████ ◄── the liquidity spike 2021/22 57.66 ███████████ 2022/23 57.43 ███████████ 2023/24 62.25 ████████████ 2024/25 76.25 ███████████████ 2025/26 70.52 ██████████████
2020/21 is the case study. Market cap reached 92.15% of GDP in a year when real GDP grew 4.49% and broad money grew 22.69%. The market did not re-rate because the economy improved; it re-rated because money supply grew five times faster than output and had nowhere else to go. It then halved as a share of GDP the following year when liquidity reversed.
8.4 The five questions that move NEPSE
┌───┬──────────────────────────────┬────────────────────────────┐ │ 1 │ Is liquidity expanding? │ M2 growth vs credit │ │ │ │ growth. A widening gap │ │ │ │ means money with nowhere │ │ │ │ to go. │ ├───┼──────────────────────────────┼────────────────────────────┤ │ 2 │ What does cash pay? │ Deposit rate minus CPI. │ │ │ │ A low real deposit return │ │ │ │ pushes savers out. │ ├───┼──────────────────────────────┼────────────────────────────┤ │ 3 │ Is the external account │ BoP and reserves. A │ │ │ comfortable? │ deficit year forces rates │ │ │ │ up and restrictions on. │ ├───┼──────────────────────────────┼────────────────────────────┤ │ 4 │ Are bank margins safe? │ Lending minus deposit │ │ │ │ rate. Banks are the │ │ │ │ largest weight in the │ │ │ │ index. │ ├───┼──────────────────────────────┼────────────────────────────┤ │ 5 │ Is supply growing? │ New listings and paid-up │ │ │ │ value. Rights and IPOs │ │ │ │ absorb the same rupees. │ └───┴──────────────────────────────┴────────────────────────────┘
Apply them to 2025/26:
1 Liquidity M2 11.96% vs credit 8.19% EXPANDING
2 Cash return real deposit rate +1.53% LOW
3 External BoP +Rs 491bn, reserves high COMFORTABLE
4 Bank margins spread 3.70pp, deposit rate
above T-bill SQUEEZED
5 Supply +25 listings, +8.08% shares GROWING
Four of five supportive, one negative, and the negative
one sits on the largest sector in the index.8.5 Building the dashboard
Twelve numbers. Twenty minutes a month. Rebuild it every release and the *direction* will teach you more than any single reading.
┌─────────────────────────────────────────────────────────────────────┐ │ NEPAL MACRO DASHBOARD eleven months 2025/26 │ ├──────────────────────────┬──────────────┬───────────────────────────┤ │ INDICATOR │ VALUE │ READ AS │ ├──────────────────────────┼──────────────┼───────────────────────────┤ │ Real GDP growth │ 3.90 % │ modest, below potential │ │ CPI y-o-y │ 2.72 % │ contained │ │ Trade deficit / GDP │ 21.2 % │ structural │ │ Remittances / GDP │ 23.2 % │ the funding source │ │ BoP balance │ +Rs 491 bn │ comfortable │ │ Reserves │ $18,654 mn │ strong buffer │ │ M2 growth │ 11.96 % │ expanding │ │ Private credit growth │ 8.19 % │ lagging money │ │ Deposit rate (real) │ +1.53 % │ low return on cash │ │ Base rate │ 6.09 % │ cheap credit │ │ Public debt / GDP │ 40.2 % │ moderate, stable │ │ Market cap / GDP │ 70.5 % │ elevated, not extreme │ └──────────────────────────┴──────────────┴───────────────────────────┘
THE FOUR TRANSITIONS TO WATCH FOR
Each one flips the whole picture:
1. M2 growth falls BELOW credit growth
→ liquidity tightening, rates rise, the asset bid fades
2. BoP turns to deficit
→ reserves fall, policy tightens, 2021/22 repeats
3. Real deposit rate rises above ~3 %
→ cash becomes competitive with equities again
4. Remittance growth stalls
→ the whole chain in 8.1 loses its first link8.6 What this analysis cannot do
Be as clear about the limits as about the method.
┌────────────────────────────────────────────────────────────┐ │ │ │ MACRO TELLS YOU MACRO DOES NOT TELL YOU │ │ ───────────────── ──────────────────────── │ │ the direction of the which company to own │ │ tide │ │ what anything is worth │ │ whether liquidity │ │ supports valuations when a turn happens │ │ │ │ which sectors face a whether a price already │ │ headwind or tailwind reflects all of this │ │ │ └────────────────────────────────────────────────────────────┘ Every relationship in this course is a TENDENCY measured over a handful of years in one small economy. None of it is a law. Liquidity has been abundant and the market has fallen; liquidity has been scarce and it has risen. Nothing here is investment advice.
8.7 The course in one page
┌────────┬──────────────────────────────┬───────────────────────────┐ │ WEEK 1 │ Reading the data │ five families; fiscal │ │ │ GDP, savings, the release │ year; savings gap 35 pp │ ├────────┼──────────────────────────────┼───────────────────────────┤ │ WEEK 2 │ Prices │ index level ≠ inflation; │ │ │ CPI, WPI, wages │ weights decide the │ │ │ │ headline │ ├────────┼──────────────────────────────┼───────────────────────────┤ │ WEEK 3 │ Trade │ coverage 15% gross, │ │ │ exports, imports, ToT │ ~10% net; find the │ │ │ │ commodity │ ├────────┼──────────────────────────────┼───────────────────────────┤ │ WEEK 4 │ BoP and remittances │ labour is the export; │ │ │ reserves, the peg │ import cover in months │ ├────────┼──────────────────────────────┼───────────────────────────┤ │ WEEK 5 │ Money and banking │ M0/M1/M2; money is │ │ │ deposits, credit │ created abroad │ ├────────┼──────────────────────────────┼───────────────────────────┤ │ WEEK 6 │ Interest rates │ rates fell because of │ │ │ corridor, real rates │ the BoP, not policy │ ├────────┼──────────────────────────────┼───────────────────────────┤ │ WEEK 7 │ Public finance │ capital spending halved; │ │ │ revenue, debt │ revenue rides imports │ ├────────┼──────────────────────────────┼───────────────────────────┤ │ WEEK 8 │ Macro to NEPSE │ a liquidity market; │ │ │ the dashboard │ twelve numbers, monthly │ └────────┴──────────────────────────────┴───────────────────────────┘
8.8 The one habit to keep
┌────────────────────────────────────────────────────────┐ │ │ │ NO NUMBER IN THIS RELEASE MEANS ANYTHING ALONE. │ │ │ │ A trade deficit of 21% of GDP is alarming — until │ │ you see remittances of 23%. │ │ │ │ A T-bill at 2.94% looks like easy policy — until │ │ you see it was caused by a payments surplus. │ │ │ │ Export growth of 77.77% looks like a triumph — │ │ until you find the soyabean oil. │ │ │ │ Read the chain, never the cell. │ │ │ └────────────────────────────────────────────────────────┘
The complete formula sheet
REAL SECTOR
(1 + nominal) = (1 + real) × (1 + deflator)
GDP deflator = Nominal GDP ÷ Real GDP × 100
Savings gap = GNS/GDP − GDS/GDP
PRICES
Index = basket now ÷ basket in base year × 100
Inflation = (Index now ÷ Index 12m ago − 1) × 100
Contribution = group weight × group inflation
Real wage ≈ wage growth − CPI inflation
EXTERNAL
Trade balance = exports − imports
Coverage = exports ÷ imports × 100
Import cover = reserves ÷ average monthly imports
Current a/c = goods + services + income + transfers
MONEY
M2 = M1 + time and savings deposits
Multiplier = M2 ÷ M0
ΔM2 = ΔNFA + ΔNDA
Credit/deposit= credit ÷ deposits × 100
RATES
Real rate = (1 + nominal) ÷ (1 + inflation) − 1
Spread = lending rate − deposit rate
Liquidity = deposit growth − credit growth
PUBLIC FINANCE
Debt/GDP = debt ÷ nominal GDP
Δ(debt/GDP) ≈ primary deficit/GDP + (r − g) × debt/GDP
MARKET
Mkt cap/GDP = market capitalisation ÷ nominal GDP
Cap growth ≈ price growth + new listing growth
Turnover ratio= turnover ÷ market capitalisationWhat you should be able to do now
- Draw the transmission chain from a remittance dollar to a share price.
- Read NRB's stock market table and separate price growth from new supply.
- Explain why market cap / GDP is the honest measure of equity valuation against the real economy, and what 2020/21 demonstrates.
- Apply the five questions to any release and score them.
- Build and maintain the twelve-number dashboard.
- Name the four transitions that would flip the picture.
- State plainly what macro analysis cannot tell you.
You have finished the course. Download the current release from nrb.org.np, rebuild the dashboard, and compare it with the one above. The numbers will have moved. The chain will not have.
Saved in this browser only — there is no account to create. Clearing your browser data clears your progress.