What does NEPSE index tell us about trading?

The whole stock market of world including NEPSE is all about numbers. A fact or piece of data from a study of a large quantity of numerical data is statistics.Well normally statistics is not considered pure science because it is based on artificial assumptions. But it shows us the deviation and convergence in the data provided. Today, we are discussing about what actually NEPSE index tells us, the information we can get from the NEPSE index and it's use.

NEPSE index is a indicator that provides information about market growth since the base year's first day's transaction. Just like CONSUMER index, NEPSE index shows us the over all changes taking place in the stock market. These changes include positive change in the index and negative change in the market. Positive or the increase in the NEPSE index means there increase in the transaction, more purchase, more demand of stock and bullish market. This shows that the purchase or sell of stocks at current time frame can be beneficial. In case of large investors positive index is always a good sign. Its also same for small investors but sometimes due to converging focus of small investors in a single or targeted organization's stock, the correlation may not be seen vividly between NEPSE index and stock price. That is even though the index is increasing the price may drop. This happens because index is calculated in over all capitalization basis.

Next is the decreasing NEPSE index.
A decreasing index tells us that the there is less activity in the stock market and most of the stock holders are trying to sell their stocks but there are very few buyer who want to purchase stocks in a bearish market. In decreasing index situation, the price of stocks starts to decrease which encourage the investors to purchase the stocks at low price if they think that the price won't further deplete. If this activity is copied and followed by many investors then again we have increasing index and a positive market. Thus, there is check and balance situation.

Furthermore, the market in whole is interlinked between prices and index. A positive index may introduce more transaction in the market and prices may go up, with more and more increase, the buyers may not want to purchase stocks. This will cause decrease in transaction and price of stocks as well as decrease in index. Then when the investors believe the stocks price may not further decrease, then they will start to purchase stocks the will increase the price as well as index and the process repeats again and again. This is why NEPSE index or any stock market index shows only the financial situation of the economy. They are do not provide information about the real economy because they may be connected to the group of value creator but in case of Nepal, they are just connected to the financial institutions like banks and finances which means industries' stocks are not traded. So a positive Nepal Stock Exchange index may not provide necessary information that the economy is growing too.