Investors are concerned that a capitalization exceeding the actual amount could potentially benefit the market and influence future policy decisions.

The most recent total value of all the shares listed on the market is known as capitalization. By Thursday's market close, this capitalization figure had risen to 47 trillion 65 billion. This is the largest capitalization amount to date.

The market size is indicated by the capitalization amount. The New York Stock Exchange of America is the world's largest stock exchange based on capitalization. whose market capitalization is $290 billion.

Large investors are currently not happy with this market's capitalization calculation process. They have been arguing that there are problems with the way capitalization is calculated now. The market looks to be much larger than it actually is because of the existing technique of calculation.

Investors worry that a capitalization that exceeds the real amount could potentially be beneficial in the market and influence future policy decisions.

Investor and former president of the Nepal Investors Forum Ambika Prasad Paudel stated, "On the one hand, the capitalization amount is much bigger than the actual amount and wrong, on the other hand, voices will be raised against the market when this capitalization amount starts to be bigger than the GDP tomorrow." The building industry can adopt a rigid stance against the market. It has an impact on how freely the market operates. For this reason, the market's technique for calculating capitalization needs to be changed right now.

Bank and financial institution shares are categorized into two groups on the Nepalese stock market: the founding group and the general group. There are two types of share pricing for the two groupings as well. The shares, which are always valued at two different prices, must always be capitalized at the same price.

Let's use an example to better grasp this. With the highest capitalization of any commercial bank, Nabil Bank has 275 million 69 thousand 984 listed shares. wherein the remaining 15 crore 81 lakh 21 thousand 99 shares, or 58.44 percent, are founder shares and the remaining 11 crore 24 lakh 48 thousand 885 shares, or 41.56 percent, are shares of the general group. The founder's shares are currently trading at Rs 307, whereas Nabil's ordinary shares are currently trading at Rs 660.

As of right now, NEPSE uses 660 as the total share value to compute capitalization. Nabil's capitalization increased to $1 trillion 78 billion as a result. However, Nabil's capitalization amount will only be 1 trillion 22 billion if calculated in accordance with the investor's statement. (15,81,21099 × 307) + (11,24,48,885 × 660) is the calculation.

Just Nabil Bank's capitalization is thought to be 56 billion higher than it actually is. This indicates that each bank and financial institution's capitalization amount has been estimated to be higher than the real amount. Although each bank and financial organization has more founder shares than usual, all shares are calculated using the standard value.

"When the value of the founder and the general public is different, if the capitalization is calculated according to the same method, the reality will be seen," Paudel stated.

In a similar vein, a number of businesses have left the market. NEPSE has also been used to compute the capitalization of over a dozen now-defunct enterprises.

Raghupati Jute Mill, Bhrikuti Paper Factory, Shriram Sugar Mill, Capital; Arun Botany Industry, Virat Sooz; Butwal Thread Factory; Himalayan Floor; Gorakhkali Rubber Industry; Harsiddhi Brick Industry; Jyoti Spinning Mill; Nepal Vegetable Ghee Industry Additionally, the capitalization amounts of Yak and Yeti Hotel, Merchant Finance, Himalayan Finance, Crystal Finance, Remembrance Finance, and Nepal Share Markets are being added.

These 19 companies have a cumulative valuation of 5.5 billion dollars every day. Additionally, it displayed a stock market that was larger than reality.

According to NEPSE, there are no plans to change the present calculation method; it is the worldwide standard. According to NEPSE spokesperson Murahari Parajuli, "investors look at the float market capitalization if you look at the total capitalization of the general group only."

In other global marketplaces, the price that is transacted is the same for both the general public and the founders. Consequently, the capitalization is consistent. However, transactions involving banks and other financial organizations in Nepal are carried out at various costs for regular people and founders.

Due to the fact that founders and ordinary people are trading at different prices, now a question has been raised about the capitalization calculation method. NEPSE officials claim that the problem is not in the calculation method, but in differentiating the value of the shares of the same company into founders and ordinary people.

Capitalization is not a point of contention, according to capital market specialist and former executive director of Nepal Rastra Bank Gopal Bhatt. NEPSE determined the capitalization by using the total number of shares in the market as the ordinary value, since founder shares are not traded but ordinary shares are. "This is a NEPSE calculation method," he explained. "To see the capitalization of common shares that are being traded, use a different method."

The float market capitalization, which is displayed separately by NEPSE on its website, is the indicator that shows the capitalization of common shares solely. "To demonstrate that investors may have this grievance, we have already isolated the sensitive float index and its capitalization from the public share trading," NEPSE spokesperson Parajuli stated.

The difference between total capitalization and float market capitalization is substantial. At the moment, the float market capitalization is 16 trillion 80 billion rupees. 47 trillion 65 billion is the total capitalization. This leads to a very big total capitalization size. According to NEPSE, there's no reason to be concerned of the capitalization's size.

In line with the shift in market capitalization, the NEPSE index will likewise decline. Beginning on January 30, 2050, the capitalized amount of every company was used as the base for the NEPSE calculation.

Assume that the capitalized amount was 10 billion that day and that it climbed to 10.20 billion the following day. Additionally, the NEPSE increased by 2 percent to 120 points. Based on capitalization, the index is declining in other nations.

Investors assert that a new approach to market capitalization calculation will result in a more realistic NEPSE index.

'Overvalued' is how well-known global stock market investor Warren Buffett described market capitalization exceeding GDP. He had created a different index to compare capitalization to GDP prior to investing. He thought that at this point, investors ought to make cautious investments.

Buffett, however, later stated that there is no need to compare capitalization with GDP as it has been shown that the capitalization of industrialized nations will never fall below GDP.

Currently, a few investors in Nepal are developing methods based on GDP and market capitalization comparisons. As of right now, the market capitalization is 47 trillion 65 billion. Likewise, the GDP is at 57 trillion four billion rupees at now. In this sense, the market meets the GDP even if there are no further shares added, even if it grows by just 20%.

Because of this, some investors are skeptical that the market can rise above GDP or that stringent regulations will prevent it from doing so.

Former Rashtra Bank executive director Bhatt claims that there is no reason to be concerned about this. According to him, there is no need for concern when comparing the market capitalization and GDP because the developed countries' market capitalization still exceeds the GDP.

India, a neighbor, has a market capitalization of 122% of its GDP, or 22% more than GDP. Additionally, the market capitalization of America is 190% of GDP. Japan's market capitalization represents 153% of its GDP in a similar manner.

Aside from these, some nations—Australia, Canada, Saudi Arabia, South Korea, Netherlands, Switzerland, South Africa, Iran, Sweden, and the United Arab Emirates—have market capitalizations that exceed their GDP. As a result, analysts claim that comparing market capitalization to GDP need not be feared. However, it might be counterproductive to tighten market restrictions based on the expectation that market capitalization will surpass Nepal's GDP in the future.