Shareholders Wealth increases merely by 17.42% due to BFIs Capital Expansion

It was 7th Shrawan, 2072 when newly appointed governor of Central bank, Mr. Chiranjibi Nepal unveiled the monetary policy for the fy 2072/73. The policy consisted a point that directed the BFIs to increase their paid up capital by 4 folds. The commercial banks with the paid-up capital of 2 arba were bound to increase it to 8 arba within the next couple of years. Similarly, Development banks and finance companies of all categories were directed to hike their capital as stated in the policy. 

The news brought an excitement in the capital market. Where Investors considered it as a buying opportunity, bankers started raising voices regarding the deadline. Some experts were seen skeptical regarding its overall impact. Amidst the mixed scenario, the market saw a boom. The benchmark Index on the very next day surged by nearly 40 points to close at 1003.38. 

The broker houses were full of investors wanting to purchase shares of their choice. The Scrips of BFIs were at a high demand with stocks like Nabil and Standard Chartered trading above Rs 2000. On the same day, an investor Mr. Neupane (Supposed) decided to invest 1 lakh each on the stocks of 25 different commercial banks trading on that day. He, thus, ended up buying stocks at different quantity at the below stated prices.     

Market Price : 23/7/2015

Company	Price	Company	Price
Nabil Bank	2091	NCC Bank	470
Siddhartha Bank	757	Global IME	474
Nepal Bank	291	Citizens Bank	530
Agriculture Dev.	465	Prime Commercial	490
Nepal Investment	768	Sunrise Bank	470
Standard Chartered	2156	NIC Asia Bank	660
Himalayan Bank	900	Machhapuchre Bank	589
Nepal SBI	988	Civil Bank	290
Nepal Bangladesh	574	Century Commercial	345
Everest Bank	2328	Sanima Bank	607
Kumari Bank	401	Laxmi Bank	432
Bank of Kathmandu	611	Janata Bank	290
Prabhu Bank	370

 

 

Later during the two year period, he was offered bonus shares by different companies, some even declared cash dividend. However, majority of the companies floated a hefty amount of right shares. The cash dividend provided by the companies helped in decreasing the amount of total Investment.

Company	Units for Rs 1 Lakh	Additional Investment (Right)	Total Investment (Rs)	Units at Present	Value
Nabil	48	-	97,734	105	105,210
SBL	132	13,300	1,13,300	358	113,486
NBL	344	8200	1,08,200	426	142,710
ADBL	215	12,400	1,12,400	534	179,958
NIB	130	-	91,167	239	159,413
SCB	46	-	99,167	153	130,356
HBL	111	2200	1,02,200	276	168,360
SBI	101	6600	1,06,600	264	148,632
NBB	174	23000	1,23,000	579	141,276
EBL	43	3100	1,03,100	168	135,072
KBL	249	16,700	1,16,700	502	130,018
BOKL	164	-	100,000	254	85,344
NCCB	213	-	100,000	247	66,690
GBIME	211	-	97000	330	103,620
CZBIL	189	20,600	1,20,600	586	152,946
PCBL	204	4,300	1,04,300	477	142,623
SRBL	213	15,800	1,15,800	592	145,632
NICA	152	10,300	1,10,300	459	150,552
MBL	170	14,200	1,14,200	436	103,332
CBL	345	15,200	1,15,200	530	82,150
CCBL	290	30,000	1,30,000	680	119,680
SANIMA	165	20,200	1,20,200	515	184,370
LBL	231	23,100	1,23,100	601	149,048
JBNL	345	17,300	1,17,300	663	1,09,395
PRVU	270	10,800	1,10,800	378	82,404

 

Mr. Neupane initially made an investment of Rs 25 lakhs. The right offerings made by the companies increased the total investment by 2,67,300 . Thus, increasing the total initial investment to Rs 27,67,300 .However, the cash dividend provided by various comanpies decreased his overall initial investment.by 14,973.

Initial Investment	25,00,000
Add:       Right Issues	2,67,300
Less:      Cash Dividend	14,973
Total Investment	27,52,327

On analyzing the current market price of all the units owned by Mr. Neupane, his total investment now values Rs 32,32, 272 which is 17.43% more then the money poured by him in the stocks initially and through right.

 

This Analysis is done to understand the impact of Capital Expansion upon Investors.