Institutional Investor

Institutional investors are an investor who is investing in the capital market through companies. Institution means an organized body that is normally called a company. Institutional investors are the most important and interesting part of the capital market, which has a very important role in the economy. 

There are normally two types of institutional investors:

 1. Domestic

 2. Foreign

Domestic Institutional Investor:

The institutional investor who is located in the country and invests in that country’s market is called a domestic institutional investor. These types of companies have board composition of only the citizen of that country only. Moreover, there the main purpose of incorporation is to invest in the stock market.

Foreign institutional investor:

The institutional investor who is located outside the country and invests in that country’s market is called a foreign institutional investor. These types of companies have board composition of mostly not the citizen of that country. Moreover, there the main purpose of incorporation is to invest in the stock market.

In the context of Nepal, as far as I know, many institutional investors are mainly domestically active for example, Citizen Investment Trust, nagarik stock dealer, and other investment companies, banking institutions, asset management companies. Recently I am seeing that institutional investors are active in the market, which shows significant development in the market. An increase in asset management companies, an increase in an open-ended and close-ended mutual fund, and a general investor’s motivation market recently cross 21 Arba transactions, which is the highest in the history of the Nepalese stock market.

I am specially writing this article to identify lacking in the market because we are far from giving chance to a foreign institutional investor and direct entry to Non-Resident Nepali (NRN) in the market. Let's take an example of the Indian market, since 1991 when Hr. Man Mohan Singh becomes finance minister of India he proposes a very liberal budget which attracts foreign companies to invest result of which the huge investment is entering the country as a foreign institutional investor directly in the stock market result of which, Bombay stock exchange (BSE) index goes from 2000 points to 50,000 points in just 30 years compounding yearly return of huge 80%. As per recent data available Foreign institutional investors invest more than 2.75 trillion Indian rupees ($37 billion) in the direct equity market in the fiscal year 2020/21 only.

In the context of Nepal, the whole market capitalization is only about 44 Kharba ($37 billion) which is nearly equal to India's 1-year foreign investment. As I know that comparison between these two countries is unfair but I only want to make a point that we should invite foreign institutional investors in the direct equity market to develop our capital market which will give our country enormous amounts of tax which can be used to develop our country.

I also seeing lacking venture capital and angel investor in start-up in Nepal. Start-up are growing with their own money that is good but it slows their growth to boost their growth and to encourage the start-up ecosystem we should acquire a culture of venture capital, an angel investor who alongside encourage to development of innovative ideas.

I also want to ask big groups of Nepal also known as “Business Gharanas” why you all are avoiding the capital market by not listing their companies. In Nepal, there is a significant presence of real sectors such as steel, automobile, food, trading, electronic; textile, shoe, luxury and we have enormous possibility to capitalize their real market value, which helps us to identify countries original potential. Few financial institutions, hotels, hydro are covering the whole market lacking the real sector.

“Capital market is the mirror of countries economy” but only a few sectors cannot represent whole countries economy. I also want to request the government, to establish a strong regulatory body, simplified rules and regulations about the market and build a strong capital market infrastructure that motivates domestic and foreign investors to invest in the Nepali stock market. Without a strong capital market infrastructure, the capital market will not develop further and in this scenario, big companies will not be interested to hit the market.

 Let us invite foreign institutional investors and NRNs who have an enormous amount of capital that will develop our market, let us invite big companies to hit the market, and let us hope for a strong regulatory body, and strong capital market infrastructure.

 Quote: “Transparency, accountability and integrity will lead the world”
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