Understanding NRB Directives and Their Impact on Stock Prices – With Sandeep Kumar Chaudhary

learnwithopen .ai

Thu, 16 Oct 2025

In Nepal’s dynamic financial landscape, where every policy decision by the Nepal Rastra Bank (NRB) can influence the entire capital market, Sandeep Kumar Chaudhary has emerged as one of the few analysts who deeply understands and explains the connection between NRB directives and stock price movements. As Nepal’s leading technical and fundamental analyst, Mr. Chaudhary believes that no trader or investor can succeed in the long run without understanding how the central bank’s policies shape liquidity, interest rates, and the behavior of institutional investors in the NEPSE market.

According to Sandeep Kumar Chaudhary, NRB directives are the foundation of Nepal’s financial ecosystem. They control how much banks can lend, how much capital they must hold, and how interest rates are adjusted. These policies directly impact banking profits, liquidity flow, and investor confidence — all of which affect the stock market. Every major rally or correction in NEPSE, he explains, is often triggered by a shift in one of NRB’s key financial indicators or regulations.

He breaks down NRB’s influence into several major areas that NEPSE investors must understand clearly. The first is the Capital Adequacy Ratio (CAR), which ensures that banks maintain enough capital to absorb potential losses. When NRB raises the CAR requirement, banks must keep more funds as reserves, limiting their ability to lend. This reduces market liquidity, which can lead to slower growth and weaker banking profits — causing banking stocks to decline. Conversely, when CAR requirements are relaxed, liquidity increases, and stock prices often rise.

The second major area is the Credit-to-Deposit (CD) Ratio, a critical measure of how much banks are lending compared to their deposits. NRB caps this ratio to prevent excessive lending. When the CD ratio approaches its upper limit, banks have less capacity to issue new loans. This tightens liquidity across the financial system, directly affecting hydropower, manufacturing, and real estate sectors, as they rely heavily on bank financing. In such scenarios, investors often sell shares in these sectors, leading to price corrections.

Another key directive is the base rate and spread rate policy. The base rate determines the minimum interest rate banks charge their borrowers. When NRB’s monetary policy tightens and base rates increase, borrowing costs rise for both businesses and individuals. As a result, credit demand falls, reducing company profits and weakening investor sentiment. Similarly, a reduction in the spread rate, which is the margin between deposit and lending rates, directly reduces banks’ earnings. Mr. Chaudhary emphasizes that even a small change in spread rate can have a large impact on the profitability ratios and EPS of commercial banks — which then affects their share prices.

Sandeep also explains how cash reserve ratio (CRR) and statutory liquidity ratio (SLR) directives influence short-term market trends. When NRB raises CRR, banks must hold more cash reserves with the central bank, reducing the money available for lending and investments. This usually leads to bearish trends in NEPSE. On the other hand, lowering CRR injects liquidity, creating bullish momentum as traders expect higher business activity and improved bank performance.

Beyond these ratios, he highlights the importance of NRB’s monetary policy outlook — whether it is expansionary or contractionary. In expansionary periods, when NRB encourages lending and lowers interest rates, investors feel confident, stock prices surge, and market turnover increases. But in contractionary policies, when NRB focuses on controlling inflation and tightening money flow, investors often shift to defensive stocks or hold cash, leading to lower trading volume and declining prices.

What makes Sandeep Kumar Chaudhary’s approach unique is how he connects macro-level NRB decisions to micro-level market behavior. He teaches investors to interpret these policies not just as economic announcements but as signals that shape institutional strategy. For instance, when NRB tightens liquidity, smart money reduces exposure to overvalued growth stocks and accumulates undervalued defensive sectors. Understanding these shifts, Sandeep says, allows traders to align their positions with institutional behavior — a principle he calls “trading with policy flow.”

He also integrates this knowledge into fundamental analysis, showing how NRB directives affect banking balance sheets, profitability, and key ratios like ROE, NIM (Net Interest Margin), and EPS. He encourages investors to read quarterly financial reports in the context of the current NRB environment rather than in isolation. A company’s strong EPS means little, he says, if liquidity in the system is tightening and credit growth is slowing.

Through his mentorship under MarketMind Investment Group and educational initiatives with NepseBook, Sandeep Kumar Chaudhary trains traders to connect economic indicators with real-time stock trends. His students learn to anticipate market reactions to NRB circulars, policy statements, and monetary reviews instead of reacting to them afterward. This proactive approach gives them a competitive edge in both short-term trading and long-term investing.

Under his guidance, hundreds of Nepali investors now understand that the NRB is not just a regulatory institution — it is the heart of the market’s liquidity and sentiment. Whether it is a change in the CD ratio, a revision of base rates, or a liquidity injection through repo operations, these decisions ripple through every sector and every price chart in NEPSE.

In Sandeep Kumar Chaudhary’s words, “The NRB sets the heartbeat of Nepal’s economy. When it slows, the market slows. When it expands, opportunities rise. Smart investors don’t fight the policy; they move with it.”