How Political Upheaval Shapes the Stock Market: Lessons from Nepal’s Past

When a government falls due to people’s protests, stock markets rarely stay calm. Investors fear uncertainty, foreign capital exits, and economic policies stall. Nepal has witnessed this dynamic multiple times, most notably during the 2006 People’s Movement and the 2015 political crisis. Looking back at these events helps us understand how NEPSE behaves in times of turmoil.

📉 2006 People’s Movement (Jana Andolan II)

The 2006 protests forced King Gyanendra to give up absolute power and reinstate parliament. During this transition:

• NEPSE Turnover Dropped: Investors stayed on the sidelines amid daily curfews, internet shutdowns, and uncertainty.

• Sharp Volatility: The index, which had crossed 300 earlier, dipped before gradually stabilizing as a democratic government formed.

• Long-Term Growth: Once political stability returned, NEPSE entered a bull phase, climbing beyond 600 within a few years as banking and hydropower stocks attracted investors.

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⚖️ 2015 Constitution & Madhes Protests

Nepal promulgated its new constitution in 2015, but the celebrations were followed by nationwide protests and a trade blockade along the Indian border. The economy faced supply shocks and political friction.

• NEPSE Slumped: After peaking above 1200 earlier that year, the index corrected sharply, reflecting investor fears over economic slowdown and lack of liquidity.

• Banking Pressure: Liquidity shortages hurt financial stocks, dragging the whole market down.

• Gradual Recovery: By 2016, with fuel supply restored and reconstruction funds flowing post-earthquake, NEPSE regained strength, eventually hitting 1700+.

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🧭 Lessons for Investors

1. Short-Term Shock Is Normal – Protests and government collapses trigger sell-offs and panic, but these usually don’t last forever.

2. Stability Brings Opportunity – Once a new government forms, markets often rebound quickly as confidence returns.

3. Diversification Matters – Defensive sectors like hydropower, telecom, and FMCG tend to hold value better than banks and construction-linked companies during turmoil.

4. Long-Term Investors Benefit – Those who bought during the crisis years saw strong gains as NEPSE later entered bull cycles.

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🔮 Looking Ahead

If Nepal faces another political crisis today, NEPSE would likely see immediate volatility. However, history shows that as long as the democratic process continues and economic fundamentals remain intact, the market eventually finds its footing. For patient investors, turmoil often creates entry opportunities into quality companies at discounted valuations.

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👉 Bottom Line: Political upheaval hurts markets in the short run, but stability and reform-driven governments can spark long bull runs. Investors should focus on long-term fundamentals rather than fear-driven exits.