Pre-Buy Checklists

First published 26 Aug 2026 · Last verified 29 Aug 2026

Bishal Karki keeps a spiral notebook in the drawer of his desk at the ISP in Kathmandu where he works as a network operations engineer. It is not a diary and it is not a budget book. It is thirteen years of pre-buy checklists, one page per stock he seriously considered buying, dated, filled out in blue ink, sometimes crossed out and rewritten when he caught himself fudging an answer. He started the habit in 2016 after a hydropower IPO he chased on a tip from a colleague dropped 40 percent in four months. He did not lose enough money to change his life. He lost enough to change his process. Since then, no buy order goes into his Mero Share TMS account until the page is filled in, every box ticked or explicitly overridden with a written reason. He has bought stocks the checklist did not love, but never one it flagged as a hard no.

This chapter is his notebook, generalised. Everything you have learned in this book — the Canon Score from the quality and valuation chapters, the governance red flags from Chapters 20 through 23, the valuation methods of Chapters 45 through 49, the sector playbooks of Chapters 71 through 75, the position and sector caps from your Investment Constitution in Chapter 95 — collapses here into a single operational moment: the moment before you click "confirm" on a buy order. A checklist is not a substitute for judgment. It is a guardrail against the version of you that exists for the ninety seconds after a stock jumps 8 percent and a friend messages you that it is "sure to hit circuit again tomorrow." That version of you is not stupid. That version of you is just temporarily not thinking about base rates, caps, or governance filings. The checklist thinks about them for you.

Lesson 101.1 — Why Checklists Beat Conviction

NEPSE rewards conviction in the short run often enough that investors mistake it for a strategy. A rumour about a hydropower PPA renegotiation, a WhatsApp forward about a bank's upcoming bonus share, a sudden spike in a microfinance counter after a brokerage report nobody has actually read past the headline — any of these can move a stock 5 to 10 percent inside a session, hit the circuit filter, and pull in retail buyers who never asked the first diagnostic question. Some of those trades work out. Enough of them do that the habit of buying on conviction alone survives contact with a few profitable trades before it eventually meets a stock whose problems were visible in the AGM minutes, the auditor's note, or the promoter shareholding disclosure the entire time.

The checklist exists because human judgment under time pressure and social proof is unreliable in a specific, well-documented way: pilots use pre-flight checklists not because they forget how to fly, but because a rushed, excited, or distracted brain skips steps it knows perfectly well it should not skip. Investing has the same failure mode. You know intellectually that you should check a company's CD ratio before buying a bank, or its debt-service coverage before buying a hydropower counter. Under the adrenaline of a green candle and a circuit filter, that knowledge does not reliably convert into action unless it is written down in a sequence you physically work through before the order goes in.

Bishal's version of this discipline is mechanical almost to the point of being boring. When a stock catches his attention, he closes the trading app. He opens a spreadsheet instead. He does not look at the live price again until every item on the universal checklist and the relevant sector supplement is answered. This single habit — separating the moment of interest from the moment of the buy button — has, by his own count, stopped him from making at least six purchases over the past decade that he is now glad he did not make. One of them, in 2024, is this chapter's worked example, and we will walk through it in full in Lesson 101.6.

The checklist also serves a second, quieter purpose. It is the operational expression of your Investment Constitution from Chapter 95. A constitution that lives only as a paragraph you wrote once and never look at again is a wish, not a rule. A checklist that you fill in, on paper or in a spreadsheet, every single time before a buy order, is that constitution actually governing your behaviour. The two documents should reference each other explicitly: your constitution states the caps and thresholds in principle, and the checklist is where you test each specific purchase against them, in writing, before money moves.

Lesson 101.2 — The Universal Pre-Buy Checklist

The following items apply to any NEPSE-listed stock, regardless of sector — a bank, a hydropower producer, a microfinance institution, a hotel, a manufacturing company, or a trading house. Run through all of them before every buy order. If you are adding to an existing position rather than opening a new one, run through them again — a stock that passed six months ago may have quietly failed one or two of these since.

Thirteen items, each answerable in a sentence or two, most of them checkable from the company's disclosures on the NEPSE and company websites, the merchant banker's IPO/FPO prospectus if applicable, and your own portfolio tracker. None of this requires special access. It requires the discipline to do it before buying rather than after, when the answers are much less useful.

Note item 5 deserves particular care because it is where most bad NEPSE buys actually go wrong. A stock can pass every governance and liquidity test and still be a poor buy simply because you are paying too much for it. Apply at least two of the valuation methods from Chapters 45 through 49 — for a bank, that typically means a dividend discount model check plus a price-to-book comparison against sector peers; for a manufacturing or trading company, a price-to-earnings comparison against historical range plus a discounted cash flow if the business is stable enough to project; for a hydropower company, typically a discounted cash flow built off the PPA cash flow stream, which we return to in Lesson 101.4. If your two methods disagree by a wide margin, that disagreement itself is information — investigate why before buying, rather than picking whichever method gives you the answer you already wanted.

Lesson 101.3 — Banking Sector Supplement: Capital, Asset Quality, and Funding

Commercial banks and development banks are NEPSE's largest sector by market capitalisation, and the sector playbook in Chapters 71 through 73 gave you the analytical tools to evaluate one. Before a buy order on any bank, add the following checks to the universal thirteen.

Capital adequacy ratio, or CAR, is the first number to pull. Nepal Rastra Bank requires commercial banks to maintain a minimum total capital adequacy ratio of 11 percent, which is built from an 8.5 percent minimum plus a 2.5 percent capital conservation buffer, with Tier 1 capital required to make up a defined minimum portion of that total. A bank sitting close to the regulatory floor has little room to absorb a bad quarter, cannot grow its loan book aggressively without a capital raise, and is a candidate for a dilutive rights issue that will hurt you as a shareholder even if the bank itself survives. A bank comfortably above the floor — commonly two to four percentage points of headroom — has room to grow and to weather a stress period without immediately going to shareholders for more capital.

Non-performing loan ratio, or NPL, is the second number. Gross NPL above roughly 3 percent for a commercial bank in the current Nepali banking environment warrants a closer look at which sectors the bad loans are concentrated in — real estate, hydropower construction finance, and margin lending against shares have all produced concentrated stress at different points in the last decade. Gross NPL above 5 percent, especially if it has been rising for more than two consecutive quarters, is a red flag serious enough that it should usually stop a buy outright unless you have a specific, well-supported thesis for why the trend reverses.

Credit-to-deposit ratio, commonly called the CD ratio, is the third number, and it is one NRB actively regulates. Banks are required to keep this ratio under a regulatory ceiling — 90 percent under the directive currently in force — because a bank lending out too large a share of its deposit base has thin liquidity buffers and is vulnerable to a deposit withdrawal shock. A bank sitting right at the ceiling has no room to grow its loan book, which caps its near-term earnings growth regardless of how good its underlying franchise is, and signals it may need to compete harder for deposits, typically by raising deposit rates and compressing its net interest margin.

Beyond these three headline ratios, check the bank's net interest spread and cost of funds trend — a bank whose cost of funds is rising faster than its lending yield is losing margin regardless of loan growth — and check for any related-party lending disclosed in the notes to the financial statements, since Nepali banks are required to disclose loans to directors, promoters, and connected companies, and a pattern of large connected-party exposure is exactly the kind of governance flag Chapter 21 taught you to weigh heavily.

Lastly, look at the bank's dividend capacity specifically. NRB restricts distributable dividends based on capital position and loan loss provisioning levels, so a bank with a thin capital buffer may be legally constrained from paying the cash dividend its earnings alone would suggest. If your valuation thesis depends on a specific dividend yield, confirm the bank actually has the regulatory room to pay it.

Lesson 101.4 — Hydropower Sector Supplement: PPA, COD, and Hydrology

Hydropower is NEPSE's most idiosyncratic sector because a hydropower company's entire cash flow stream is determined by a small number of contractual and physical facts fixed at construction, long before you ever consider buying the stock. The sector playbook in Chapter 74 covered these in depth; here is the pre-buy version.

Start with the power purchase agreement, or PPA, signed with the Nepal Electricity Authority. Pull the tariff rate — nearly all Nepali run-of-river PPAs specify separate wet-season and dry-season tariffs, with the dry-season rate meaningfully higher because dry-season generation is scarcer and more valuable to the grid. Check whether the tariff includes an escalation clause — many older PPAs escalated tariffs annually for the first several years before flattening, while some more recent PPAs are signed flat from commercial operation. A company whose PPA tariff is meaningfully below what newer projects are securing is locked into that lower revenue stream for the full PPA term, typically twenty to twenty-five years or more, regardless of what the sector's current tariff environment looks like.

Commercial operation date, or COD, is the second item, and it matters differently depending on whether the project is already operating or still under construction. For an operating project, confirm COD actually occurred on or near the date committed in the PPA — a project that achieved COD significantly late usually paid liquidated damages or lost a portion of its PPA term, and the reasons for the delay (contractor disputes, access road failure, transmission line congestion) are worth understanding because they tend to recur across a promoter's other projects. For a project still under construction whose shares are already listed and trading — common in Nepal, where hydropower IPOs frequently happen years before COD — treat the current share price with real caution: you are pricing construction-phase execution risk, and a checklist item here should specifically be "what percentage of physical construction is complete versus what the company's disclosed timeline implies," cross-checked against the company's own progress disclosures rather than promoter assurances.

Hydrology is the third and most technical item, and the one retail investors skip most often because it requires reading past the summary numbers. A project's design energy figure — the annual generation the project was engineered to produce — is usually quoted alongside a P50 and P90 exceedance probability, meaning the generation level expected to be met or exceeded in 50 percent of years and 90 percent of years respectively. A company that reports actual generation consistently at or above its P50 figure is performing to plan. A company reporting generation persistently below P90 across multiple years has a hydrology problem — perhaps the original feasibility study overestimated river flow, perhaps siltation or upstream diversion has reduced flow, perhaps climate variability is showing up as reduced dry-season flow. Any of these permanently impairs the cash flow the stock is worth, and none of them show up in a quick glance at the share price chart.

Add to this the project's debt-to-equity structure at financial close, since most Nepali hydropower projects are financed at high leverage, commonly 70:30 or 80:20 debt-to-equity, meaning debt service coverage is a live risk for years after COD rather than a one-time construction-phase concern; the royalty regime, since NRB and the Department of Electricity Development step up royalty rates significantly after the fifteenth year of operation, compressing free cash flow later in the PPA term in a way your valuation model needs to reflect explicitly; and insurance and force majeure provisions, since a landslide or flood damaging the intake or powerhouse is a real and recurring risk category in Nepali hydropower, not a remote tail scenario.

Lesson 101.5 — Microfinance Sector Supplement: Portfolio Quality and Over-Indebtedness

Microfinance institutions, or MFIs, listed on NEPSE carry a sector-specific risk that banking and hydropower do not: the risk that the same borrower has taken loans from multiple MFIs simultaneously, a problem that became visible at scale in Nepal over the past several years as microfinance penetration deepened faster in some districts than lenders coordinated with each other. The sector playbook in Chapter 75 covered the underlying dynamics; the pre-buy checklist translates it into specific numbers to pull before buying any MFI's shares.

Portfolio at risk, commonly reported as PAR30 or PAR90 — meaning the percentage of the loan portfolio with payments overdue by 30 or 90 days respectively — is the headline asset quality number, and it is more informative for microfinance than the NPL ratio is for banks, because group-lending microfinance portfolios can show delinquency patterns well before a loan is formally classified as non-performing. A PAR30 comfortably under roughly 3 percent is healthy for a well-run Nepali MFI; PAR30 above 5 percent, or a PAR30 trend that has been rising for more than two consecutive quarters, deserves the same weight as a rising NPL ratio does for a bank.

Write-off ratio is the second number. MFIs write off uncollectible loans against their loan loss reserve, and a rising write-off ratio combined with declining loan loss reserve coverage means the institution is absorbing losses faster than it is provisioning for them — a pattern that eventually forces either a capital raise or a profit hit large enough to move the share price sharply.

Over-indebtedness exposure is the item unique to this sector and the hardest to check directly, since no single company filing states "our borrowers have loans from three other MFIs." What you can check: NRB has, over recent years, pushed MFIs toward credit information sharing and tightened rules intended to limit how many microfinance institutions can lend to the same borrower, partly in response to well-documented borrower over-indebtedness concentrated in certain districts of Nepal's hill and Tarai regions where MFI branch density grew fastest. Check the company's disclosed geographic concentration of its loan book — an MFI heavily concentrated in districts already flagged in NRB or Nepal Microfinance Bankers' Association reporting as having high MFI density carries meaningfully more over-indebtedness risk than one with a more geographically diversified book, even if its current PAR numbers look fine today.

Group lending concentration and loan officer productivity are the remaining items worth a glance: an MFI whose growth has come from rapidly expanding loan officer headcount and branch count in new districts is taking on origination risk faster than its credit systems may be able to absorb, a pattern that has preceded asset quality deterioration at more than one Nepali MFI in the past.

Lesson 101.6 — The Checklist as a Living Document

In March 2024, Bishal came across a hydropower counter we will call Himal Bridge Hydropower Ltd, ticker HBHL, a run-of-river project that had reached commercial operation about eighteen months earlier. A senior colleague at his office, who had bought into HBHL's IPO, mentioned over lunch that the stock had moved up sharply over the previous two weeks on talk of a tariff escalation clause that would push the company's per-unit revenue meaningfully higher starting the following fiscal year. The stock had gained close to 30 percent in twelve trading sessions and had hit its upper circuit twice. Bishal's Canon Score screen had already flagged HBHL as a stock with rising price momentum, and on a first look the story was attractive: an operating project, a PPA in place, a plausible tariff catalyst, and a sector he was underweight relative to his own target allocation. He closed the trading app and opened his checklist spreadsheet.

The universal checklist got through most of its items cleanly. Liquidity was adequate — average daily turnover over the prior month was well above what his intended position size would require. The valuation check, run as a discounted cash flow off the disclosed PPA tariff schedule, suggested the stock was trading close to fair value even before the rumoured tariff escalation, meaning the rumour, if true, would represent genuine upside rather than an already-priced-in story. Item 4, sector cap headroom, is where the first problem appeared. Bishal's Investment Constitution capped hydropower exposure at 20 percent of total portfolio value. His portfolio tracker showed he was already at 22 percent hydropower going into this prospective buy, a fact he had not actually registered until the spreadsheet forced him to pull the number, because two of his existing hydropower holdings had risen in price over the prior quarter and mechanically increased their weight without any new buying on his part. Adding HBHL at his intended size would have pushed hydropower exposure to roughly 27 percent of the portfolio — a clear sector cap breach, not a marginal one.

That alone was reason enough to stop, but Bishal kept working through the sheet, partly out of habit and partly because he wanted to understand whether HBHL was worth trimming another hydropower holding to make room for. Item 8, promoter holding trend, is where the second and more serious problem surfaced. HBHL's quarterly shareholding disclosures over the preceding six quarters showed promoter holding declining from roughly 51 percent to just under 43 percent, a drop of eight percentage points with no rights issue, merger, or other corporate action that would explain a mechanical dilution. The company's disclosures did not include any public statement explaining the reduction. Cross-checking item 7, disclosure history, Bishal found that HBHL's most recent AGM had been held nearly ten months after its statutorily expected date, and a SEBON notice on record referenced a delay in submitting audited financial statements for the prior fiscal year, with no public explanation beyond a procedural one-line notice.

Individually, a promoter reducing their stake is not automatically disqualifying — promoters sell for many ordinary reasons, including simply realising gains or meeting personal liquidity needs. A late AGM is not automatically disqualifying either — administrative delays happen. But the combination — steady, unexplained promoter selling, a materially delayed AGM, and a SEBON notice on record, arriving at the exact moment a rumour-driven rally was pulling in retail buyers on a story about a tariff catalyst that had not yet been confirmed by any NEA or company filing — was precisely the pattern the governance chapters warned against treating as three unrelated data points. Taken together, it read as a company where insiders were reducing their own exposure while public disclosure was becoming less timely, at the same moment retail sentiment was most enthusiastic.

Bishal did not buy HBHL. Four months later, the tariff escalation rumour was never confirmed in any NEA correspondence or company filing; HBHL instead disclosed a downward revision to its full-year generation guidance, citing lower-than-expected dry-season flow relative to its design energy assumptions, and the stock gave back the entire rally plus an additional 15 percent. Both the checklist item that would have flagged this directly — hydrology performance against design energy under the hydropower supplement — and the two governance items from the universal checklist had been sitting in plain sight in public disclosures the entire time. The only reason they mattered is that Bishal read them before buying rather than after.

The lesson generalises past this one stock. A checklist only works if it is treated as a gate you cannot talk yourself past, not a form you fill in to justify a decision you had already made over lunch. The moment you catch yourself rationalising an override — "the sector cap is close enough," "the AGM delay was probably just administrative," "everyone says the tariff news is confirmed" — is the moment the checklist is doing its job, and the discipline is to let it stop you rather than to explain the fail away.

Keep the checklist itself alive, not static. Revisit your Investment Constitution from Chapter 95 at least once a year, and update the checklist's specific thresholds when you do — position caps, sector caps, your minimum Canon Score, your NPL and CAR comfort levels for banking, your PAR30 comfort level for microfinance. NRB's own regulatory ceilings change periodically through monetary policy statements and unified directives, and a checklist referencing a CD ratio ceiling or capital conservation buffer that NRB has since revised is a checklist quietly drifting out of date. Set a calendar reminder, ideally tied to your annual constitution review, to re-read this chapter's thresholds against the current regulatory framework and adjust your spreadsheet accordingly.

Do not let the checklist live only as a PDF you filled in once, printed, and filed away. Its value comes from being used, under time pressure, at the exact moment temptation is highest — which means it needs to be somewhere you will actually open it before a buy order, not somewhere you would need to go searching for. Bishal keeps his as a spreadsheet pinned in his phone's home screen shortcuts, a habit as deliberate as keeping a stop-loss order in place. Some investors keep a laminated one-page version of the universal thirteen items taped inside a desk drawer. The format matters far less than the guarantee that you will consult it every time, before the order, not after.