Against all odds: Market breadth signals bullish underbelly in Indian equities

markets

Despite considerable volatility in recent months—driven by geopolitical tensions, trade disputes, stretched valuations, and earnings downgrades—Indian equity markets have shown a consistent improvement in market breadth, signaling a broad-based recovery across sectors.

The advance-decline ratio for all BSE-listed stocks has remained above one for the fourth consecutive month, a streak last witnessed in June 2024, when breadth stayed positive for ten straight months.

Deven Choksey of DRChoksey FinServ attributes the resilience to India's solid domestic fundamentals and unwavering investor conviction. He believes the market’s ability to absorb global tremors reflects a maturing investor mindset. “Short-term corrections shouldn’t deter long-term investors,” Choksey said, noting that such dips now offer strategic re-entry points rather than panic triggers.

Echoing this view, Akshay Chinchalkar of Axis Securities highlights the favourable setup for Indian markets in 2025, bolstered by seasonal strength and post-U.S. election tailwinds. “We flagged the bullish tilt during the March lows,” Chinchalkar noted. “With improving breadth, new highs in Nifty, midcaps, or smallcaps aren’t unexpected.”

Technically, with Nifty breaking out decisively from its consolidation phase, analysts anticipate a gradual move toward the all-time high of 26,277.35. However, the gap zone near 25,800 may act as an interim hurdle. On any pullback, the 24,800–25,200 range—previously a resistance zone—is expected to offer robust support.

Liquidity has been a central pillar of this resilience. Robust SIP inflows, assertive domestic institutional investors (DIIs), and a resurgence in foreign portfolio investments (FPIs) have collectively strengthened market sentiment. DIIs alone have pumped over Rs 3.5 lakh crore into equities in 2025, following Rs 5.2 lakh crore in 2024.

Improving macroeconomic conditions and a softening geopolitical climate have also buoyed sentiment. With global flashpoints—from US–China to India–Pakistan—showing signs of diplomatic thaw, the risk environment has eased. Notably, investors appear increasingly rational, treating volatility as a tactical opportunity rather than a deterrent, experts said.

Over the past four months, India’s benchmark indices—Sensex and Nifty—have advanced 15 percent and 15.9 percent, respectively, while the broader BSE MidCap and SmallCap indices have surged 21 percent each. The total market capitalisation of all BSE-listed companies has risen by over $1 trillion, or 22.5 percent, to $5.38 trillion.

Following this sharp rally, the Sensex now stands just 1,900 points below its all-time high, while the Nifty is approximately 700 points away from its record peak. Meanwhile, the BSE MidCap and SmallCap indices are each only 6.3 percent shy of their respective lifetime highs.

However, valuations remain a point of caution. Abhishek Khudania, Senior Executive Director at Client Associates, warns that the market is now pricing in aggressive growth expectations. With Nifty 50 trading at a P/E of 22.7 and the broader Nifty 500 at 25, valuation comfort is thinning. Mid- and small-cap indices, at 33–35x P/E, are particularly stretched.

“While market breadth is encouraging, future gains will likely hinge on selectivity,” Khudania said. “We expect rotational shifts rather than a uniform rally, with time-based corrections helping normalize sentiment.”

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