Market breadth indicator hits 15-month high in June

In May, the ratio was at 0.9 while in April, it was at 1.28. In March and February, it was 0.83 and 0.96 respectively.

Investors appear to be optimistic in terms of their outlook towards the stock market as the advance-decline ratio – often looked upon as a barometer of investor sentiments – has hit a 15-month high.

The advance-decline ratio, which measures the number of rising stocks versus the falling ones, is pegged at 1.33 for the current month till date. This is the highest level seen on BSE since April 2023. In May, the ratio was at 0.9 while in April, it was at 1.28. In March and February, it was 0.83 and 0.96 respectively.

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Market participants are of the view that as large-cap indices consolidate, broader market activity in midcap, smallcap, and microcap stocks increases. Further, a large chunk of investors was holding onto cash prior to the elections and have now begun reinvesting, thereby contributing to favourable market dynamics and an improved advance-decline ratio in June.

Gaurav Dua, SVP, Head - Capital Market Strategy at Sharekhan by BNP Paribas, observes that the markets have shown little movement since March and are currently trading above long-term averages and so there has been a mixed trend compared to earlier this year.

Over the past few months, the market has consolidated within a range -- investors are buying below 22,500 and selling above 23,500. This pattern has persisted without sustaining below 22,500 or above 23,500 for extended periods.

In June, Sensex and Nifty gained over six percent each while broader markets benchmarks BSE MidCap and BSE SmallCap jumped 7 percent and 10 percent respectively. Foreign investors bought around $1.52 billion in local equities while DII bought shares worth Rs 20,477 crore.

Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, noted that June has brought clarity: strong growth, narrowed current account deficit, expected cooling of inflation, and robust domestic & foreign portfolio inflows thereby aiding a broad-based rally. Since touching 22,000 on election day, the Nifty has surged above 23,500, driving positive momentum and a favourable market breadth, he says.

Leadership rotation has further boosted optimism, favouring advances in the advance-decline ratio, say market experts while adding that as long as liquidity and positive sentiment persist, this trend could continue.

They believe that investors are focusing on growth rather than valuations, considering India's long-term growth outlook of around 7-8 percent and while some sectors may be overvalued and undergoing correction, overall market valuations appear fair.

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