Advance-decline ratio slips below 1 for second month

markets

• Advance-to-decline ratio fell below one for the second month, indicating weak breadth
• Large-cap stocks rally, broader market faces selling pressure
• Experts advise focusing on fundamentally strong companies amid market volatility

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The average advance-to-decline ratio, a key indicator of market breadth and investor sentiment, slipped below one in December for the second consecutive month, even as benchmark indices hovered near record highs.

The ratio — which compares the number of rising stocks to those declining — stood at 0.94 in December after 0.89 in November, signalling weakening participation beneath headline index gains.

According to Prashant Tapse of Mehta Equities, recent rallies are increasingly being powered by a narrow group of large-cap or index-heavy stocks, while a broader universe continues to face selling pressure. He said such divergences typically reflect cautious sentiment and selective risk-taking, with investors favouring quality and earnings visibility.

Narrowing breadth has historically acted as an early warning signal, implying limited durability of gains unless new triggers such as stronger foreign inflows or earnings upgrades emerge in the coming quarter, he added.

At the same time, Indian equities have turned volatile, with benchmark indices oscillating between gains and declines. The Sensex and Nifty rose about 2 percent each in November before slipping roughly 1 percent apiece in December.

The BSE MidCap index gained 0.4 percent in November but fell 1.5 percent in December, while the BSE SmallCap index dropped 3.4 percent in November and declined a further 2.2 percent last month.

Sunny Agrawal of SBI Securities said the trend shows “smart money” rotating into bottom-up growth ideas, leaving only select sectors outperforming at any given time. He advised investors to tilt portfolios toward fundamentally stronger companies and reduce exposure to stocks driven mainly by narratives rather than earnings strength.