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Increasing for the fourth month in a row, the common advance-to-decline ratio has fallen to round 0.7 up to now this month. The February studying has additional softened to 0.76 in January 2023, 0.87 in December 2022 and 0.95 in November 2022.
“The market Surrounded by loads of uncertainty and there’s a lack of belief among the many members,” stated Siddarth Bhamre, Head of Analysis, Religare Broking, “Whereas the long-term outlook on India is bullish, the near-term outlook stays unfavourable. It has turn into a seller’s market Investment market two-three years in the past,” he said.
In March 2020, the A/D ratio had dropped to 0.57 as panic gripped financial markets around the world following the outbreak of the coronavirus pandemic.
The recent fall in the A/D ratio as well as the cooling-off volatility coupled with fall in trading volumes also reflect the bearish mood in the market. This reflects the difference in valuations between frontline stocks and the broader markets.
“Market sentiment is weak and participation remains weak. “The market is caught in a selection,” said Sriram Velayudhan, Head, Differential Analysis, IIFL.
Nifty has gained 2% in last six months and 3.7% in one year. The underperformance of benchmark indices, however, was covering deep losses in several mid- and small-cap stocks, especially popular among momentum traders. Many of those stocks are down 20-40% on average.
Analysts said markets lack triggers, and a breach on either side of the trading range would result in a modest spurt in activity before falling back into a tight range.
“Earlier, there was a valuation gap between frontline stocks and the broader markets in favor of investing in mid- and small-cap stocks. However, the valuation cushion is missing and the market is in a consolidation zone for the last one and a half years,” said Bhamre.
Bhamre believes that the path of the US Federal Reserve’s financial policy will be a key issue that could give way to Indian and world markets.
The A/D line, another related breadth indicator that calculates and plots the cumulative difference between rising and falling stocks online, is at a 5-year low, indicating worsening market breadth. This AD line, which started showing increasing divergence with the Nifty around August last year, has shown the biggest divergence since then, the data showed.
ICICI Securities It states that mid- and small-cap stocks currently trade at lower-than-historically lower valuations than giant caps, and offer a “low margin of security” on present earnings.