The stock market's advance-to-decline ratio fell to a seven-month low in October. While Sensex and Nifty rose, the BSE MidCap 150 and BSE SmallCap 250 indices fell 3% and 4.2% this month. Tejas Shah said these factors "made investors more selective, increasing selling pressure on fundamentally weaker, highly leveraged and overvalued companies."
Synopsis
The advance-to-decline ratio in the stock market indicates underlying weakness, despite some index gains. The BSE MidCap 150 and BSE SmallCap 250 have both seen declines this month. Various factors such as profit-booking and high valuations contribute to this market trend. Institutional money is increasingly favoring larger companies with stable earnings. Overall market conditions remain uncertain due to external economic pressures and geopolitical risks.
Mumbai: The stock market's advance-to-decline ratio has fallen to a seven-month low in October, exposing the weakness beneath gains in benchmark indices.
While the Sensex and Nifty have risen 2.3% and 1.4% respectively, the BSE MidCap 150 and BSE SmallCap 250 indices have declined 3% and 4.2% respectively, through this month. This reverses the broader trend in favour of small- and mid-caps seen thus far this year, underscoring the recent divergence between frontline stocks and the broader market.
The average advance-to-decline (A/D) ratio fell to 0.9 in October so far, its lowest level since March 2026, when the Iran-US war triggered a selloff in global equities. The ratio fell below 1 for the second consecutive month, indicating that declining stocks outnumbered advancing ones and signalling continued weakness in market breadth.
Ravi Singh, chief research officer at Master Capital Services, attributed a significant part of the recent weakness to the Jio Platforms IPO, which diverted liquidity from the secondary market as investors set aside funds for the issue.
Profit-booking after the strong rally in midcap and smallcap stocks, stretched valuations and uneven corporate earnings have also weighed on sentiment, market experts said. Investors are becoming less willing to pay high prices based on future growth expectations when earnings and cash flows do not justify valuations. Institutional money is also rotating towards larger, more liquid companies with stronger balance sheets and predictable earnings, helping benchmark indices remain relatively resilient.
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Rising energy costs pose an additional concern for India, given its dependence on imports, with implications for inflation and corporate margins. Uncertainty over global interest rates, rising US bond yields, a stronger dollar, geopolitical risks and foreign investor selling have further dampened risk appetite, experts said.
Tejas Shah, head of trading at Equirus Securities, said these factors had made investors more selective, increasing selling pressure on fundamentally weaker, highly leveraged and overvalued companies.
Leverage in the market remains another concern. The margin trading facility (MTF) book has declined for three consecutive weeks, but the extent of the reduction depends on the period being measured. Data cited in the original figures showed a 4.7% decline in October up to October 23.
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(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)
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