Advance-decline ratio for July at 10-month low due to weak market sentiment

The advance-decline ratio (ADR) has hit a 10-month low in July, hurt by weak market sentiment. According to data from the bourses, the ADR for July stands at 0.73 — the lowest since September 2018.

ADR is a popular market breadth indicator. It compares the number of shares that ended higher against those that ended lower, over their previous day’s close. In other words, the number of declining stocks far exceeds the number of advancing ones for July.

Disappointment over the Budget, a deteriorating outlook, and poor earnings have weighed on investor sentiment, with the benchmark Sensex declining 4 per cent so far this month. The decline in the broader market has been sharper, with the BSE Midcap and BSE Smallcap indices declining 7 per cent and 9 per cent, respectively.

“The poor ADR trend could continue till the economy shows signs of bottoming out and until growth picks up. The ratio will not improve dramatically, given a large number of small-cap stocks are yet to bottom out,” said Deepak Jasani, head (retail research), HDFC Securities.

Market players say relentless selling by foreign portfolio investors (FPIs) has weighed on market performance. The absence of stimulus to shore up the economy, as well as the additional tax surcharge on the ultra-rich and FPIs introduced in the Budget, have left foreign investors disappointed.

The tax proposal has impacted FPI participation, particularly those who actively trade in the futures and options segment. So far this month, FPIs have sold equities worth Rs 12,716 crore.

“The concerns related to the surcharge on FPIs have triggered selling by foreign investors, dragging the overall markets lower. We also saw some individual stocks reacting pretty negatively after the earnings numbers were announced,” said Vikas Jain, senior research analyst, Reliance Securities.

Besides the liquidity crunch and debt default by companies, investors’ preference towards select large-caps has led to a fall in many stocks this month. Further, investors have punished firms that have posted disappointing earnings.

“Earnings of small- and mid-cap firms have not revived. Pledging of shares has been taken negatively investors. Shares of firms with high promoter pledges have corrected,” said Abhimanyu Sofat, head (research), IIFL.

Market players say punitive action by the exchanges and Sebi, in terms of trading restrictions, and removal from the derivatives segment, too, has impacted share prices.