In the shadow of giants: Benchmarks lead, but broader markets falter

Quality stocks hold up, but what about the rest?

The benchmark S&P BSE Sensex and National Stock Exchange Nifty rallied close to 4 per cent in September; however, the advance/decline ratio (ADR) remains negative.

This indicates that the number of declining stocks has outpaced those advancing this month. The last time the ADR fell below 1 was in May, when the benchmark also ended in the red.

ADR, a popular market breadth indicator, shows that the broader market weakness is not fully captured in the major indices.

While the Nifty Midcap 100 has gained 1.85 per cent, the Nifty Smallcap 100 has declined by 0.3 per cent, suggesting weakness in microcaps or stocks outside the top 500.

Analysts note that elevated valuations in these segments have led investors to shift towards areas with more moderate valuations.

“The correction is happening in the overvalued smallcaps and microcaps, while quality stocks are holding up. This trend is likely to continue as liquidity remains hard to find at these levels,” said Chokkalingam G, founder of Equinomics Research.