Mid, smallcap selling weighs on market breadth; easing oil prices may help

Profit booking in small-cap stocks and a revival in IPO activity kept market breadth weak in June, though easing oil prices may support a broader recovery

Profit-taking in small-cap stocks kept market breadth weak for the second consecutive month after it touched a multi-year high in April. The advance-decline ratio (ADR), a key measure of market breadth, stood at 0.95 in June, marginally lower than 0.96 in May. 

 

The ratio had surged to 1.54 in April — the highest since June 2020 — on the back of a broad-based rally in equities. It had fallen to 0.77 in March, its lowest since February 2025, amid a sharp market correction triggered by the energy crisis following the US-Iran conflict. An ADR below 1 indicates that declining stocks outnumber advancing ones.

 

Market participants attributed the weak breadth to profit booking in small-cap stocks, which have rallied sharply since the March correction. Another factor weighing on market breadth is the revival in IPO activity.

 

After no public issues in May, June witnessed six IPOs, while two large offerings are scheduled for July. Investors are likely booking profits in the secondary market to free up funds for these primary market issuances.

 

Analysts expect market breadth to improve as easing geopolitical tensions in West Asia have led to a sharp correction in oil prices. However, the progress of the monsoon will remain a key monitorable. A narrowing rainfall deficit could support a broader market recovery.