Signs of strain: Markets short of breadth, yet benchmarks' pulse quickens

Market fatigue grips as indices forge ahead; declining stocks outpace advancing ones

Market breadth has weakened since the end of last week, even as benchmark indices reached new highs.

The S&P BSE Sensex and the National Stock Exchange Nifty have each rallied over 5 per cent from their lows on May 13, while the Nifty Smallcap 100 and Nifty Midcap 100 have surged close to 9 per cent from their respective lows this month.

However, lately, the market has shown signs of fatigue, with market breadth turning negative.

While the Nifty and the Nifty Midcap 100 have largely continued their upward momentum, the number of declining stocks has outnumbered advancing stocks.

Additionally, the Nifty Smallcap 100 has posted losses in three of the past four sessions.

The advance/decline ratio (ADR) in three of the four sessions last week was less than 1, indicating cracks building up in micro and smallcaps after a relentless run.

Notably, there was a resurgence in institutional buying last week, a trend that typically favours larger stocks.

This shift in focus often leads to the futures and options segment becoming more attractive to investors and traders, who then shift their attention to largecaps and select stocks in small and midcaps, as explained by Deepak Jasani, head of retail research at HDFC Securities.

The ADR is likely to be negative as there are no triggers left for the markets to go higher, and a turbulence-inducing event like the election results is approaching.

“When we are so close to a major event like the elections, it is best to book out and be on the sidelines, and it’s better to keep some dry powder ready,” said Ambareesh Baliga, an independent equity analyst.