Market breadth sinks below Covid lows amid rising West Asia conflict

The ADR has remained below 1 in six of the past 12 months, indicating that market breadth had already been deteriorating before the latest geopolitical flare-up

The ongoing conflict in West Asia has weighed on market sentiment, pushing key breadth indicators to levels last seen during the pandemic shock. 

The advance-decline ratio (ADR) — a widely tracked gauge of market breadth — has slipped to 0.71 this March, marginally below the 0.72 recorded in March 2020, when equities were reeling from the Covid-19 outbreak.

 

So far this month, 2,866 stocks have declined on the BSE — the highest for any month in recent years — while only 2,036 have advanced, underscoring the broad-based nature of the sell-off. 

The weakness has been visible across market segments. Since hostilities escalated in West Asia, the Nifty 50 has fallen about 8 per cent, while the Nifty Midcap 100 and Nifty Smallcap 100 indices have declined 7.4 per cent and 6.1 per cent, respectively. Meanwhile, nearly ₹34 trillion of investor wealth has been wiped out over the past two weeks. 

The conflict has unsettled investors on several fronts. Rising geopolitical tensions have pushed up crude oil prices, stoking concerns over India’s inflation trajectory and current account deficit, given the country’s heavy reliance on imported energy. At the same time, global investors have turned risk-averse, triggering foreign portfolio outflows of around ₹64,000 crore. 

The ratio remained below 1 in six of the past 12 months, suggesting that market breadth had already weakened even before the recent geopolitical flareup. 

The ADR measures the number of stocks rising relative to those falling over a given period and is considered a barometer of overall market health. 

A ratio below one typically signals that declines are outpacing advances, pointing to weakening investor sentiment.