With an advance-to-decline ratio of 0.96, the market breadth in February slipped below one for the first time in 11 months. The broad-based selloff in the Indian equity market saw both Nifty Midcap and SmallCap indices losing their values during the month. The month also witnessed both indices slipping to the red for the first time after three months of gains. Yet, the benchmark Nifty50 and Sensex managed to eke out 1% gains.
Interestingly, February of previous two years — 2023 and 2022 — also had higher number of decliners. While 2,201 stocks ended in the red on the BSE during February, the advance capped at 2,112. That compares with 1.2 times advances recorded in previous three months, i.e. November, December, and January 2024. The ratio compares the number of stocks that closed higher against the number of stocks that closed lower than their previous day's closing prices.
| Month | Advances/Declines Ratio |
| Feb-24 | 0.96 |
| Jan-24 | 1.18 |
| Dec-23 | 1.18 |
| Nov-23 | 1.16 |
| Oct-23 | 1.02 |
| Sep-23 | 1.12 |
| Aug-23 | 1.11 |
| Jul-23 | 1.07 |
| Jun-23 | 1.14 |
| May-23 | 1.08 |
| Apr-23 | 1.40 |
| Mar-23 | 0.90 |
| Source: BSE | |
To be sure, over the last 11 months, the Nifty Midcap and SmallCap indices ended in the red only twice. While the Nifty Midcap index slid 4.1% in October 2023, Nifty Small Cap ended lower 1% in October. The average advance-to-decline ratio for BSE listed companies in October stood at 1.02 times.
According to market participants, the broader market has been on a consolidation mode over the last one month. Even though the benchmarks climbed multiple highs, both midcap and SmallCap indices have been correcting on regular intervals. That has resulted in higher number of decliners in February.
Further, the equity market has been in a range bound over the last few sessions and profit booking has been witnessed in every counter including public sector undertakings (PSUs). The PSU sector's rally has pushed valuations to near-peak levels, with optimism reflected in expansion of Long-Term Growth Value (LTGV). “Historical trends suggest potential pre-election gains, but peak valuations warrant caution.,” wrote Elara Capital in a recent note. The brokerage further added that, strategic disinvestments could unlock further value, offering a cautiously optimistic outlook with selective opportunities post-elections.
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