Advance-Decline Ratio Hits Two-Year Low as Small-Cap Stocks Tumble

The advance-decline ratio, a measure of rising vs. falling stocks, dropped to a two-year low at 0.82 in January. Small and mid-cap stocks faced significant losses, indicating a bearish trend. Analysts suggest this could mean a consolidation or correction phase.

The Sensex and Nifty benchmarks have both fallen over 5%, while the BSE MidCap and BSE Smallcap indices saw nearly 9% declines. Experts blame global economic headwinds, rupee depreciation, foreign investor sell-offs, and higher bond yields.

Prashanth Tapse from Mehta Equities says the advance-decline ratio falling below 1 for two straight months points to a bearish or consolidating market. Some strategists believe smart money is shifting from overvalued stocks to new leaders.

Market volatility may continue until the Union Budget on February 1. Investors hope a market-friendly budget might spark recovery. But, if economic concerns remain unaddressed, the downturn could extend into the next earnings season or beyond.