 "share market")
The advance-decline ratio (ADR), a barometer for overall market sentiment, dropped to 1.02 in October, as overseas funds stepped up selling. This was the lowest level since March, with gainers exceeding losers by only 42, compared with an average of 275 in the previous six months.
Elevated US bond yields and persisting worries about the Israel-Hamas war led investors to flee risky assets last month. In October, the BSE benchmark Sensex declined 3 per cent in its biggest monthly fall since December 2022. The National Stock Exchange (NSE) Nifty Midcap 100 index fell 4.1 per cent, the most since June 2022. The smallcap gauges, however, outperformed the benchmarks, declining less than one per cent and supporting the market breadth.
Foreign portfolio investors (FPIs) sold domestic shares worth Rs 21,680 crore, the most since January. The selling could only be partly offset by domestic institutions, which pumped in Rs 11,725 crore last month.
The 10-year US bond yields hardened amid fears of further monetary policy tightening by the Federal Reserve. The 10-year US bond yields rose by 36 basis points in October, breaching the 5 per cent mark for the first time in 16 years.
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Fears of the Israel-Hamas conflict snowballing into a regional stalemate involving Iran and other oil-producing countries continued to rattle investors. Investors were worried about a spike in oil prices.
An increase in oil prices is a negative for the Indian equity market, as India imports more than 80 per cent of its oil requirement.
It also complicates the task of central banks globally, which are grappling with taming inflation without pushing their countries into recession.
Despite disappointing earnings of information technology (IT) companies and some banks, there were more beats than misses. This helped maintain a positive market breadth.
“The Q2FY24 earnings season so far has not provided any major negative surprises, with cyclicals driving profit growth, as defensives lag… Also, earnings beat are exceeding misses,” ICICI Securities analysts wrote in a note.
Analysts also said the positive ADR reading, despite losses in large and midcap indices, suggest that investors are moving to microcaps and smallcaps, as FPI selling largely impacts stocks in the large and midcap universe. Typically, FPIs do not invest in smaller companies due to their shallow liquidity.
“The bullishness has shifted in the market cap curve. A lot of stocks outside the indices have caught investor attention. Typically, this is a sign of the peaking of bull markets, where retail investors move to the smallest of companies, hoping the said stock is a great story and will eventually become a largecap stock. These yarns get sold when large or index stocks have less scope for further appreciation,” said UR Bhat, co-founder, Alphaniti Fintech.
Independent market analyst Ambareesh Baliga said retail investors were betting on smaller stocks because they had made outsized gains this year. “We have seen so many of them becoming multibaggers and so many of them giving between 40 and 80 to 100 per cent returns… I am very cautious of the market; it should correct further.”
Some, however, believe the correction may not be dramatic, but the gains might taper off over time. "There is nothing to feel bullish about at the moment, whether the trajectory of interest rates, the war situation, or foreign flows. One can only see headwinds ahead," said Bhat.
