Losing stocks outnumber gainers 9:1, experts say mood turning bearish

The advance-decline ratio, a comparison of how many stocks are rising to the number of stocks that are falling, has stayed below 0.4 for the third consecutive day.

A ratio of one means that for every stock that is rising, one stock is declining. A ratio of less than one means more shares are declining than those that are gaining.

Analysts said this indicates that the mood is increasingly becoming bearish. So far on March 13, on the BSE, out of 3,914 stocks, 394 rose, 3,461 fell, and 59 remained unchanged. Today’s ratio stands at 0.13, compared to 0.28 on March 12 and 0.39 on March 11. In March, only four days recorded a ratio above 1, with the remaining days trading below 1. So far in March, it has hit 0.7, the lowest level since March 2020 compared to 0.84 in February.

Analysts said the recent correction in mid-, small- and micro-cap stocks amid concerns over high valuations and the recent regulatory actions are making potential buyers wary. The small- and micro-cap stocks have been witnessing the most selling pressure.

The starting point for the selloff was SEBI’s directive to AMFI, warning about a froth in small- and mid-cap stocks and calling for moderation in small- and mid-cap schemes. But the stocks had begun to weaken even before that development.

Deven Choksey, MD, DRChoksey FinServ said market trends are likely to persist as March-end approaches. Brokers are busy with advance tax filing, and traders are closing their books, indicating a selling mood. Additionally, SEBI’s warning on froth in small- and mid-cap stocks has made the market nervous, leading to selling pressure. Despite this, fundamentals haven’t changed overnight, and corrections in high-quality stocks may present buying opportunities.

So far in March, Sensex and Nifty rose by 0.6% and 0.4%, respectively, while BSE MidCap and SmallCap declined by 3.5% and 9.3%, respectively. Year to date, Sensex and Nifty gained over 1.1%, with BSE MidCap rising 3.2%, and BSE Smallcap down 3.7%. Interestingly, so far in March, DIIs bought stocks worth Rs 19,540 crore while FIIs purchased stocks worth Rs 22,156 crore from Indian markets.

Rajesh Palviya, Head Technical Research at Axis Securities, said  the current advance-decline ratio indicates market panic, particularly in mid- and small-cap segments. Regulatory warnings about valuations led to a correction in these sectors, seen as a healthy market sign. Quality stocks faced sharp declines due to margin triggers, causing a trimming of trading books.

Few analysts suggest that the recent correction has left mid- and small-cap stocks oversold, suggesting potential for a rebound in the next few sessions.

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