Select mid & smallcaps on a roll, but broader market lags

Mumbai: The Nifty Midcap 150 hit a record high last week, while the Smallcap 250 came within touching distance of its peak. But beneath the surface, the mood was far less buoyant. The average monthly Advance to Decline ratio on the BSE - a measure of the number of stocks rising versus those falling - hovered around 1, indicating that gainers and losers were almost evenly matched each day.

The ratio, calculated by comparing the number of advancing stocks with declining ones on a trading day, has been 1.01 so far in July, after hovering around the same levels in May and June. It had jumped to 2.13 in April as the market recovery amid the peace talks between the US and Iran sparked a wave of buying in mid-cap and small-cap stocks. The ratio was at 0.97 in March during the market sell-off.

"The advance decline ratio is reflecting the absence of strength in the broader market, while the outperformance of select mid and small caps has driven up the select broad-market indices," said Sriram Velayudhan, senior vice-president at IIFL Capital Services.

The Nifty Midcap 150 touched an intraday lifetime high of 23,239.65 on Thursday, while the Smallcap 250 traded just 3.8% below its all-time high. The Nifty Microcap 250 is also only 5.7% away from its lifetime peak.

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The advance-decline ratio measures the breadth of a market rally. A rising ratio indicates that buying is across a larger number of stocks, signalling strong market breadth. A falling ratio suggests gains are becoming concentrated in fewer stocks or that selling is becoming more widespread. In March 2020, the Advance to Declines ratio had fallen to 0.57 as panic set in after the Coronavirus pandemic induced a selloff in the world equities market.

The market breadth remains weak despite indices trading near all-time highs because fund flows are concentrated in mid- and small-cap equity funds, said Siddarth Bhamre, head of institutional research at Asit C Mehta Investment Intermediates, "Every month, SIP inflows are deployed into the same universe of 300-400 stocks, forcing fund managers to repeatedly buy many of the same names, including index heavyweights," he said. "This pushes select stocks and indices higher, even as individual portfolios remain below their highs and the advance-decline ratio stays weak."

Meanwhile, foreign institutional investors (FIIs) have mostly pulled money out of bluechips, resulting in the benchmark Nifty underperforming the broad market indices. So far in 2026, FIIs have been net sellers of shares worth ₹2.87 lakh crore. The Nifty 50 is down nearly 7% this year and has been trading in a narrow 23,500-24,500 range in recent weeks.

Ruchit Jain, head - equity technical research, Motilal Oswal Financial Services, said the flat market breadth shows that it's in a consolidation phase. "Improving buying interest in largecaps and top midcaps, alongside slower FII selling and strong support at 24,000-23,800, suggests the top 100 companies could lead the next leg of the rally," he said. "While the Nifty faces resistance at 24,500-24,600, a breakout could pave the way toward 25,000, and as more companies move forward, breadth may also improve."

Read more: Nifty ready for 24,500-24,750 levels after breakout rally: Analysts

A sustained recovery, however, could still face headwinds from higher crude oil prices. Brent crude September futures ended higher at around $88 a barrel on Saturday. Jain said the Street is likely to continue to focus more on earnings despite elevated oil prices, as seen in the last few sessions.

Bhamre expects the Nifty to remain range-bound between 23,000 and 25,000, with no clear trigger for a breakout on either side. "While equity fund inflows have moderated over the past two months, this concentration is likely to persist until SIP redemptions begin, leading to outflows from these crowded stocks."