Key strength ratio signals bullish momentum for Indian markets

Synopsis

Investor confidence is growing, as indicated by the advance-decline ratio for BSE-listed stocks remaining above one for the fourth consecutive month in June. This bullish momentum, coupled with a revival in the IPO market and broad-based buying, is expected to drive the markets to new peaks. Analysts predict Nifty could reach 26,400 initially and potentially 28,380 by December.

Mumbai: The monthly advance-decline ratio (ADR) for all BSE-listed stocks was above one in June for the fourth consecutive month. Analysts said it indicates improving investor confidence. This, amid a revival in the IPO market and broad-based buying, is expected to propel the markets to a new peak in near term. The last time the ADR was consecutively above one was between April 2023 and January 2024 for 10 consecutive months.

"The ADR remaining over one consistently is a sign that the bullish momentum is back as benchmark indices are trading above key moving averages while the mid-cap and small caps are in an upward trajectory as well," said Rajesh Palviya, head of technicals and derivatives, Axis Derivatives. "The VIX has meanwhile remained comfortable below 14."

Palviya said the overseas investors have turned buyers of Indian equities amid a revival in the IPO market and promoter stake sales - all without a significant fall in the market.

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In the past four months, benchmark Nifty gained around 15% after declining 6.4% in the first two months of the year. The Nifty Mid-cap 150 and Small-cap 250 indices gained 23.6% and 28% respectively in the past four months.

On the derivatives front, overseas investors reduced short positions on index futures on expiry from the peak of 1,09,471 positions to 38,123 positions which leaves room for short squeeze.

"The foreign investors remain short on the market and haven't reduced their positions significantly yet," said Rohit Srivastava, founder, indiacharts.com. "Short covering on that front could be a trigger for the markets that pushes it higher." Srivastava said the bullish momentum indicated by consistently positive ADR is likely to support benchmark Nifty to all time high especially since July has been a strong month historically for the markets.

Overseas investors turned buyers of Indian equities in March after selling shares worth ₹1.46 lakh crore. "The market has absorbed the negatives such as Trump tariffs, India-Pak dispute and the middle eastern conflict with no major declines," said Srivastava. "In the near term, benchmark Nifty is likely to be at 26,400 levels initially and move towards 28,380 levels by December this year."

Srivastava, however, said some stocks and sectors are not participating in the markets but post short-term consolidation, these stocks and sectors are expected to follow suit.

Analysts said benchmark Nifty is expected to be at all time high levels in July or latest by August- as Trump is expected to soften the tariffs and the impact is likely to be limited to sectors like IT, pharma and auto may face the brunt. Palviya said benchmark Nifty is expected to be at 25,800-26,000 levels in the near term and all sectors are expected to contribute to the upmove.

“Bank Nifty is on an upward trajectory, and auto and FMCG indices are also near breakout levels while railways, chemicals, sugar and fertilisers are also inching higher which indicates that strength is returning to the street.” The delivery volumes witnessed a steady upmove since April; after peaking in March, however, analysts attributed the increase to regulations on volumes.

“The delivery volume share moved up steadily on a monthly basis, however, Sebi regulations on volumes especially for smallcap and mid-cap segment had more to do with it,” said Palviya. “While delivery volumes moved higher, the turnover hasn’t increased much.”

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