The Sentiment on D-Street is Most Bearish Since Covid: Is a Recovery in Sight?
Market experts warn of a prolonged bearish sentiment on D-Street as the Advance Decline Ratio breaches 5-year low
The Market’s Ailing Sentiment: A Reflection of Investor Behavior
Mumbai, India – Are we witnessing a repeat of the 2020 market crash, triggered by the Covid-19 pandemic? The sentiment on D-Street is showing a worrying trend, with the Advance Decline Ratio (ADR) plummeting to its lowest level since March 2020. The ADR, a widely used indicator of market strength and investor sentiment, has fallen to 0.72 in February, highlighting a bearish and bleak market.
What’s Causing the Sentiment to Turn Bearish?
According to Naveen Kulkarni, CIO at Axis Securities, "The decline in the ADR indicates a lack of buying interest from retail investors, with foreign investors engaged in persistent aggressive selling." The market was excessively bullish prior to the decline last year, and the negative sentiment is overflowing in a similar way.
Benchmark Indices Take a Hit, While Secondary and Micro-Caps Plunge
The Sensex and Nifty have been on a downward spiral, with a decline of around 15% from their peaks made on September 27. This plunge can be attributed to the rebound in Chinese equities, a stronger dollar, and weakening domestic corporate earnings, resulting in record foreign selling. The risk-off sentiment has been more severe in the broader market, with the Mid-cap 150 index tumbling 20.3%, the Small-Cap 250 index plunging 24.4%, and the Micro-cap 250 dropping 23.8%.
Is the Valley of Despair About to End?
Harsha Upadhyaya, CIO at Kotak Mahindra AMC, emphasizes that the trend remains weak due to the lack of any domestic or global positive triggers. "The markets have been declining for five consecutive months now, and the trend remains weak." However, Kulkarni believes that the valuations have turned reasonable in the broader market and large caps have become cheaper.
While Some See Glimmer of Hope, Others Warn of Continued Decline
Kulkarni expects the markets to be at the tail end of the sell-off and believes that once there is a palpable improvement in earnings, a revival is expected. "It’s tough to catch the bottom, but given that March is expected to be a positive month seasonally, the selling could see a halt." Others, however, are more cautious, citing that while earnings are expected to recover in the next few quarters, the valuations in mid-cap and small-cap stocks remain expensive.
Will the Sentiment Shift Soon?
Rohit Srivastava, founder of indiacharts.com, believes that the extreme readings of the ADR indicate extremely oversold markets, which could reverse in the short term. "The ADR in February is at the same level as March 2020, meaning extremely negative investor sentiment, which is close to a reversal in the short term." A pullback is possible, but not expected to be sustained without triggers.
Conclusion
The sentiment on D-Street is undoubtedly bearish, reflecting the shaky investor confidence. While some experts foresee a glimmer of hope, others caution that the valuations in mid-cap and small-cap stocks remain expensive. The question remains: will the sentiment shift soon, or will the market continue its downward spiral? Only time will tell.
Key Takeaways:
- The Advance Decline Ratio (ADR) has fallen to its lowest level since March 2020, indicating a bearish sentiment.
- Foreign investors have dumped shares worth over ₹2.81 lakh crore since the sell-off began in October.
- Valuations have turned reasonable in the broader market, with large caps becoming cheaper.
- Mid-cap and small-cap stocks remain expensive, with valuations remaining rich.
- A pullback is possible, but not expected to be sustained without triggers.
Will the Sentiment on D-Street Soon Reverse?
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