Stock market advance-decline ratio improves in August, indicates bullish trend

The advance-decline ratio (ADR) which compares the number of shares that advanced to those that ended lower over their previous day's close has inched up to 1.3 in August compared to 1.03 in July. The Sensex delivered returns of 2.7 per cent and 7.7 per cent, respectively, during the period. The market capitalisation of all BSE-listed stocks jumped 4.3 per cent from Rs 147.4 lakh crore to Rs 153.8 lakh crore last month against a 6 per cent gain in July.

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Monday's sudden crash on geopolitical tensions locked the benchmark index's monthly performance under 3 per cent which otherwise was expected to have a much better finish. However, investors found comfort in this market breadth indicator or the ADR.

The ratio was in consonance with the broader market rally and improved market sentiments as 1,820 stocks advanced against 1,365 declines in August compared to almost an equal share of 1,574 advances and 1,528 declines in July 2020. In the earlier months, the ratio has remained above 1, with a figure of 1.5 for April, 1.05 for May and 1.54 for June. Though, in February and March, the number of falling stocks exceeded the progressing ones.

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An ADR between 0 and 1 for a longer period suggests a bearish movement of the markets while the ratio above 1.5 indicates a more bullish trend.

Meanwhile, close to 79 per cent stocks posted positive returns during the month with around a fourth of them hitting their 52-week's high. In July, 44 per cent stocks ended in positive territory while 181 of the total 2,561 stocks hit their one-year high prices.  

On Tuesday, the index recovered some of its yesterday's loss to end 273 points higher at 38,900.8 with greater number of declines (1,521) compared to 1,136 advances during the day.

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