India's stock market has witnessed broader participation over the past four months, with more stocks gaining than losing each month, signalling improving risk appetite after it was jolted by the US-Iran war, analysts said.
For four consecutive months through July, advancing stocks comfortably outnumbered decliners, keeping the market's advance-to-decline ratio above 1 and signalling a recovery in sentiment after the initial shock from the West Asia war in late February, as investors adjusted to the conflict's prolonged uncertainty.
The ratio, a key gauge of market breadth, measures overall market participation by comparing the number of stocks gaining against the ones losing. When it stays above 1 for an extended stretch, it signals that buying momentum isn't just confined to a few heavyweights; the broader market is actively participating. With market breadth holding above 1 for four straight months, experts point to improving risk appetite.
“The improved risk appetite in the last quarter, especially after a weak quarter, translated into interest in mid- and small-caps which constitute a larger segment of market and, thus, got reflected as broader market participation,” said Anand James, chief market strategist at Geojit Investments Ltd. He added that as geopolitical worries restrained indices from a breakout rally, investors may have rebalanced their portfolios in search of new leaders, again translating into better market breadth over a sustained period.
Historical precedent
On the surface, this might paint a picture of a healthy rally, but history offers a sobering reality check: prolonged stretches of good market breadth have often been a precursor to a weakness in the following months. Sample this. Since 2021, there have been five instances when the market has seen a streak of positive breadth lasting four months or longer. The longest stretch of positive market breadth was between April 2023 and January 2024.
In three of those five instances, the Sensex went on to deliver a negative average return in the following three months. The last time market breadth logged a four-month streak was during March and June 2025. What followed was a cooling-off period, with the frontline index slipping by an average of 1.3% over the subsequent three months. During the period between April 2023 and January 2024, the Sensex delivered an average return of 1.2% in the following three months.
Should investors brace for a near-term pullback then? “The precedent deserves respect, not surrender," points out Harshal Dasani, business head at INVasset PMS. “Prolonged breadth has often preceded soft three-month Sensex returns because broad participation eventually stretches valuations and invites profit-booking,” he explains. “But context decides whether the precedent applies: this breadth run emerged from a correction and record foreign selling, not from euphoria, and it is backed by a structurally different flow regime, with SIPs above ₹31,000 crore monthly and FII selling collapsing 95% since March,” he added.
A consolidation in the benchmark would be normal, he said, adding that positioning for a downturn based solely on breadth indicators would amount to mistaking a caution flag for a stop sign.
Now, with just two trading sessions in the current month, the market breadth has remained above 1 so far. The ratio stood at 1.9 on 3 August and 1.08 on 4 August, indicating that it's still a participation-led market rather than a heavyweight-led one.