Market breadth weakens but lacks March-like stress, 14% stocks near 52-week lows

As per the latest business developments, Market breadth has deteriorated in recent months, but the stress stays well below the marks noted in March, with 14 percent of stocks in the Nifty Total Market universe now trading within 5 percent of their 52-week lows versus 40 percent during the March selloff, according to Yes Securities. The brokerage stated the relatively contained breadth deterioration suggests the current correction is unlikely to turn into another broad-based selloff, although any recovery is likely to be gradual and uneven.

Broader market softness rebuilds after April recovery

The deterioration has been gradual rather than sudden. The share of stocks in the Nifty Total Market universe trading within 5 percent of their 52-week lows has advanced from 2 percent in April to around 14 percent in September. While this marks a clear weakening in market breadth following the post-March recovery, stress stays substantially below the 40 percent level recorded in March.

Large caps face pressure, but distribution stays healthier

Domestic sectors bear the brunt

The softness is concentrated in domestic-facing sectors, particularly power, construction materials, FMCG and construction, where a relatively large share of stocks is close to their 52-week lows. Metals and mining and healthcare, on the other hand, have relatively few stocks near their lows and are showing better near-term price resilience.

Earnings, valuations driving divergence

Yes Securities stated the sectoral divergence is notable against a relatively resilient domestic economic backdrop. This suggests that the current market softness is being fuelled less by a broad deterioration in macroeconomic conditions and more by sector-specific earnings expectations, valuations and investor positioning.

The brokerage anticipates the market to undergo a gradual and uneven adjustment rather than a sharp reversal in either direction. With the previous episode of widespread stress only six months behind and most of the current concerns already known to market participants, another broad-based deterioration appears unlikely.