Investors are breathing freely again: we’re finally seeing a major rebound in Indian equities.

After hitting a low of below 22,100 on 4 March, the Nifty 50 index opened at 24,420 on 12 May: a rise of around 10% in two months!

However, not all rebounds are created equal, so it’s worth examining this latest surge using various metrics in order to understand it better.

And when we do so, the results turn out to be quite illuminating for investors:

1. Market breadth is weak

Market breadth is a stock market indicator that can be used to gauge the market’s direction and momentum in the near-term.

Essentially, it compares the number of stocks that are rising with the number of stocks that are falling.

Currently, the market breadth is weak from at least two vantage points.

Firstly, more Nifty 500 constituents have made new 52-week lows than fresh 52-week highs, as can be seen below*. This indicates that a fair amount of weakness persists.

Secondly, the proportion of Nifty 500 constituents that are trading above their 200 DMA (day moving average) remains relatively low, as can be seen below.

This indicates that current price trends are still quite weak.

2. SMID market-cap-to-GDP ratio is high

The market-cap-to-GDP ratio for small- and mid-cap (SMID) stocks is still much higher than its long-period average.

This ratio, peaked at 64% in Sep 2024, and is currently slightly over 50%, as you can see below. Its long-period average, though, is much lower, at 27%.

This suggests that SMIDs might still be relatively overvalued, and might not offer much margin of safety.

3. Relative underperformance for SMIDs

By comparing indices representing SMID stocks with an index representing large caps, we can get an idea of how well (or poorly) SMID stocks are performing relative to large caps.

The chart below shows the ratios of the BSE Smallcap and Midcap indices to the Sensex for a 1-year rolling period.

As you can see, both these ratios are currently negative. So SMID stocks have begun to underperform large caps on a rolling 1-year basis.

This also indicates that SMIDs are seeing a rise in downside momentum on a relative basis.

Thus, at this point, large caps might be a better bet than SMID stocks.

For more actionable insights backed by data and analyses, we invite you to read the latest edition of Netra in its entirety.

• • Source for all data: Bloomberg, DSP. Data as of Apr 2025. *