India's amazing stock market performance has something to say about us

The frenzy of investors, the breathless market movements, the cult of FOMO (fear of missing out), the reverence for every new stock listing, as if it were the second coming of prosperity—all of it creates a spectacle that is at once fascinating and deeply worrying. Something about this bazaar has become bizarre.

The most peculiar part of the current drama is the casual acceptance that a company can list its shares at a price that would make its promoters blush and then lose a quarter of its market value within months.

This is now a routine cycle. We see a stunning listing-day pop. A honeymoon period of analysts singing paeans. And then a slow embarrassing decline once numbers begin to interrupt the romance.

Of course, the sellers, especially promoters and private investors, have already walked out of the room by then. They have booked their profits, offered polite smiles to cameras and made their exit. It is the small investor who stays back to wash the dishes.

Even India’s chief economic advisor has now said aloud what market watchers have whispered for long—that too many initial public offers (IPOs) have turned into elegant exit doors for insiders, rather than gateways for real capital formation.

His warning that this behaviour “undermines the spirit of public markets" is an uncomfortable mirror held up to us. And it is a truth that may not sit well with the political ecosystem, since rising valuations have been celebrated as democratizing finance, as though a swelling bazaar is the same as an upswell in the prosperity of people.

Let us not get ahead of ourselves, though. India has many positives going for it. We must strengthen these further to create a meaningful moat.

That said, daily market movements being treated as a national indicator of economic health, let alone social development, is too exaggerated a narrative for anybody who has seen a household struggle to pay school fees or a small business fight inflation.

Markets are not society. Markets are not the nation. Markets are a confluence of sentiment, liquidity and mathematics. What happened to the acknowledgement that markets rise on sentiment but strengthen only on earnings? And that a small dose of sobriety is the finest gift we can give retail investors being deafened by noise?

Retail sentiment seems so buoyant today that even corporate warnings of weak results are treated like mere technical noise. There is substantial money flowing in through systematic investment plans ( SIPs) and domestic institutions. Their holdings have been growing as a share of market capitalization.

Domestic institutional investors sit on nearly ₹2 trillion of cash, while SIPs pump in over ₹28,000 crore every month. And since investor money needs to be deployed, the market is held up by the sheer force of these inflows.

This brings us to an uncomfortable question. Is the Indian market overvalued because Indian investors have too few investment options? Debt returns are modest nowadays. Venture capital is out of reach for most. Gold is at an all-time high. Real estate is even more grotesquely priced, especially in large overcrowded cities with terrible civic conditions.

We should not be surprised if Indians become the first set of investors in property on Mars if and when space travel becomes routine. But rest assured, our rich will only consider it once they are certain that their support staff can get there too. After all, what is the point of a condo on Mars if there is no one to cook, drive, clean and ensure a smooth return to India just in time for their favourite festival or social engagements?

Our share bazaar is an interesting blend of two universes. One is the qualitative universe of sentiment, which is another word for human emotions painted on graphs with trendline strokes. The other is the quantitative universe of corporate results and earning prospects. The trouble with sentiment is how often it tells investors that ‘this time is different.’

India needs pragmatic policies that close the gap between such sentiment and business reality. Within just a decade, we have watched not just the valuations of manufacturers but of other big contributors to economic activity get overshadowed by those of new businesses that thrive on daily consumer compulsions. The 10-minute grocery delivery. The 30-minute cooked meal. The ‘everything-now’ industry. These businesses do not merely reflect our demands, but shape them.

The next decade might have even more in store for us. We might see companies that feed us while we work or watch cricket. What we will surely see are healthcare companies that make a lot of money from the consequences of our poor health. If convenience is the way to go, all this could keep booming, with SIP money fuelling it.

The bazaar is bizarre because it mirrors our contradictions as a society. We want prosperity without patience. Growth without discipline. Returns without risk. Convenience without consequence. The market gives us what we want—until it cannot because reality catches up.

The author is a corporate advisor and author of ‘Family and Dhanda’.