I was going through X feeds, if this is how our Finance Minister understands equity markets, it’s concerning.
Blaming liquidity for market underperformance shows a worrying lack of understanding of what actually drives investor confidence. Liquidity is a feature, not the enemy.
What about valuations, earnings growth, FII outflows and disappointing returns? Shouldn’t we be questioning these factors instead?
The bigger concern is the mindset behind this statement. If this is how we interpret market behaviour, how do we expect retail investors to build long-term confidence in Indian equities?
In such a bleak scenario,
who are the ones increasing their exposure to such companies
by purchasing their equity?
Depending on who appears to be ending-up “holding the bag”,
anyone worried about those folks
will be concerned by the amount of liquidity in the system.
One way is to ensure that they do not get their hands burnt
by being saddled with equity during a period of downturn
i.e facing losses or poor risk-adjusted returns.
I think a good part of the buying is coming from DIIs, backed by regular MF SIP flows. Fund managers are buying based on their analysis, but whether these investments deliver good returns is another question.
For me real concern is how long domestic flows can absorb FII selling, especially if earnings growth disappoints and valuations remain high. Liquidity can support the market, but ultimately, earnings need to justify valuations.
In such a scenario, retail investors with direct equity exposure could be among the first to feel the pain.
Would be interesting to see how this plays out over the long term.
Maybe the FM should introduce a mandatory notice period before large investors exit the market, so everyone is aware of the potential outflows and their impact on liquidity.
