Union Commerce and Industry Minister Piyush Goyal has raised concerns over soaring stock valuations, cautioning that the current trend of excessive growth, with stock prices exceeding 100 times company earnings, is artificial and unsustainable. Speaking at the annual summit of the Association of Mutual Funds in India (AMFI) on Saturday, Mr. Goyal stressed the need for market stability and responsible investment strategies
Artificial Market Growth and Investor Concerns
Mr. Goyal highlighted that such excessive valuation surges distort market equilibrium and erode investor confidence. “We need to think through how we will ensure that such run-ups don’t happen in the future because they are clearly artificial. They are not sustainable. And, we are facing some of the brunt of that,” he stated. According to financial experts, a stock’s price typically remains around 20 times its earnings, making the current market trends a cause for alarm.
A key reason for this surge, he noted, is the influx of excessive liquidity into the markets, combined with the ‘fear of missing out’ (FOMO) among middle-class retail investors. This has led to misinformed expectations regarding the perpetual rise of stock prices, creating an environment of speculative investments.
Foreign Investor Dominance and SIP Trends
The minister also urged domestic investors to ensure that foreign portfolio investors (FPIs) do not dictate the direction of Indian markets indefinitely. This concern comes amid a notable outflow of foreign capital from Indian equities, amounting to approximately ₹34,500 crore, according to data from the Centre for Monitoring Indian Economy (CMIE).
Another worrying trend, according to Mr. Goyal, is the increasing discontinuation of Systematic Investment Plans (SIPs), which form a substantial portion of domestic retail investments. SIP tenure discontinuations have risen by 26%, and for the first time in the current financial year, new SIP account openings have declined by 0.5%, as per AMFI data. This slowdown has been evident over the past three months, reflecting cautious investor sentiment amid concerns over market stability.
Call for Regulatory Measures
Given these alarming trends, Mr. Goyal stressed the need for regulatory mechanisms to curb speculative excesses and ensure market stability. He called for collective efforts from policymakers, financial institutions, and investors to build a more resilient market environment.
As stock market volatility continues, market watchers and policymakers will closely monitor further developments, assessing the long-term implications of unsustainable valuations and their potential impact on India’s economic growth.